Hawkish shift creates difficult environment for Africa

The hawkish turn by DM central banks over the past month has further soured investor risk appetite, and capital inflows into African economies are likely to have slowed. Countries with large external financing requirements, and heavy debt burdens denominated in foreign currency – Ghana and Kenya for instance – are most exposed. Currencies in these economies are set to come under further pressure if capital inflows dry up as a result. Meanwhile, the tightening of external financing conditions means that much of the region is now effectively locked out of international capital markets. Plans to issue Eurobonds were scrapped in Kenya and Nigeria recently, narrowing policymakers’ options to plug budget deficits. All in all, these point to ever-growing public debt risks.