Zambia’s debt roller coaster, budget rumours in Nigeria - Capital Economics
Africa Economics

Zambia’s debt roller coaster, budget rumours in Nigeria

Africa Economics Weekly
Written by Virag Forizs
Zambia’s first steps towards debt restructuring have not got off to a good start, reinforcing our fears that the process will be long and arduous. Meanwhile, Nigeria’s rumoured budget proposals envisage a large rise in spending matched by increased revenue collection, but the latter seems like a long shot. And in South Africa, there are growing signs of a big hit to the labour market, which risks causing long-term scarring on the economy.

Debt stand-off in Zambia

Zambia’s first steps towards debt restructuring have not got off to a good start, reinforcing our fears that the process will be long and arduous.

Last week, the Zambian government announced that it had requested a deferral of interest payments on its Eurobonds in another step towards securing a broader debt restructuring deal and a long-awaited IMF financing agreement. But this week, the proposal was swiftly rejected by bondholders.

There seem to be two key reasons behind private creditors’ refusal to cooperate. The first is concerns that the Zambian government isn’t taking the task of restoring debt sustainability seriously. The 2021 budget announced last week revealed that the government expects to run a budget deficit of 9.3% of GDP next year, with around a third of this to be financed through foreign borrowing. At the back of investors’ minds may also be the government’s past failure with meeting policy recommendations.

The second reason is concerns about large debt obligations to China. We noted before that the make-up of debt matters for the type of restructuring. But private bondholders seem to be putting a lot of emphasis on fair treatment across all creditors. Perhaps emboldened by Angola’s ability to get concessions from China, they seem to feel that the authorities should also seek respite from Beijing. When announcing the 2021 budget, Finance Minister Bwalya Ng’andu said that the government had so far only asked commercial creditors for debt relief. There are also concerns that the Zambian authorities are being economical with the truth about the exact size of the nations’ debts to China, adding to a general feeling that they are acting in bad faith.

The stand-off between the government and private bondholders means that, at the very least, a debt restructuring looks set to be a drawn-out process. There is also a growing risk that Zambia unilaterally decides to stop servicing its Eurobond debt, leading to a messy battle in the courts.

Nigerian budget rumours suggest spending splurge

Nigeria’s cabinet will reportedly propose raising government spending by over 20% next year in its upcoming budget proposal, while keeping the budget deficit stable at around 3.6% of GDP. While far from a done deal, there are already plenty of reasons for scepticism.

The cabinet envisages that the rise in spending will be offset by a jump in revenues, keeping the budget shortfall essentially unchanged as a share of GDP. Even with global oil prices rebounding, non-oil revenues would need a huge boost, which seems optimistic given Nigeria’s poor budget performance. Details of the plan, including revenue breakdown and financing of the shortfall, are unknown at this point. We’ll know more when President Muhammadu Buhari outlines the budget blueprint (reportedly next Thursday). Without a credible revenue mobilization and financing plan, worries about deficit monetization might rise.

SA data suggest darkening economic horizon

Figures released this week paint a gloomy picture about South Africa’s outlook. Low-level data point to a weak recovery; electricity production grew by just 1.7% m/m in August which, while better than in July, was down from 7-10% m/m in May and June. And car sales were still down by 23.9% y/y last month. Evidence is emerging about the long-term costs of the crisis too; the number of employed workers plunged by 2.2mn in Q2, to a nine-year low of 14.1mn. Over twice as many people dropped out of the labour force. This risks holding back the recovery and leaving long-term scars on the labour market.

The week ahead

The South African Chamber of Commerce and Industry’s business confidence indicator will probably add to signs of a weak recovery.


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (BST)

Previous*

Median*

CE Forecasts*

5th Oct

Ken

Markit/Stanbic Bank PMI (Sep.)

(08.30)

53.0

6th Oct

No Significant Data

7th Oct

Mau

CPI (Sep.)

(+1.5%)

(+2.0%)

SA

SACCI Business Confidence (Sep.)

(10.30)

8th Oct

Uga

Interest Rate Announcement

7.00%

7.00%

Bot

Interest Rate Announcement

4.25%

4.25%

Also expected during this period:

25th – 9th

Uga

GDP (Q2)

(+1.8%)

(-3.2%)

25th – 9th

Nga

Current Account (Q2, USD)

-4.9bn

Selected future data releases and events

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.)

SA

Quarterly Employment Statistics (Q2)

(10.30)

21st Oct

Nam

Interest Rate Announcement

3.75%

Moz

Interest Rate Announcement

13.25%

SA

CPI (Sep.)

(09.00)

28th Oct

SA

CPI (Sep.)

(09.00)

(+3.1%)

29th Oct

Zam

CPI (Oct.)

(+15.7%)

30th Oct

Uga

CPI (Oct.)

(+4.5%)

Ken

CPI (Oct.)

+0.0%(+4.2%)

SA

Trade Balance (Sep., SAAR)

(13.00)

38.9bn

SA

Budget Balance (Sep., SAAR)

(13.00)

-63.7bn

Also expected during this period:

10th– 17th

Tan

CPI (Sep.)

10th – 17th

Bot

CPI (Sep.)

12th – 24th

Ken

GDP (Q2)

(+4.9%)

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

(2nd Oct.)

Last Change

Next Change

Forecasts

End

2020

End
2021

Nigeria

MPR

11.50

Down 100bp (Sep. ’20)

Down 100bp (Jan. ’21)

11.50

10.00

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
(2nd Oct.)

End

2020

End

2021

Stock Market

Latest

(2nd Oct.)

End

2020

End
2021

Nigeria

NGN (Official)

381

400

400

NGSE

26,986

25,500

30,000

NGN (Nafex)

386

450

450

South Africa

ZAR

16.5

16.0

16.5

JALSH

54,137

59,425

71,300

Angola

AOA

626

625

625

n/a

Kenya

KES

108

110

115

NSE 20

1,852

2,300

2,700

Ghana

GHS

5.8

6.0

6.1

GSECI

1,846

2,000

2,300

Uganda

UGX

3,693

3,900

4,000

UGSE

1,374

1,600

1,800

Sources: Refinitiv, Capital Economics


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