Nairobi — African countries have been cautioned against rushing for foreign commercial loans to avoid accumulating debts.

The International Monetary Fund (IMF) said large creditors with high liquidity are looking into African markets for good returns.

"Strengthened macroeconomic fundamentals and lower debt levels following recent debt relief efforts by IMF and other institutions have increased attractiveness of low-income African countries to a broader universe of investors," said the fund.

The institution said private investors have also stepped up their lending markedly leading to significant shares of domestic securities in some African countries being held by foreign investors, and gave an example of two sub-Saharan African countries, which issued international bonds last year.

The Fund, in its IMF Survey Magazine, said while the new financing opportunities are welcome, they are likely to create new challenges and potentially new vulnerabilities to African countries.

It, however, expressed confidence that prudent sustainable debt management efforts together with continued policy reforms, should help sub-Saharan economies take advantage of these new financing opportunities without re-accumulating unsustainable debt.

The fund said as a matter of policy, low-income countries need to increase domestic revenue mobilisation and diversify their production and export bases to lessen their vulnerability to shocks.

"The regulatory and institutional framework of their financial systems must be strengthened in the face of rising private inflows to allow a close monitoring of exchange, liquidity and rollover risks," IMF advised.

It also called for the improvement of public investment selection and debt management to ensure the efficient use of foreign resources.

IMF said concessional external resources remain the most appropriate source of financing for low-income African countries.

The institution noted that the development focus in most African countries such as education and health do not generate cash flows necessary to service commercial debt.

"As countries build experience in managing commercial borrowing, its use would be expected to expand," it said.

IMF said high volumes of aid remain necessary to finance the development agenda in sub-Saharan Africa.