Macro Analysis /

Kenya cancels planned Eurobond issuance, Bitcoin plunges ahead of FOMC meeting

  • Forex: Widening current account deficits pressure African currencies

  • Fixed Income: Kenya revokes planned Eurobond issuance as international lending costs surge

  • Macroeconomic: Uganda to run higher current account deficits until oil production comes online

Kieran Siney
Kieran Siney

Head of African Markets

Takudzwa Ndawona
Takudzwa Ndawona

Financial Markets Analyst

ETM Analytics
13 June 2022
Published by


The USD has extended its gains from Friday’s session as investors continue to price for more aggressive Fed tightening following the higher-than-expected CPI print. The rally in the USD comes as the 2yr US Treasury yield hit a 15-year high ahead of the much-anticipated FOMC rate decision on Wednesday. It is widely expected that the Fed will deliver another 50bps rate hike this week as it continues its fight to rein in inflation expectations. Following the inflation shock on Friday, traders are pricing in 50-50 odds of the Fed delivering a 75bps hike next month. The stronger dollar and bets for a more hawkish Fed have come as a headwind for developed and emerging market FX, both a sea of red this morning. Crypto has also taken a beating on the back of the stronger USD and expectations for a more aggressive Fed, with Bitcoin plunging to its lowest since December 2020.

In the commodity market, Oil markets are under pressure this morning, with Brent dropping back towards the $120 per barrel mark, while WTI has slipped below $119 as traders assess the demand outlook given surging US inflation and China’s latest lockdowns. Both benchmarks have slipped almost 2% this morning as China has reimposed lockdowns in Shanghai, and concerns are rising that the outbreak in Beijing will not be brought under control. If the measures are tightened further, it could weigh further on the demand outlook for the world’s top oil importer and could help to keep Brent prices contained below the $120 per barrel level.


Ethiopia: Inflation in Ethiopia accelerated further in May, driven by a pickup in food inflation and persistent currency weakness. Inflation rose to 37.2% y/y from 36.6% y/ in April, marking the fastest pace of price growth in the economy since November 2011. Month-on-month inflation was 2.6% in May, also higher than April's 2.2% reading. Food inflation accelerated to 43.9% in May from 42.9% in April. Given the ongoing drought, currency weakness, and elevated commodity prices, we see further upside risks to Ethiopia's inflation outlook in the coming months.

Ethiopia: In a move that could ease geopolitical tensions, Ethiopia said it is willing to resume talks with Egypt and Sudan on the controversial Blue Nile dam that will be Africa's largest hydroelectric power plant. Recall the multi-billion dollar project is expected to bring electricity to millions of off-grid Ethiopians, but Sudan and Egypt fear it will reduce the amount of water they receive from the Nile River. Several past rounds of negotiations among Ethiopia, Egypt, and Sudan have failed.

Ghana: A Bloomberg report quoting sources close to the matter indicates international banks have pledged to lend Ghana $1bn for budget purposes and to boost the central bank's reserves as the country seeks to reduce its fiscal deficit and stabilise the currency. Ghana has reportedly raised $750mn through syndicated loans with the participation of about eight African and European banks and $250mn from multilateral lenders. The transaction is the first part of $2bn in syndicated loans that Ghana targets to raise this year to stabilize its finances and financial markets. $750mn of the syndicated loans is expected to go to the budget for expenses and liability management, and the rest will go to the central bank to up its resources for swap deals. The deal is likely to be presented to parliament this week for approval.

Nigeria: To deepen trade and lure young investors to the market, Nigerian Exchange Ltd. plans to start a blockchain-enabled exchange platform in 2023. According to the CEO of Nigeria Exchange Ltd., the exchange looks to deploy blockchain technology in the settlement of capital transactions. The Nigerian bourse will partner with a technology firm and get the approval of regulators before the launch in 2023. The move by the Nigerian Exchange Ltd. comes on the back of the introduction of regulations to guide trade in digital assets by the Nigerian Securities and Exchange Commission and the growing interest to adopt the distributed-ledger technology by businesses and policymakers across the continent including in Kenya and South Africa.

Tanzania: Equinor ASA and Shell Plc have signed initial agreements, moving Tanzania closer to its objective of developing a $40bn liquified natural gas project. According to President Samia Suluhu Hassan, the latest signing precedes a Host Government Agreement (HGA) which is expected by the end of the year. The HGA sets out the technical, commercial, and legal terms of the project. Developing the LNG-export project could start soon after a final investment decision within three years and would come after about a decade of prolonged negotiations. As western governments seek alternative sources of energy to lessen their dependence on Russian energy following the war in Ukraine, Hassan is pushing to accelerate the project.

Zambia: China's top official for Africa, Wu Peng, is headed to Zambia this week, just days after President Xi Jinping held phone talks with his counterpart President Hakainde Hichilema. Recall two weeks ago, President Xi held his first conversation with Hichilema, where he hailed the two nations' "all-weather" friendship and reiterated Beijing's commitment to "consolidate and deepen" bilateral ties. Meanwhile, Hichilema raised the issue of the country's debt and said the two leaders discussed the potential for greater cooperation and their "shared commitment to working together to address and resolve the debt issue" in a statement. However, a readout of the call released by the Chinese foreign ministry made no mention of this. Nonetheless, Zambia's debt remains a key focus in bilateral relations as China holds the largest share of loans, and thus added focus will be on Peng's visit to Zambia.

Forex: Widening current account deficits pressure African currencies

African currencies have broadly come under pressure in 2022 so far, with 19 out of the 22 currencies tracked by Bloomberg against the USD weaker on a year-to-date basis. Tightening global financial conditions as the Fed and other major DM central banks embark on aggressive policy tightening and surging oil and food price prices weighing heavily on the current and trade accounts of African countries has pressured their currencies. The Tanzanian Shilling has been no exception to this broad-based weakness, with the currency losing -0.92% on a year-to-date basis.

Zooming in on current account dynamics, the latest monthly data from the Bank of Tanzania (BoT) showed that Tanzania’s current account balance during the year ended April 2022 recorded another deficit of -$3.37bn compared to a deficit of -$1.51bn during the year ended April 2021. The deficit was attributed to higher imports following an increase in commodity prices, which widened the trade account gap further. A breakdown of the trade account showed that imports of goods and services rose by 43.3% to $13.29bn in the year ending April 2022. According to the BoT, the increase was mostly on intermediate goods, particularly white petroleum products and industrial supplies. Meanwhile, exports of goods and services rose by 24% to $10.62bn during the same period, driven by both traditional and non-traditional exports and services receipts. Note that gold which accounted for 38.5% of goods exports, declined by -10.8% to $2.70bn, owing to a slowdown in production.

With an unfavourable external environment set to persist for the foreseeable future, a persisting current account deficit is likely to detract further from the TZS in the near-term. Looking to this week, it is worth flagging that the TZS may be more volatile than normal as the government is set to present its 2022/23 budget speech on Tuesday.

Fixed Income: Kenya revokes planned Eurobond issuance as international lending costs surge

It doesn’t come as a surprise that Kenya has revoked its planned Eurobond issuance, given that the cost of funding itself in the international bond market has, in some instances, more than doubled over the past year. Local news outlets reported on Friday that Kenya had cancelled the sale of a KES 115bn Eurobond. Kenyan Eurobond yields have surged over the past 12 months as markets price for tighter global monetary policy conditions and mounting political and fiscal risks ahead of the August election.

The 2024 and 2032 Eurobond yields have risen by more than 1000bps and 500bps over the past year to around 13.7% and 11.6%. At these levels, we concur with the Finance Minister that it isn’t feasible for Kenya to fund itself in the Eurobond market. This isn’t just a Kenya story, it is the reality for most African nations that have in recent years been funding a portion of their budgets in the international debt market.

The aggressive interest rate hikes by central banks, including the Federal Reserve and the Bank of England, pushed up the cost of debt financing in the international bond market considerably. With more rate hikes to come, lending conditions in the Eurobond market are only expected to worsen in the remaining months of 2022.

Therefore, Kenya along with many of its African peers, will have to look at alternative financing options, including concessional loans, multilateral loans, and potentially raising local currency debt issuance. The problem is that the domestic bond market has already been exhausted, leaving the government with few options other than concessional, commercial or multilateral loans.   

Macroeconomic: Uganda to run higher current account deficits until oil production comes online

Global ratings agency S&P delivered a credit rating update on Uganda on Friday evening. S&P affirmed its B sovereign credit ratings on Uganda and said that the outlook remains stable. The stable outlook balances risks associated with Uganda's high fiscal and external deficits over the next few years against S&P's expectation that consolidation measures will contain imbalances and that the government will maintain access to official financing on concessional terms.

In addition to the actual credit rating, S&P also published updated economic and fiscal forecasts. The ratings agency projects that Uganda's economy will continue its post-COVID-19 recovery, growing by 4.5% in the 2023 fiscal year as domestic activity picks up after the government removed some of the world's most stringent lockdown measures at the start of this year. S&P noted that Uganda has a relatively low reliance on food imports adding that the country has low sensitivity to external headwinds, including weakening global demand and rising inflationary pressures.

S&P highlighted that the three-year, $1bn IMF program signed in June 2021 made its second disbursement in March 2022. The agency said that it expects the program to underpin critical economic policy. However, only gradual fiscal consolidation is likely in the medium term as the government continues to invest in growth supportive infrastructure projects. The agency said before oil production starts in 2025 that it expects a significant buildup in external debt associated with import-intensive investment projects.

External deficits will also remain sizable due to substantial import requirements to construct the $10 billion Lake Albert oil project and the East African Crude Oil Pipeline, according to S&P. The external deficits will be partly financed through foreign direct investment, and the government will still benefit from access to concessional financing from multilateral and bilateral partners. That said, elevated public and external indebtedness will limit Uganda's ability to mitigate the impact of economic shocks.

Uganda’s current account has also been affected by the collapse in gold trade that has materialised since mid-2021. Ugandan gold trade was frozen after the government introduced a levy on gold, and producers responded by halting shipments. S&P said in response to the impasse, the government proposed the introduction of a fixed-rate levy of $100 per kilogram on refined gold in February, but this has not seen gold trade resume.

On a more positive note, S&P predicts that foreign direct investment related to the oil industry will pick up significantly over the next three years, rising to 5% of GDP from 3% historically. Over 70% of the upstream and midstream oil projects will be owned and financed by international oil companies. While this will boost hard currency inflows into Uganda over the long term, in the near term, the deterioration in Uganda’s current account dynamics will put pressure on the Ugandan shilling, especially while international oil prices remain lofty.