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Ghana struggling with debt, oil price winners and losers

The sharp rise in Ghana’s sovereign dollar bond yields this month suggests that investors are coming around to our view about the country’s worrying debt trajectory. Meanwhile, the rebound in oil prices will, as usual, split Sub-Saharan African economies into winners and losers. But the region’s oil producers will probably not be able to reap the full benefits from higher prices.
Virag Forizs Emerging Markets Economist
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Africa Economics Update

CBN finally steps up to curb inflation

The Central Bank of Nigeria delivered a surprise 150bp interest rate hike, to 13.00%, today amid mounting inflation and balance of payments concerns. We expect rates to be raised by another 100bp, to 14.00%, in July but further tightening seems unlikely especially as the 2023 elections come into view.

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Africa Data Response

Nigeria GDP (Q1)

Nigeria’s GDP growth slowed to 3.1% y/y in Q1 as robust growth in the non-oil sector was more than offset by a slump in the oil sector. Looser fiscal policy ahead of elections in early 2023 will provide some support to activity going forward, but continued weakness in oil production and disruptions caused by draconian FX policies underpin our below-consensus forecast for growth of 2.3% over 2022 as a whole.

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Recent investor risk-off sentiment has pushed up sovereign dollar bond yields across Sub-Saharan Africa, fuelling debt risks further, and has put currencies under pressure. Central banks appear to be taking note, with some policymakers turning tightening cycles up a notch. In Nigeria, the recent weakness of the currency on the black market was attributed to election-related spending, but the bigger issue is that downward pressure on the naira stems from the central bank’s unorthodox FX policies.

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Africa Data Response

South Africa Consumer Prices (Sep.)

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Africa Economics Weekly

FX orthodoxy in Nigeria? Strikes in SA, Ethiopia’s conflict

Comments by Nigeria’s vice president endorsing a more market-based exchange rate regime reflect growing concern about the distortionary effects of the current FX system, but there is no evidence that key officials backing the existing currency arrangements are also shifting tack. In South Africa, ongoing industrial action in the steel industry will probably dampen manufacturing output in Q4, in another hit to the recovery in the sector and the wider economy. Finally, escalating tensions in Ethiopia raise the spectre of more severe strains in the balance of payments.

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Africa Data Response

Nigeria Consumer Prices (Sep.)

The drop in the headline inflation rate in Nigeria, to 16.6% y/y in September, will ease pressure on the central bank to raise rates and allow policymakers to focus on supporting the economic recovery.

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