Macro Analysis /

Ethiopia tightens capital controls, Zambia lays out debt restructuring plan

  • Forex: Egypt signals openness to looser management of the pound

  • Fixed Income: Zambia lays out a plan for its complex debt restructuring

  • Macroeconomic: IMF programmes are becoming all the more important for heavily indebted African countries

Kieran Siney
Kieran Siney

Head of African Markets

Takudzwa Ndawona
Takudzwa Ndawona

Financial Markets Analyst

ETM Analytics
7 September 2022
Published byETM Analytics


Oil prices have fallen to their lowest since the start of the year this morning, with demand concerns more than offsetting the support provided by OPEC+’s announced output cut. The front-month Brent contract has slipped below $91.50 per barrel this morning, while WTI has sunk to $85 per barrel. China’s latest round of lockdowns has made a notable dent in the demand outlook from Asia, leading Saudi Arabia to lower the price of its crude sent to the region and Europe for next month. This indicates that expected demand is perhaps weaker than what OPEC+ have wanted the market to believe. If prices continue to weaken, however, we could see rumours begin to circulate that OPEC+ could be considering an emergency meeting, as they indicated on Monday that they might do, to try and prop up prices. A major headwind for oil that OPEC+ cannot control, however, is the US dollar, which continues to surge to new multi-decadal highs. The surging greenback has been a major driver of weaker commodity prices in recent months, and given the current global macroeconomic environment, it is looking unlikely that a major correction is going to occur anytime soon.


Ethiopia: In a move that tightens already strict monetary controls, Ethiopia’s central bank has introduced measures, including a ban on using foreign currency in local transactions. According to a directive on their website, the central bank reduced the number of days that returning residents can hold foreign currency to 30-days from 90-days. At the same time, Ethiopians who reside abroad and visit the country are required to deposit foreign notes in a savings account if they stay longer than three months. The central bank also increased the amount that nationals can bring into the country without customs declaration to $4K from $1k. Foreigners arriving with over $10k must disclose their holdings to customs officials, an increase from $3k previously. The latest measures by the central bank come at a time when the country’s foreign exchange reserves are falling, and the current account deficit is widening amid a civil war.

Nigeria: Citing the rising cost of operations in the mobile industry in Nigeria, Communications Minister Isa Pantami yesterday suspended the implementation of a new telecommunications tax meant to help reduce the country’s budget deficit that is expected to reach a record next year. This month, the government proposed a budget of NGN19.8trn ($45.6bn) for next year, with 63% of the spending plan to be funded through debt. The expected shortfall is about three times the expected government revenue for the period and 5.5% of GDP, well above the 3% legal limit. According to Pantami,  excessive taxation has been the biggest challenge faced by Nigeria’s mobile industry, and it is “unfair to overburden such a sector that is so central to the nation’s growth and development.” Pantami added that the government has set up a committee to review the 5% levy, which would have come into effect this year, and a decision on the tax will be made after a report is issued. Nigeria has been seeking ways to boost income amid falling crude oil production, rising fuel subsidy costs, and low revenue, and the mobile tax was one avenue. The tax, if implemented, would apply to all voice calls, text messages, and data services in addition to an existing 7.5% value-added tax.

Angola: In a ruling that paves the way for Joao Lourenco to be sworn in as president for a second term, Angola’s Constitutional Court has rejected a request by the runner-up and main opposition party National Union for the Total Liberation of Angola, to consider the final vote count invalid. The court’s decision is final and cannot be appealed, meaning Lourenco will be sworn in this month. This suggests that there will be continuity with the existing fiscal policies, many of which are market-friendly.

Namibia: Data from Namibia’s trade statistics bulletin released yesterday showed that the trade deficit widened to N$4.3bn ($288mn) in July from N$2.5bn in the month prior. Export earnings were down 14.8% on a monthly basis, while the import bill was up by 4.5%. According to the bulletin, the trade deficit was reflected mostly in the petroleum oil import bill, followed by copper ores and concentrates and ores and concentrates of precious metal. During July, Namibia’s top five export markets were Botswana, South Africa, China, Zambia, and the Netherlands, all accounting for 65.7% of the country’s exports. Meanwhile, South Africa was the major source of imports, accounting for 36.2% of total imports.

Zambia: In a report released yesterday, the International Monetary Fund (IMF) forecast Zambia to experience a gradual economic recovery underpinned by the restoration of macroeconomic stability under its program and with the assumed successful debt restructuring operation. The IMF forecasts economic growth to settle around 4.5% to 5.0% over the medium-term as confidence strengthens and investment grows. However, there are downside risks to the growth outlook, which include delays in reaching a final debt restructuring agreement, climate and commodity shocks, and reform fatigue due to political and social pressures. The IMF also said that debt sustainability analysis confirms that without restructuring, public debt is in distress. Meanwhile, inflation is forecast to maintain its current downward trend amid the continued impact of a stronger kwacha and should fall within the Bank of Zambia’s 6-8% target range by 2023.

Ghana: A deal between Ghana and the International Monetary Fund should be finalized by the end of the year, according to the lender’s Managing Director Kristalina Georgieva. In a closed-door meeting with President Akufo-Addo, Georgieva reportedly reiterated the determination of the lender to worth with the government and ministry of finance and ensure that an agreement is in place as soon as possible. Ghana is seeking a $3bn IMF support program to help navigate the hostile economic crisis it finds itself in due to the adverse effects of the coronavirus pandemic and the ongoing conflict between Russia and Ukraine. The positive rhetoric from the IMF is set to provide Ghanaian assets in the near term.

Forex: Egypt signals openness to looser management of the pound

Amid mounting calls for another devaluation, Egypt’s planning minister yesterday signalled that authorities are open to looser management of the currency to support the economy that has come under pressure from Russia’s invasion of Ukraine. Minister Hala Elsaid, in response to calls for a deeper devaluation of the currency, was quoted as saying, “We as a government do agree that flexible exchange rate is good for the economy.” In recent weeks, greater flexibility in the pound has emerged as an issue for Egyptian authorities who are seeking to secure a new loan from the International Monetary Fund.

The pound remains overvalued on a real effective exchange rate basis, and expectations are that the IMF will demand more flexibility as part of the conditions attached to the loan. A pound devaluation is seen as addressing some macroeconomic imbalances that have left Egypt extremely vulnerable to developments in Ukraine and tightening global financial conditions.

While Egypt allowed the pound to weaken sharply against the dollar in March, it has much further to go to reflect its true value. It is unsurprising to see that the non-deliverable forward market continues to price in further weakness. While the 3-,6- and 12-month contracts have come down from their August highs, they remain elevated. The 12-month contract is roughly 23% weaker than where the pound is trading in the spot market.

Fixed Income: Zambia lays out a plan for its complex debt restructuring

While the approval of the $1.3bn program with the International Monetary Fund has given investors something to cheer about, there is still a long road ahead before Zambia returns to a fiscally sustainable position. Zambia is still effectively in default after failing to pay an interest portion on its debt in late 2020. Furthermore, it is worth mentioning that Zambia’s debt-to-GDP ratio sits well above 100%, making it one of the highest in the world.

Although the road ahead will be challenging for the country, especially as external lending conditions deteriorate and the macroeconomic outlook sours, the Zambian government has put in place a plan for its complex debt restructuring. According to a report published by the IMF yesterday, the Zambian government is looking to restructure its external liabilities that topped $17bn last year. Moreover, the IMF said that Zambia wants $8.4bn in cash debt relief from 2022 to 2025. According to some estimates, this amounts to around 90% of the payments Zambia should have made to external private and official creditors over this period.

Recall that the creditor's committee, co-chaired by China and France, assured the Zambian government and the IMF that they were willing to assist with the debt restructuring at the end of July. Bloomberg reported that the restructuring negotiations would kick off this month, which should provide investors with some valuable insight into the fiscal outlook for Zambia. Investors will be watching eagerly to see if creditors agree to cancel some of the debt or whether the debt is just rolled over a couple of years, both of which would have drastically different outcomes for Zambia. Price movements in Zambian bonds will likely be sensitive to developments on this front in the weeks ahead. 

Macroeconomic: IMF programmes are becoming all the more important for heavily indebted African countries   

As inflation continues to soar and the global macroeconomic outlook deteriorates, fiscal pressures in Africa are rising. This comes shortly after the devastating blow of the Covid-19 pandemic, which stifled economic activity and resulted in a marked increase in fiscal spending. Against this backdrop, several African countries, particularly the more fiscally fragile countries, are becoming more dependent on financial aid from international lenders such as the International Monetary Fund and the World Bank.

According to the IMF, more than half of the countries in Africa have or are in the process of negotiating a programme. Unsurprisingly, many of these programs were agreed upon during the pandemic era. As highlighted in recent commentary, the IMF’s board has recently approved a $1.3bn financing program for Zambia. Moreover, the IMF is currently engaging in talks over new financing programs with Egypt, Ghana, Tunisia and Malawi.

The securing of IMF deals has become an important factor for investors when looking to invest in fiscally fragile countries. This is evident in the price action relating to IMF news in the bond markets of Zambia, Ghana and Egypt. While the near-term impact of the IMF programs is seen as being positive for these heavily indebted nations, investors are also focused on the long-term impact of the programmes. History shows that the long-term effects of IMF programmes have been mixed.

Without the assistance of financial aid from lenders such as the IMF, there is an increased risk that some African countries will face financial difficulties and we could see a wave of defaults across the continent. However, it is important that these heavily indebted African countries ensure that IMF programmes serve as anchors for longer-term reforms to allow them to achieve self-sufficiency and reduce future dependency. If the programmes are used pragmatically to address structural issues, they will be effective in helping the continent to improve its economic growth.