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The monetary policy tide turns

African central banks have turned up their hawkish noises over the past month. Policymakers in Nigeria and Kenya delivered their first interest rate hikes following pandemic-era cuts. In South Africa, the Reserve Bank stepped up the pace of its tightening cycle and, in Ghana, MPC members voted for another chunky interest rate rise. Price pressures are mounting in these economies, with inflation rates close to, or surpassing, upper target bounds. The spillovers from the war in Ukraine are only going to push up inflation rates further over the coming months. Reining in inflation expectations probably played a key role in MPC decisions in South Africa and Kenya. And we suspect that policymakers in the latter and in Ghana and Nigeria also had an eye out for their currencies, which have been under pressure lately. The hawkish shift in Africa probably has some legs and we expect further monetary tightening in the coming months.

31 May 2022

War in Ukraine inflames food insecurity in Africa

The outsize role of agriculture in Sub-Saharan African economies and the tendency to rely on imported food products makes the region particularly vulnerable to the agricultural shock caused by the war in Ukraine. In addition to the risk of food shortages, external – and in some cases fiscal – positions are set to weaken. The accompanying rise in inflation will add to the economic pain on the back of the conflict.

25 May 2022

Debt problems building

Sub-Saharan Africa’s recovery is likely to remain slow going and our growth forecasts are generally below the consensus. While spillovers from the war in Ukraine will boost a handful of economies – notably Angola and Nigeria – in others, the fallout will cause economic pain. High inflation is likely to prompt monetary policymakers across the region to hike interest rates, although we think South Africa’s central bank will do so more gradually than most currently expect. Meanwhile, public debt problems will grow. Risks are highest in Ethiopia and Ghana, while South Africa faces a slow-burning problem. EM Drop-In (5th May, 10:00 EDT/15:00 BST): Join Shilan Shah for our latest monthly session on the big macro and markets stories in EMs. This month, Shilan and the team will be talking Russian gas, FX weakness and surging food prices. Register now

4 May 2022
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War in Ukraine: a varied impact across Africa

Spillovers from the war in Ukraine will have a varied impact across Sub-Saharan Africa. Large oil producers such as Nigeria and Angola are benefitting from the surge in global oil prices but, for the rest of the region, it is worsening their terms of trade. That is a cause for concern for countries already running large current account deficits, such as Kenya, particularly given that external financing conditions have tightened at the same time. The Ghanaian cedi has been a notable casualty among African currencies, further fuelling concerns about its fragile public finances. Meanwhile, with higher commodity prices adding to inflation pressures and the Fed turning more hawkish, central banks may tighten monetary policy more quickly.

Ghana’s debt fight, rate decisions, Ethiopia’s conflict

The Ghanaian authorities took steps this week to shore up the cedi and tackle the poor public finances but officials may eventually have to back down and turn to the IMF to shore up investor confidence. Elsewhere, there was a clear hawkish tilt by the South African Reserve Bank at Thursday’s MPC meeting. In contrast, Nigeria’s central bank showed little signs that is about to give up on its damaging FX policies. Finally, Ethiopia’s federal government efforts to bring a 16-month internal conflict to an end may prove too late to prevent damage to the economy’s long-term prospects.

Mixed market reaction in Africa to Russia-Ukraine war

Elevated commodity prices on the back of the Russia-Ukraine crisis will almost certainly add to inflationary pressures across Sub-Saharan Africa. High prices for energy, metals and agricultural products that African countries export seem to have shielded most currencies in the region from sinking amidst a deterioration in risk appetite. But there are some signs of stress. In particular, the Ghanaian cedi has weakened sharply and its sovereign dollar bond spreads have widened, further increasing its public debt vulnerability. EM Drop-In (Thur. 3 March, 15:00 GMT) We’re discussing the impact of Russia-Ukraine on emerging markets in a special 20-minute briefing this Thursday. Registration details.

Region to lag behind as debt risks mount

Sub-Saharan Africa’s economic recovery from the pandemic is likely to remain one of the weakest of any region over 2022-23 and our GDP growth forecasts are generally below the consensus. The latest virus waves already seem to be ebbing, but low vaccination rates will keep much of the region vulnerable to possible future outbreaks. In the meantime, lower commodity prices and fiscal austerity will hold back growth. Despite tight fiscal policy, public debt risks will continue to mount in much of the region.

ANC leadership contest, Ghana’s debt, Ethiopia’s conflict

Leftist factions of South Africa’s ruling ANC already appear to be gearing up to take on President Cyril Ramaphosa in December’s leadership election and this is likely to push fiscal policy in a looser direction, worsening the country’s debt problems. Debt concerns are also building in Ghana and remain elevated in Ethiopia as well, even though there are signs that the internal conflict is abating.

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