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South Africa’s debt woes tie policymakers’ hands

South Africa’s emergency budget highlighted that the dire state of the public finances is limiting the scope for fiscal support this year and attention is already focused on dealing with the legacy of higher debt. Austerity will be the first port of call, but this will hold back the recovery and it’s hard to see it being politically palatable over any length of time. The debt burden looks set to rise on an alarming trajectory.
William Jackson Chief Emerging Markets Economist
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More from Africa

Africa Chart Book

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.

30 June 2022

Africa Economics Weekly

SA corruption and inflation on display, Ghana’s troubles

The president of South Africa and the ruling ANC are taking the heat as corruption accusations fly. With political bickering likely to grow, the focus on boosting the economy with much-needed reforms is likely to take a backseat. Meanwhile, we think that the latest inflation reading out of South Africa will shift the debate on the scale of further monetary tightening towards 75bp steps. And in Ghana, policymakers appear to be stepping up efforts to support the cedi but at the risk of adding to the economy's pain.

24 June 2022

Africa Data Response

South Africa Consumer Prices (May)

The rise in inflation in South Africa to an above-target 6.5% y/y in May is likely to shift the debate to a choice between a 50bp and a 75bp hike to interest rates at July’s MPC meeting. But inflation continues to be driven by food and energy price effects and, if the headline rate falls sharply over the rest of this year as we expect, interest rates will probably be raised by less than investors anticipate over 2022-24.

22 June 2022

More from William Jackson

Latin America Economics Weekly

Peru turmoil, Chile’s lockdown, hawks & doves

Pedro Castillo’s victory in Peru’s presidential election caused local markets to tumble, but if his more moderate post-election comments are borne out in policymaking, asset prices are likely to recover some lost ground. In Chile, while the latest lockdown has caused the near-term outlook to worsen, we retain a positive view on the economy’s growth prospects. The central bank’s forecasts published this week show that it is of a similar opinion (and that rates will rise this year as a result – in line with our projections). Elsewhere, the news that Mexico’s finance minister will take over as central bank governor next year adds weight to our view that Banxico bank will tolerate higher inflation.

11 June 2021

Latin America Data Response

Mexico Industrial Production (Apr.)

The surprise drop in Mexican industrial production in April may partly be payback for a strong March. And early indicators suggest that industrial activity picked up in May. Moreover, with services sectors recovering, we continue to think that the economy will grow by an above-consensus 6.5% this year.

11 June 2021

Emerging Europe Data Response

Turkey Industrial Production & Retail Sales (Apr.)

The m/m falls in Turkish industrial production and retail sales in April are likely to be followed by further weakness in May (when a three-week lockdown was in place). This supports our view that the economy will probably contract in q/q terms over Q2 as a whole. We suspect that the central bank will leave interest rates unchanged when it meets next week, but the softer economic activity figures will add to demands for rate cuts, which seem likely to come in July.

11 June 2021
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