Macro Analysis /

Fitch affirms Rwanda's credit rating at B+, Rand extends its losing streak

  • Forex: Widening current account deficit weighs on the Tanzanian Shilling’s resilience

  • Fixed Income: Fitch affirms Rwanda’s sovereign credit rating at B+

  • Macroeconomic: South Africa Rand extends its losses at the start of the new week

Kieran Siney
Kieran Siney

Head of African Markets

ETM Analytics
9 May 2022
Published byETM Analytics


The lull in the appreciation of the USD was nothing more than a breather. The USD is again on the front foot this morning as investors focus on the rising risks and the monetary policy disparity between the U.S. and its trading partners. Fed speakers over the weekend also poured cold water on speculation that the Fed was behind the curve and predicted that it would continue on its tightening path. Of course, Friday's strong payrolls data only added to the argument for a stronger USD, explaining why equity markets remain under pressure. The EUR hobbles around the 1.0500 mark, while the GBP has slipped to below 1.2300 and shows no signs of stabilising. Not even the JPY has taken advantage of the rise in risk aversion and withdrawal of carry trades, as it climbs above 131.00/dlr this morning.

In the commodity space, oil gained nearly 3% last week when looking at the front-month Brent contract, which remains bid near $112.70 per barrel this morning as traders balance the risks from bans on Russian crude against a slowing Chinese economy. The slowing Chinese economy has seen Saudi Arabia cut prices of its key Arab Light grade for buyers in Asia, the first time it has done so in four months. The grade was cut to $4.40 per barrel above the benchmark, which suggests that Saudi Arabia still sees relatively healthy demand for now, even if it has been scaled back a bit as a result of the impact of the lockdowns in China.


Ghana: Ghana’s cocoa harvest outlook has worsened after artisanal gold miners damaged large swathes of farmland over the past year. According to an official from the Ghana Cocoa Board, more than 19000 hectares, or about 2% of coca plantations, have been destroyed by so-called galamsey, small-scale miners who often operate illegally. Note that authorities have already warned that Ghana is unlikely to meet its initial output target of 850,000 tons this year. Given Cocoa is the third-biggest-foreign-exchange earner for Ghana after gold and oil, the worsening outlook is likely to deal a blow to the economy.

Kenya: As part of measures to tighten spending and reduce its budget deficit as it plans to enter the international debt market this year, Kenya plans to take over operations of a key railway from a Chinese operator next month to cut costs. Kenya Railways Corp. will start operating the line run by Africa Star Railway Operation Co., a subsidiary of China Road and Bridge Co., from June 1. According to the chairman of Kenya Railways Corp, the new deal will see the government make “big savings.” However, the chairman did not say how much it pays Afristar to run the line but indicated that the amount varies depending on indicators such as freight volumes and the number of trains run.

Nigeria: Central Bank Governor Godwin Emefiele has joined the race to succeed President Buhari next year. According to the ruling party spokesman, Emefiele acquired a form on Friday permitting him to compete to become the All Progressive Congress’ presidential candidate. Emefiele has been the central bank governor for almost eight years, and there has been no indication as to whether he intends to resign his position at the central bank. Note current and former lawmakers and governors, and ex-party bosses are all vying for the chance to succeed outgoing term-limited President Buhari. The primaries to choose the APC’s nominee are scheduled to take place from May 30 to June 1 ahead of the nationwide elections in February next year. 

Nigeria: Data published by the Nigerian National Petroleum Co. has shown just high oil prices are weighing down rather than boosting public finances in the country. For context, Nigeria’s national energy company in Q1 spent almost two-thirds of its revenue subsidising gasoline and contributed no money to the government despite rising oil prices. The NNPC spent NGN 676bn ($1.6bn) in the first three months of the year on subsidies, against gross revenue of NGN 1trn, according to a report it published late last month. Note the IMF and World Bank have repeatedly urged Nigeria’s government to remove the subsidy on gasoline, which is forecast to cost the country as much as $9.6bn this year.

Nigeria: In a blow to travel and tourism, Nigeria airlines will shut down operations from May 9 as high aviation fuel prices push operating costs above revenue, making it difficult to continue business. The umbrella union, in a statement, said that the suspension of operations was till further notice and that the airlines, which have been “subsidising their services” for the past four months, can longer absorb the costs after the price of aviation fuel rose to NGN 700 ($1.68) per liter from NGN 190. Airlines in Nigeria have struggled with operations since the war in Ukraine started limiting fuel supply and increased demand, prompting prices to escalate. The Jet-A1 fuel used by the industry and diesel are sold in the country at market prices, unlike gasoline, which the government subsidises.

Somalia: Finance Minister Abdirahman Dualeh Beileh and central bank Governor Abdirahman M. Abdullah have asked the International Monetary Fund to delay the automatic expiration of its extended credit facility arrangement by three months to allow for a new administration to confirm the policies and reforms that underpin the program. The 3-year program approved in 2022 is set to automatically expire on May 17 after no reviews of the program were completed for 18 months due to election delays and related shortfalls in financing. The IMF had previously indicated that a timely resolution of the political uncertainty and successful completion of elections is critical to avert the automatic lapse of the program. Last week Somalia announced that it will hold its presidential election that was originally scheduled for February last year on May 15.

Forex: Widening current account deficit weighs on the Tanzanian Shilling’s resilience

Tanzanian Shilling bears have been in control in 2022 so far, with the TZS down by -0.84% against the USD, ranking 11th out of 23 countries tracked by Bloomberg. This year, much of the Shilling’s losses have stemmed from increased importer demand and reduced support from inflows. Another headwind has been a persisting current account deficit. For context, monthly data from the Bank of Tanzania (BoT) showed that the current account gap widened notably to $3,036.2mn in the 12 months through March 2022 from $940.8mn in the corresponding period of 2021. According to the BoT, the widening of the current account gap resulted from a substantially high import bill which saw the trade account remain in deficit territory.

A breakdown of the current account data during the 12 months through March 2022 showed that imports of goods and services surged by 43% to $12,861.6mn. The most significant increase was in intermediate goods, particularly white petroleum products. Meanwhile, oil imports almost doubled to $2,167.5mn, on account of both volume and soaring prices in the world market. Note oil imports accounts for about 20% of total goods import bill. Exports of goods and services increased to $10,214.6mn, higher than $8,5021mn in a similar period in 2021. An improvement in exports was noted in both traditional and non-traditional exports in addition to travel receipts.

With the above-mentioned factors persisting, the broader bearish bias on the Shilling may persist in the near term. That said, it is worth noting that the Shilling is expected to hold steady this week with inflows from agricultural exports and non-governmental organisations matching demand for the dollar from the energy and manufacturing sectors.   

Fixed Income: Fitch affirms Rwanda’s sovereign credit rating at B+

Global rating agency Fitch affirmed Rwanda’s Rwanda's long-term foreign-currency issuer default rating at 'B+' with a negative outlook. The agency said that the B+ rating reflects Rwanda’s low level of GDP per capita and persistent twin budget and current account deficits, which have led to high and rising public and external indebtedness. Fitch said that these weaknesses are balanced by strong governance relative to peers, a record of stable macro performance, high medium-term growth potential and the highly concessional nature of Rwanda's public sector debt.

In terms of fiscal dynamics, Fitch said that it forecasts Rwanda's fiscal deficit to narrow to 7.1% and 6.0% of GDP in the current financial year and from an average deficit of 8.6% in the two previous financial years but to remain wider than the 4.7% for the B median. Fitch expects the narrowing of the fiscal deficit in 2022 to be mainly driven by a decrease in government current expenditure through a reduction in expenses for goods and services as the need to cushion the economy from the pandemic subsides.

Fitch said that it doesn’t expect that the government will face difficulties in financing itself in the domestic market, despite an increase in interest rates, given available liquidity in the banking sector. Rwanda's high share of fixed-rate government external debt and funding from bilateral and multilateral sources helps insulate it from the impact of higher global interest rates and a more challenging external financing environment, according to Fitch. Going forward, Rwanda’s fiscal outlook is expected to improve. However, Rwanda's fiscal risks remain elevated, so investors should approach investing in Rwandan government bonds with some caution.

Macroeconomic: South Africa Rand extends its losses at the start of the new week

As we start a new week, the ZAR remains on the defensive. News that load shedding has been suspended appears to have done little to an investor base which is now worrying about global trends and themes and the consequences of the Fed's tightening. While equity markets remain under considerable pressure, the prospects for a near-term recovery in the ZAR look slim as overall risk appetite levels remain especially subdued.

Inflation is not yet under control. Many central banks worldwide have revised their inflation forecasts up for the next 6-8 months, and expectations are intensifying that rates will need to follow suit to cap the rise. An assessment of pre and post-Covid markets shows that the unprecedented amount of monetary stimulation applied during the pandemic has imposed a high degree of asset price distortion across different markets. That is now susceptible to a correction. How deep the correction will depend on how aggressively the central banks continue to tighten monetary policy. They have barely begun to do so, and financial markets are already correcting.

The real question is how much pain the central banks are prepared to inflict on household and business balance sheets. Shrinking balance sheets which accompany sinking asset prices will materially affect the credit cycle. In turn, economic dynamism will turn more subdued and economic growth will reflect this. This will continue until the central banks believe they have done enough to crimp inflation or when investors believe that asset prices are now so low that they offer plenty of future value. Between now and then, high degrees of volatility, uncertainty and negative returns may become commonplace.

Finally, speculation has intensified that Putin will announce either a victory or a stronger commitment to the war today, the anniversary of Russia's victory over Nazi Germany. If true, it could influence the general path the war could take. The sooner this war stops, the better it is for everyone if it helps to stabilise markets. Ukraine can start rebuilding, including the reestablishment of agricultural and mining production. In domestic events, only mining and manufacturing data will be of interest. At the same time, one eye will turn to the ANC's Eastern Cape conference, which could exert influence on President Ramaphosa's re-election bid. Beyond that, there is very little positive news in the press this morning that would give rise to any calls for a substantial ZAR recovery.