(Un)Common Framework, a little cheer in South Africa - Capital Economics
Africa Economics

(Un)Common Framework, a little cheer in South Africa

Africa Economics Weekly
Written by Virag Forizs
Zambia has become the latest country – after Chad and Ethiopia – to seek debt restructuring under the G20’s Common Framework, but tough negotiations lie ahead and few other countries are likely to go down a similar path. In South Africa, virus-related developments this week provided some reason to cheer, but the economic backdrop remains gloomy. And the bar for additional monetary stimulus appears to be quite high.

Debt restructuring “wave” more of a ripple

Zambia has become the latest country – after Chad and Ethiopia – to seek debt restructuring under the G20’s Common Framework, but tough negotiations lie ahead and few other countries are likely to go down a similar path.

Before engaging with external creditors, the IMF will update its debt sustainability analyses – the most recent assessments classified both Zambia and Ethiopia at high risk of debt distress. Since then, Zambia defaulted on its Eurobonds. And Ethiopia’s internal conflict in November probably put further pressure on the country’s fragile public finances.

Beyond debt sustainability assessments, there are plenty of unanswered questions in relation to the Common Framework, a G20 initiative that paves the way for the reduction of debt owed to bilateral and possibly private creditors. The authorities in Zambia and Ethiopia appear to have different answers.

One key issue is private sector participation that the framework calls for but does not mandate. (Authorities only have to request debt relief from private creditors on the same terms to those agreed with participating bilateral lenders.) Official statements convey Zambia’s commitment to “equal treatment of all creditors”, making private sector engagement quite likely. In contrast, the authorities in Ethiopia appear to be downplaying the possibility of reaching out to private creditors.

Either way, debt negotiations are likely to be slow-going and upcoming elections in both countries may complicate matters further. Other countries are likely to be put off from requesting debt restructuring under the Common Framework by slow results as well as any adverse credit ratings actions, particularly in light of improved borrowing conditions. We noted a while ago that debt relief initiatives would struggle to gain traction, especially beyond countries with the most acute debt problems.

South Africa’s raised spirits

Virus-related developments in South Africa provided some reason to cheer this week, but the economic backdrop remains gloomy.

With a recent fall in new COVID-19 cases, some containment measures (including a contentious ban on alcohol sales) were lifted this week. There was good news on the vaccine front too. The first batch of vaccines arrived and the government secured additional doses with the total vaccine supply now enough to cover 55% of the population.

President Cyril Ramaphosa may emphasise these positive developments at Thursday’s State of the Nation Address. Even so, restrictions on activity will probably stay in place for a while as the bulk of vaccines will only be shipped in Q2 or later. And despite signs of a smaller-than-feared fall in government revenue in the current fiscal year, the focus will stay on austerity that hinders the recovery.

SARB: not so quick on the trigger

Comments by South African Reserve Bank (SARB) Governor Lesetja Kganyago suggest that the bar for additional monetary easing is high. The Reserve Bank delivered 275bp of rate cuts last year at the height of the COVID-19 crisis. But even as a second wave of the virus swept through the nation recently, policymakers have held fire. A sharp drop in case numbers at the time of the January MPC meeting was probably enough to keep the Reserve Bank from delivering more monetary stimulus. And while Governor Kganyago defended the ability of the SARB to respond to a third wave, it seems that the willingness to act would require more serious economic damage that the government has been careful to avoid following the initial lockdown.

The week ahead

Figures are likely to show that a sharp rise in COVID-19 cases in South Africa dampened production in the manufacturing and mining sectors in December.

Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (GMT)

Previous*

Median*

CE Forecasts*

8th Feb

Tan

CPI (Jan.)

(+3.2%)

(+3.8%)

Mau

CPI (Jan.)

(+2.7%)

(+1.6%)

10th Feb

Gha

CPI (Jan.)

(+10.4%)

(+10.1%)

(+10.6%)

SA

SACCI Business Confidence (Jan.)

(09.30)

11th Feb

SA

Mining Production (Dec.)

(09.30)

-5.7%(-11.6%)

-2.0%(-8.5%)

SA

Manufacturing Production (Dec.)

(11.00)

-1.3%(-3.5%)

-0.5%(-1.3%)

SA

State of the Nation Address

(17.00)

Selected future data releases and events

15th Feb

Nam

CPI (Jan.)

(+2.4%)

Bot

CPI (Jan.)

(+2.2%)

16th Feb

Nga

CPI (Jan.)

(+15.8%)

(+16.2%)

17th Feb

Nam

Interest Rate Announcement

3.75%

Zam

Interest Rate Announcement

8.0%

SA

CPI (Jan.)

(08.00)

+0.2%(+3.1%)

SA

Retail Sales (Dec.)

(11.00)

+1.8%(-4.0%)

23rd Feb

SA

Unemployment Rate (Q4)

(09.30)

30.8%

24th Feb

SA

Budget Speech

25th Feb

Zam

CPI (Feb.)

(+21.5%)

26th Feb

Uga

CPI (Feb.)

(+3.7%)

Ken

CPI (Feb.)

+0.6%(+5.7%)

SA

Trade Balance (Jan., SAAR)

(12.00)

+32.0bn

SA

Budget (Jan., SAAR)

(12.00)

+5.1bn

1st March

SA

Absa Manufacturing PMI (Feb.)

(09.00)

50.9

3rd March

Ken

Markit/Stanbic Bank PMI (Feb.)

(07.30)

4th March

SA

Electricity Production (Jan.)

(11.00)

5th March

Mau

CPI (Feb.)

Also expected during this period:

14th – 21st

Uga

Interest Rate Announcement

7.0%

14th – 25th

Ang

CPI (Jan.)

(+25.2%)

17th Feb – 30th March

Nga

GDP (Q4, q/q(y/y))

(-3.6%)

*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

2020e

2021f

2022f

2019

2020e

2021f

2022f

Nigeria

0.80

4.4

2.2

-2.0

3.5

3.0

11.4

13.2

15.0

13.0

South Africa

0.57

1.5

0.2

-7.3

4.3

4.0

4.1

3.3

3.8

3.3

Ethiopia2

0.20

9.7

9.0

6.1

3.0

9.0

15.7

20.4

14.5

12.5

Kenya

0.18

5.6

5.4

-0.5

6.0

6.5

5.2

5.3

5.5

5.0

Angola

0.17

2.4

-0.9

-5.0

3.5

2.5

17.1

22.2

21.0

16.0

Ghana

0.13

7.0

6.5

0.5

5.5

6.5

8.7

10.0

9.0

8.5

Tanzania

0.12

6.5

5.8

1.5

6.5

6.5

3.4

3.3

3.0

4.5

Côte d’Ivoire

0.10

6.1

6.5

2.5

7.5

7.5

0.8

2.5

0.5

1.0

Uganda

0.08

5.3

6.7

-1.5

7.0

6.0

2.9

3.8

4.0

5.5

Zambia

0.05

5.6

1.4

-2.5

3.0

4.0

9.1

15.7

16.5

10.0

Botswana

0.03

3.7

3.0

-10.5

8.5

5.5

2.8

2.0

3.5

3.0

Mozambique

0.03

3.7

2.3

-0.5

4.0

4.5

2.8

3.0

3.0

3.5

Rwanda

0.02

7.2

9.4

-3.5

11.5

11.0

2.4

7.8

3.0

4.5

Mauritius

0.02

3.7

3.0

-15.0

12.5

6.5

0.4

2.5

3.0

3.0

Namibia

0.02

3.4

-1.0

-7.5

6.0

5.0

3.7

2.5

3.5

3.5

Sub-Saharan Africa

2.5

4.2

3.1

-2.4

4.6

4.8

8.3

9.7

9.8

8.5

Sources: Refinitiv, National Sources, Capital Economics. 1) % of GDP, 2019, PPP terms (IMF estimates); 2) Fiscal Years.

Table 2: Central Bank Policy Rates

Policy Rate

Latest

(5th Feb.)

Last Change

Next Change

Forecasts

End
2021

End

2022

Nigeria

MPR

11.50

Down 100bp (Sep. ’20)

Down 100bp (Q2 ’21)

10.00

10.00

South Africa

Repo Rate

3.50

Down 25bp (Jul. ’20)

None on horizon

3.50

3.50

Angola

BNA Rate

15.50

Down 25bp (May ’19)

Down 100bp (Q4 ’21)

14.50

13.00

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)

13.50

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
(5th Feb.)

End

2021

End

2022

Stock Market

Latest

(5th Feb.)

End
2021

End

2022

Nigeria

NGN (Official)

381

400

400

NGSE

41,709

49,000

55,000

NGN (Nafex)

396

425

425

South Africa

ZAR

14.9

14.5

15.0

JALSH

64,289

75,650

91,550

Angola

AOA

648

700

750

Kenya

KES

110

115

120

NSE 20

1,866

2,250

2,650

Ghana

GHS

5.77

5.90

6.00

GSECI

2,055

2,400

2,800

Uganda

UGX

3,659

3,850

3,950

UGSE

1,329

1,500

1,700

Sources: Refinitiv, Capital Economics


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