Ebola Drains Budgets as Bills Fund Virus Fight: Africa Credit

The worst-ever Ebola outbreak is straining the finances of affected governments, with Sierra Leone using Treasury Bills to fund the fight against the virus as mining companies halt operations to protect workers.

Emergency aid of as much as $260 million is being prepared by the World Bank and the African Development Bank to limit the economic fallout of the virus on Sierra Leone, Guinea and Liberia, the lenders said this month. In the latest outbreak in four West African nations, Ebola has killed at least 1,229 people, or about 55 percent of those infected with the disease, for which there is no cure, the World Health Organization said in an e-mailed statement today.

“Governments are almost totally reliant on international aid and healthcare expertise to coordinate and fund the containment strategy,” Charles Laurie, head of Africa risk analysis at Bath, England-based consultancy Maplecroft, said. “The selling of debt remains a poor option for impoverished West African countries seeking to fund the fight.”

Sierra Leone auctioned 87.1 billion leones ($20 million) of T-bills on July 31, with the 364-day debt selling at 6.64 percent, up from 6.27 percent at a July 24 sale, with Matthew Dingie, head of budget and research at the finance ministry, saying the proceeds are being used to battle Ebola.

Business Disruption

Liberia issued 144.6 million Liberian dollars ($1.8 million) of 91-day notes at 3.9 percent last month, up from 2.2 percent at a debut sale in May. Guinea sold 100 billion francs ($14.5 billion) of 364-day bills at an average yield of 10.8 percent on Aug. 13, from 9.39 percent at an auction the previous week.

Business and transport disruptions, as well as increased health expenditure, may pressure budgets and jeopardize growth, Matt Robinson, a London-based senior credit officer at Moody’s Investors Service, said in an Aug. 14 report. British Airways halted flights to Liberia and Sierra Leone and Kenya Airways will stop flying to the nations, while Emirates canceled services to Conakry in Guinea.

The three countries have a combined gross domestic product of about $13 billion, smaller than Afghanistan’s $21 billion economy, according to International Monetary Fund estimates for 2013. Companies including Kuala Lumpur-based Sime Darby Bhd, a palm oil producer, and Luxembourg-based ArcelorMittal, a steelmaker and iron ore miner, are scaling back operations.

Nigeria Contained

The outbreak, the worst since the virus was first identified in the Democratic Republic of Congo in 1976, has spread to Nigeria, where four people have died from the illness after an infected Liberian flew into Lagos airport. The disease is treated by keeping patients hydrated, replacing lost blood and using antibiotics to fight opportunistic infections.

While Nigeria has managed to contain the disease, the consequences for the West African oil and gas industry “would be considerable” if it spread further, said Moody’s Robinson. Nigeria’s $500 billion economy is Africa’s largest, while the country is also the continent’s biggest oil producer, and, with about 170 million people, its most populated.

Ebola may cut economic growth in Sierra Leone, Guinea and Liberia by 1 percentage point, Aliko Dangote, Africa’s richest man, said in an Aug. 5 interview. The Guinean franc weakened 0.8 percent to 7,030 per dollar by 11:22 a.m. in Conakry, extending losses this year to 1.2 percent. Sierra Leone’s currency was little changed at 4,337 for losses of 1.4 percent in 2014, while the Liberian dollar was unchanged at 82.50 per dollar for a 3 percent decline year-to-date.

‘Ghost Towns’

“The countries most affected have seen people fleeing away from agricultural areas, which is a significant contributor to GDP,” Oyin Anubi, an analyst at Bank of America Merrill Lynch, said by phone from London. “Some cities are looking like ghost towns where public employees have been sent home, nothing much is happening and that of course is going to have an impact on economic activity.”

Ebola is threatening to erase the progress Liberia made since the end of the country’s civil war in 2003, Vice President Joseph Boakai said in a Aug. 3 interview in Washington. The $2 billion economy relies on World Bank aid and grants for about a third of its budget.

Appetite for investment in the countries is waning with Sierra Leone last week saying it suspended the sale of two-year bonds that would have been the first open to foreigners and that it will probably miss its growth target of 14 percent.

The governments may be tempted to raise debt levels to combat the disease, which they can “ill afford,” said Maplecroft’s Laurie. Guinea’s gross debt is 38 percent of GDP, Liberia’s is 30 percent, while Sierra Leone’s is 33 percent, according to IMF estimates for last year.

“Western leaders and multinational organizations will be compelled to provide longer-term funding assistance even once the current outbreak is brought under control,” he said. “Impacts on local economies are in some cases profound, with communities facing food shortages and severe interruptions to business operations and services.”

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