Morning Note /

Kenya set to scrap Eurobond issuance plans, Ghanaian Cedi extends losses

  • Forex: Ghanaian Cedi extends its losses to close Tuesday’s session at its weakest level on record

  • Fixed Income: Kenya is reportedly looking to scrap its plans to sell $1bn in Eurobonds

  • Macroeconomic: Hawkish forward guidance has already prompted markets to adjust long before policy is implement-ed

Kieran Siney
Kieran Siney

Head of African Markets

ETM Analytics
27 April 2022
Published byETM Analytics


Oil prices are finding a bit of support this morning from the news that Russia will halt natural gas exports to Poland and Bulgaria, following through on its promise to stop exports to countries that refuse to pay for the fuel in RUB. This helped drive a rebound for oil yesterday and saw the front-month Brent contract rise above $105 per barrel while WTI traded back above $100 per barrel. As Russia continues to take steps towards weaponising fuel and the EU continues to edge towards a ban on Russian energy, prices will remain supported, and we could see Brent rise back above its 50DMA at $107.13 per barrel. Gains will, however, be capped by ongoing concerns over global economic growth

There have, however, been some positive signs from China, with Shanghai hinting that it could ease lockdown restrictions as cases have fallen to their lowest in three weeks. Beijing, meanwhile, has seen new case numbers stabilise to suggest that tighter lockdowns will be unlikely there. President Xi also committed to massive infrastructure investment to boost the economy, which should support demand for oil from the world’s top consumer.


Covid in Africa: The World Bank highlighted on Tuesday that Africa is experiencing its longest-running decline in weekly covid infections since the start of the pandemic in March 2020. According to the World Health Organization, weekly covid cases have fallen for the past 16 weeks and deaths for the last 8 weeks. The WHO Regional Director for Africa said, “with the virus still circulating, the risk of new and potentially more deadly variants emerging remains, and the pandemic control measures are pivotal to an effective response to a surge in infections.” From a regional growth perspective, the sustained decline in covid infections on the continent is encouraging. That said, the risk of more waves remains notable. These risks are evident when looking at the resurgence of infections in countries such as China.


Senegal: Economy Minister Amadou Hott said that growth in Senegal’s economy is expected to accelerate in the years ahead from average growth of 6% between 2014 and 2019. Minister Hott said the country aims to reach $8bn in private investments between 2021 and 2023 to meet its growth targets. The Minister added that oil & gas production is set to start next year and will keep growth high for a “sustained period” after that. Senegal has adopted a new Public-Private Partnership framework. Senegal is also working on a new investment code and other reforms to attract capital. The government forecasts that economic growth will expand by 10% in 2023. The IMF, meanwhile, sees Senegal’s 2023 growth at 9.2%.

Malawi/Mozambique: Malawian President Lazarus Chakwera said that he has approached Mozambique about gas supply. President Chakwera said Malawi wants to access natural gas produced in Mozambique’s Rovuma Basin. Moreover, Chakwera said that Malawi also discussed a 41-megawatt hydropower plant which Malawi would like to construct at Zoa Falls on the Ruo River in a possible joint venture with Mozambique. The comments come after the two presidents met last week. Chakwera was in Maputo to conclude an interconnection agreement that allows Malawi to import as much as 110 megawatts of power from Mozambique.

Zambia: President Hakainde Hichilema thanked China for agreeing to join other international creditors in efforts to restructure Zambia’s $17.3bn foreign debt. China is Zambia’s single largest creditor and was cited as stalling progress towards a debt restructuring deal with creditors, including the IMF. President Hichilema said that “you can’t build the economy with huge debt mountains, and we undertook a decision to dismantle this debt and create room to release resources towards debt servicing in the economy to create jobs and grow the economy.” Zambia reached a staff-level agreement in December 2021 for a $1.4bn three-year loan from the IMF. However, the government cannot access it before a creditors committee meets to chart a way forward. The progress with China is encouraging and suggests that Zambia is likely to conclude a deal with the IMF in the months ahead.

Kenya: Kenya’s market regulator is considering allowing blank-check firms to list on the local stock market in an attempt to spur initial share sales, according to Bloomberg. The last initial public offering in Kenya was in 2015, when Stanlib Fahari I-REIT sold securities. Kenya’s Capital Markets Authority said, “in the last five to ten years, the Kenyan capital markets have witnessed limited listing of companies on the Nairobi Securities Exchange,” adding that “SPAC listings provide an alternative listing model within shorter time periods when compared to traditional IPO listing procedures.” 

Egypt: Some positive news for fiscal hawks to cling on to, President Abdel Fattah El Sisi has ordered continuing work to achieve the financial discipline of the state budget while taking all measures to ensure maintaining the State's safe financial and economic track. Egypt has proven in recent years that it has the ability to deliver on its reform promises. Tuesday’s meeting on the state budget tackled the financial results achieved during the period from July 2021 to March 2022, which were improved significantly compared to the same period of the year before, with the total deficit-to-GDP ratio dropping to 4.9%. Tax revenues went up by 12.8%, with the state budget posting a preliminary surplus.

Forex: Ghanaian Cedi extends its losses to close Tuesday’s session at its weakest level on record

It has been a downbeat start to the week for the Ghanaian Cedi, with the currency extending its losses against the USD as external headwinds intensify. The combination of a surging USD and global risk-off conditions against the backdrop of lingering idiosyncratic risks, including a looming debt crisis and mounting growth concerns, saw the GHS close yesterday’s session at its weakest level on record.

The sustained sell-off in the GHS comes despite a record interest rate hike last month, which slowed the pace of depreciation in the currency for a period. The Bank of Ghana raised its benchmark lending rate by 250bps to 17%, signalling an aggressive stance against spiralling inflation and a depreciating local currency that has dampened investor confidence.

The GHS has lost more than 18% against the USD this year, making it the worst-performing African currency after the Zimbabwean Dollar. Technical indicators suggest that the pain is far from over for the GHS, with technical indicators suggesting that there is room for further depreciation in the currency. In addition to the bearish technical indicators, Ghana’s FX reserves are trending lower and are unlikely to get a boost from a Eurobond issuance, as has been the case in recent years. Moreover, foreign holdings of domestic debt have continued to plunge as sentiment toward Ghana deteriorates.

Therefore, the outlook for the GHS remains decisively bearish at the moment, notwithstanding the efforts from the government to rein in its ballooning debt pile. The depreciating currency will increase the country’s import bill and add to debt servicing costs, given that a large portion of Ghana’s debt is denominated in hard currency.  

Fixed Income: Kenya is reportedly looking to scrap its plans to sell $1bn in Eurobonds

Following the sharp sell-off in domestic assets against the backdrop of deteriorating external lending conditions amid the hawkish pivot from developed market central banks, National Treasury said that it is considering scrapping its plans to sell $1bn of Eurobonds by the end of June. Specifically, National Treasury said, “the international capital market conditions are unfavourable with elevated yields on traded securities, and there is a likelihood of not issuing a Eurobond in the current fiscal year.”

The document has since been removed from National Treasury’s website following a query from Bloomberg with officials saying it was an internal document. Given the marked increase in borrowing costs, it doesn’t come as a surprise that National Treasury is looking to scrap its plans to issue Eurobonds. The combination of mounting external headwinds, heightened political uncertainty ahead of the upcoming election, and lingering fiscal risks have pushed domestic bond yields sharply higher.

For context, Kenya’s 2032 Eurobond yield has risen by more than 300bps since the start of the year, breaching levels in excess of 10%. At these levels, Kenyan debt is approaching levels associated with a country in fiscal distress. While the 10yr Eurobond yield has breached the 10% mark, it ended yesterday’s session at 9.92%, according to Bloomberg data. Although Kenyan bond yields have edged lower, traders are still pricing in a significant fiscal premium into Kenyan bonds.

The IMF classifies Kenya’s debt as at high risk of becoming distressed and estimates the burden could rise to 71.2% of GDP by the end of 2022. In a move to return to a sustainable debt trajectory, the Kenyan government says it is shifting away from commercial borrowing to concessional loans. According to National Treasury, the switch to concessional loans could cap the debt ceiling at between 55%-70% of GDP. From a financial market perspective, we remain bearish on Kenyan bonds, given the lack of meaningful structural reforms and risks associated with the upcoming elections. Moreover, foreign investors investing in local currency Kenyan bonds will be exposed to the sustained weakening in the Kenyan Shilling.

Macroeconomic: Hawkish forward guidance has already prompted markets to adjust long before policy is implemented

Central banks use verbal guidance as a tool to prompt financial markets to adjust long before a policy-changing decision is taken and implemented. Forward guidance, as it is referred to, has been used as a tool more often now by central banks following the 2008 financial crisis and involves providing information about its future monetary policy intentions based on its assessment of the outlook for price stability. The aim of this is to influence financial decisions of economic actors by providing a guidepost. The greater the credibility of the central bank, the greater the market response, and the heavier the burden of self-regulation that is carried by the financial markets themselves to moderate the cycle.

One must think about the interplay between financial markets and the yield curve a little more deeply to fully appreciate the power of this tool. It also means that a central bank need not act as tough as it communicates, and therein lies the conundrum for investors. Should they take the central bank at face value, or should they rather focus on how much the underlying bond market has already priced in and achieved in moderating the cycle? The answer is always a bit of both.

The Fed this year has taken on a notably more hawkish stance towards its monetary policy, with this peaking recently when Chair Powell suggested that more than 50bp rate hikes could be on the cards for this year. The market has responded with the USD surging, while UST yields have climbed to highs not seen since 2019. This rise for UST yields has been more concentrated along the front end of the curve, flattening it out to the extent that the curve inverted over the 10v2 spread briefly at the start of April. The fact that interest rates over the short term have risen to near longer-term rates suggests that the market sees heightened near-term economic risks. These risks have come from the expectation that the Fed will hike rates aggressively over the coming months, choking liquidity in the market.

Hawkish forward guidance will also send a message to financial officers of companies that interest rates are set to rise, impacting the decision to roll over debt. Higher interest rates in the near term will make rolling over debt less attractive as it will have to be repriced at a higher rate. If options are limited and revenues are weak, debt may need to be rolled over regardless, leading to higher debt servicing costs which will threaten the longer-term profitability and growth prospects of a company.