Angola’s expanded IMF deal, SA lockdown easing - Capital Economics
Africa Economics

Angola’s expanded IMF deal, SA lockdown easing

Africa Economics Weekly
Written by Virag Forizs
The formal expansion of Angola’s IMF programme this week will go some way towards easing the country’s balance of payments pressures, but further debt restructuring (including private creditors) is still not out of the question. Meanwhile, the announcement of a further relaxation of South Africa’s lockdown measures will give a shot in the arm to the fragile economic recovery. Just like the rebound in activity, the latest rescue plan for the struggling power firm Eskom faces plenty of hurdles.

IMF increases lending to Angola

The approval of Angola’s IMF programme expansion by $765mn this week will go some way towards easing balance of payments pressures, but further debt restructuring is still not out of the question.

In addition to disbursing $1bn under Angola’s current arrangement, the Fund granted (after some delay) an increase in the total size of the loan, from $3.7bn to $4.5bn, which will support the country’s response to the coronavirus crisis and low oil prices.

Questions surrounding Angola’s debt sustainability appeared to be the cause for the delay in disbursing IMF funds. The Fund, for its part, noted that “the authorities have secured debt reprofiling agreements from several large creditors” without providing further details. Angola recently received debt service relief from Paris Club creditors, worth about $300mn. There have also been rumours that Angola’s government is on the verge of reaching agreements with Chinese banks. Relief from Chinese creditors could amount to as much as $2.3bn. These latter arrangements may have eased the Fund’s concerns about debt sustainability.

Even so, given the scale of Angola’s public debt burden (around 95% of GDP last year), and the hit to the public finances from low oil prices, restructuring on debt owed to private creditors may still be needed further down the line.

Easing lockdown in SA: the end of the road?

The announcement this week of a further relaxation of South Africa’s lockdown measures will give a shot in the arm to the fragile economic recovery.

The move from lockdown level two down to level one (from 21st September) comes as daily new coronavirus cases continue to decline following a sharp rise in July. We estimate that about 95% of the economy will be permitted to open, compared to 85% under level two, as remaining restrictions – notably on personal care and transport services – are removed (while keeping social distancing measures in place). With international travel set to resume from 1st October, the hard-hit tourism sector will get a much-needed boost.

The economy, more broadly, could use all the support. Our Covid Mobility Tracker suggests that activity remains stuck below pre-crisis levels and consumer confidence in Q3 stayed very weak.

But meaningful fiscal stimulus seems unlikely. Reports suggest that the government’s yet-to-be-released economic recovery plan will focus on addressing corruption, and boosting investment by cutting red tape rather than additional public spending. As with the initial fiscal response to the pandemic, policymakers’ hands are tied by the poor state of the public finances.

Trying to keep lights on at Eskom

Reports this week suggest that South Africa’s government and key stakeholders have agreed a pact to overhaul the state electricity company, Eskom. One of the key aims of the pact is to reduce Eskom’s debt burden, which amounted to more than 8.5% of South Africa’s GDP last year. The plan also envisages that power prices will become cost-reflective and that the firm’s operating model will be overhauled.

The pact is a step in the right direction, but details are scarce and it remains to be seen if it will be enacted in full. Previous rescue plans for Eskom have failed and trade union support may wane if large job losses are proposed. There could also be pushback from energy-intensive industries, such as mining, to large tariff hikes. In the meantime, South Africa’s ageing power plants mean that persistent load-shedding – which has already been worse so far this year than over 2019 as a whole – will remain a key drag on the economic recovery.

The week ahead

Nigerian policymakers will probably keep their key rate on hold, at 12.50%, on Tuesday. (See Preview.)


Data Preview

Nigeria Interest Rate Announcement Tue. 22nd Aug.

Forecasts

Time (BST)

Previous

Consensus

Capital Economics

Policy Rate (%)

12.50

12.50

Continued rise in inflation to prevent rate cut

We think that the Central Bank of Nigeria (CBN) will keep its key policy interest rate unchanged at 12.50% on Tuesday.

Inflation jumped from 12.8% y/y in July to 13.2% y/y in August, the 12th consecutive monthly rise in the headline rate.

In the face of rapidly building price pressures, we think that policymakers will hold off from cutting interest rates at the upcoming MPC meeting on Tuesday; we expect that the CBN will maintain the key policy rate at 12.50%. (See Chart 1.)

Looking ahead, a weaker naira in addition to the deregulation of petrol prices and an electricity tariff hike in September are likely to put further upwards pressure on inflation over the coming months.

Even so, there may be scope for a rate cut before year-end as Nigeria’s economic recovery proves weaker than policymakers expect. Production in the key oil sector was cut more sharply at the start of Q3 than in Q2, which will weigh heavily on GDP growth over the rest of 2020.

Chart 1: Consumer Prices & Key Policy Rate

Sources: Nigerian Bureau of Statistics, Central Bank of Nigeria, Capital Economics


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (BST)

Previous*

Median*

CE Forecasts*

21st Sep

No Significant Data Released

22nd Sep

Nga

Interest Rate Announcement (Sep.)

12.50%

12.50%

12.50%

23rd Sep

Mau

Interest Rate Announcement (Sep.)

1.85%

1.85%

24th Sep

Zam

CPI (Sep.)

(+15.5%)

(+15.1%)

Nam

GDP (Q2, q/q(y/y))

(-0.8%)

25th Sep

No Significant Data Released

Also expected during this period:

7th – 25th

Nga

Current Account (Q2, USD)

-4.9bn

Selected future data releases and events

28th Sep

Ang

Interest Rate Announcement (Sep.)

15.50%

Gha

Interest Rate Announcement (Sep.)

14.50%

29th Sep

Ken

Interest Rate Announcement (Sep.)

7.00%

30th Sep

SA

CPI (Aug.)

(09.00)

+1.3%(+3.2%)

SA

Trade Balance (Aug., SAAR)

(13.00)

+37.4b

SA

Budget (Aug., SAAR)

(13.00)

-134.5b

Uga

CPI (Sep.)

(+4.6%)

Ken

CPI (Sep.)

+0.2%(+4.4%)

Ken

GDP (Q2)

(+4.9%)

1st Oct

SA

Absa Manufacturing PMI (Sep.)

(10.00)

57.3

SA

Electricity Production (Aug.)

(12.00)

5th Oct

Ken

Markit/Stanbic Bank PMI (Sep.)

(08.30)

53.0

7th Oct

Mau

CPI (Sep.)

(+1.5%)

8th Oct

Uga

Interest Rate Announcement

7.00%

Bot

Interest Rate Announcement

4.25%

12th Oct

SA

Manufacturing Production (Aug.)

(12.00)

+7.6%(-10.6%)

13th Oct

SA

Mining Production (Aug.)

(10.30)

+20.2%(-9.1%)

14th Oct

Gha

CPI (Sep.)

(+10.5%)

SA

Retail Sales (Aug.)

(12.00)

15th Oct

Nga

CPI (Sep.)

Also expected during this period:

3rd – 10th

SA

SACCI Business Confidence (Sep.)

10th– 17th

Tan

CPI (Sep.)

10th – 17th

Bot

CPI (Sep.)

16th – 23rd

Nam

CPI (Sep.)

16th – 23rd

Ang

CPI (Sep.)

(+22.8%)

*m/m(y/y) unless otherwise stated

Sources: Bloomberg, Capital Economics

Main Economic & Market Forecasts

Table 1: GDP & Consumer Prices (% y/y)

Share of

World (1)

2009-18

Ave.

GDP

Inflation

2019

2020f

2021f

2022f

2019

2020f

2021f

2022f

Nigeria

0.86

4.4

2.2

-5.5

3.5

3.0

11.4

13.0

12.5

12.0

South Africa

0.57

1.5

0.2

-8.5

4.0

2.0

4.1

3.0

3.0

3.3

Ethiopia

0.17

9.7

9.0

2.5

8.0

9.0

15.7

19.0

14.0

10.0

Ghana

0.15

7.0

6.5

0.0

6.5

6.0

8.7

10.0

9.0

8.0

Angola

0.14

2.4

-0.3

-6.0

3.0

2.0

17.3

22.5

20.0

17.5

Kenya

0.14

5.6

5.6

0.5

5.5

6.5

5.2

5.0

5.0

5.0

Tanzania

0.14

6.5

5.6

1.5

6.0

6.0

3.4

4.0

5.0

4.5

Côte d’Ivoire

0.08

6.1

7.5

1.0

7.0

7.0

0.8

2.0

1.0

1.0

Uganda

0.07

5.3

6.7

1.0

6.0

5.5

2.9

4.5

5.5

6.0

Zambia

0.05

5.6

1.5

-4.5

3.5

4.0

9.1

15.0

11.5

10.0

Mozambique

0.03

3.7

2.2

1.0

5.0

4.0

2.8

3.5

4.0

4.0

Botswana

0.03

3.7

3.5

-6.5

4.0

3.5

2.8

2.0

2.5

3.0

Rwanda

0.02

7.2

9.4

-2.5

10.0

9.0

2.4

8.0

5.5

5.0

Mauritius

0.02

3.7

3.5

-10.0

6.0

4.5

0.4

2.5

3.0

3.5

Namibia

0.02

3.4

-1.4

-5.5

4.0

3.0

3.7

2.5

3.5

3.5

Sub-Saharan Africa

2.5

4.2

2.9

-4.1

4.7

4.1

8.4

9.5

8.8

8.1

Sources: Refinitiv, National Sources, Capital Economics. (1) % of GDP, 2019, PPP terms (IMF estimates).

Table 2: Central Bank Policy Rates

Policy Rate

Latest

(18th Sep.)

Last Change

Next Change

Forecasts

End

2020

End
2021

Nigeria

MPR

12.50

Down 100bp (May ’20)

Down 50bp (Nov. ’20)

12.00

11.50

South Africa

Repo Rate

3.50

Down 25bp (Jul ’20)

Up 25bp (Q1 ’22)

3.50

3.50

Angola

BNA Rate

15.50

Down 25bp (May ’19)

Down 75bp (Q3 ’21)

15.50

14.00

Kenya

Central Bank Rate

7.00

Down 25bp (Apr ’20)

None on horizon

7.00

7.00

Ghana

Policy Rate

14.50

Down 150bp (Mar ‘20)

Down 100bp (Q2 ’21)

14.50

13.50

Uganda

Central Bank Rate

7.00

Down 100bp (Jun ’20)

None on horizon

7.00

7.00

Sources: National Sources, Capital Economics

Table 3: Key Market Forecasts

Forecasts

Forecasts

Currency

Latest
(18th Sep.)

End

2020

End

2021

Stock Market

Latest

(18th Sep.)

End

2020

End
2021

Nigeria

NGN (Official)

381

400

400

NGSE

25,573

25,500

30,000

NGN (Nafex)

386

450

450

South Africa

ZAR

16.2

16.0

16.5

JALSH

54,715

59,425

71,300

Angola

AOA

613

625

625

n/a

Kenya

KES

108

110

115

NSE 20

1,847

2,300

2,700

Ghana

GHS

5.7

6.0

6.1

GSECI

1,842

2,000

2,300

Uganda

UGX

3,685

3,900

4,000

UGSE

1,338

1,600

1,800

Sources: Refinitiv, Capital Economics


Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com