UN launches African repo market in bid to lower borrowing costs

UN launches African repo market in bid to lower borrowing costs

The UN has launched a new short-term lending market for African bonds in a move that it says could trim billions of dollars from government borrowing costs across the continent.

The liquidity and sustainability facility (LSF) will allow investors to use African debt issued in foreign currencies such as dollars and euros in repo transactions, the organisation said on Wednesday at the COP26 climate conference.

Repo is a key feature of market plumbing in the developed world, but is less common in developing economies. It allows market participants to access funding by exchanging bonds for cash in transactions that are typically considered to be ultra-safe.

An initial $200m transaction is planned for early next year with funding expected to be provided by Africa Export-Import Bank, and investors including French asset manager Amundi interested in participating.

Backers of the project are seeking additional sources of funding to scale up the facility. The funding is expected to include a slice of the $650bn of special drawing rights created by the IMF in August to help low and middle-income countries weather the pandemic. The size of the facility could reach $30bn, according to the UN Economic Commission for Africa (UNECA).

Vera Songwe, executive secretary of UNECA, said the