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Tighter global financing conditions, Zambia’s debt

African financial markets are not insulated from the tightening of global external financing conditions, and recent currency weakness and rising sovereign bond yields in the region will only add to already-strained balance sheets in some economies. Ghana, Kenya and Ethiopia seem most vulnerable. In Zambia, while debt restructuring negotiations finally kicked off this week, we suspect that getting a deal over the line will take some time. That and the decision to extend a subsidy scheme are likely to hold up the final agreement on the country’s IMF programme. World with Higher Rates - Drop-In (21st June, 10:00 ET/15:00 BST): Does monetary policy tightening automatically mean recession? Are EMs vulnerable? How will financial market returns be affected? Join our special 20-minute briefing to find out what higher rates mean for macro and markets. Register now

17 June 2022

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
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Markets and monetary policy, mounting pressure on naira

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.

Monetary politics in Nigeria, Ghana’s efforts to curb debt

Nigerian President Buhari’s instruction that current government officials planning to run for the country’s highest office should resign will probably leave the central bank without a governor, but this is unlikely to lead to meaningful change in monetary policy before the elections early next year. Elsewhere, the latest jump in Ghana’s inflation rate will up the pressure on the central bank to raise interest rates further. Yet, officials remain steadfast not to turn to the IMF amid rising investor concerns about the country’s debt position. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

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

Fiscal positions largely going from worse to bad

Fiscal positions across Sub-Saharan Africa have been a persistent source of concern since the onset of the pandemic – and in some cases, even before. And the commodity price moves resulting from the war in Ukraine will be unfavourable for public finances in most countries. The cost of subsidising fuel, fertiliser or food products is set to rise sharply. On top of this, recent floods in South Africa and a severe drought in East Africa will probably prompt a fiscal response as the authorities step in to support relief and reconstruction efforts. And we think that policymakers will loosen the fiscal purse strings ahead of upcoming elections in Kenya and Angola. The bottom line is that sovereign balance sheets in the region are unlikely to improve as quickly as many hope for.

Who holds frontier markets’ foreign debt?

China and private bondholders have become increasingly important creditors to governments of many frontier markets, including some of those that are now finding themselves in debt distress. This is likely to make any debt restructuring talks more complex and longer which could, in turn, could delay bailouts from the IMF.

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