Macro Analysis /

More African countries to join G20 debt relief program

  • Forex: Ghana’s gross reserves drop to a six-year low in December

  • Fixed Income: Central Bank of Kenya surprises markets and leaves interest rates on hold

  • Macroeconomic: The Bank of Ghana delivers another outsized interest rate hike as inflation continues to run hot

Alexa Archibald
Alexa Archibald

Commodities Analyst

Kieran Siney
Takudzwa Ndawona
ETM Analytics
31 January 2023
Published byETM Analytics


US Treasuries continued to bull bear flatten yesterday as losses were led by the front-end of the curve as the markets brace for this week’s slew of central bank decisions. The early price action for the US market was led by bear flattening of the bund curve following stronger-than-expected Spanish inflation, which has supported bets of an outsized rate hike by the ECB this week. These early losses, which saw yields up as much as 7bp, were held during the US session and into early trade this morning as futures volumes have been light as traders stick to the sidelines. We will likely see this flattening trend persist through the day as longer-dated tenors will find some support from month-end flows, while the front-end will remain under pressure from rising rate hike bets.


Africa: In a wide-ranging interview Antonio Pedro, the executive secretary of the United Nations Economic Commission for Africa, said that more African countries are expected to join Chad, Zambia, Ethiopia, and Ghana in seeking to restructure debts under the G20 nations’ so-called Common Framework. According to Pedro, “one could argue that there are four or five countries there that are certainly at risk of falling into that debt trap,” Pedro, however, declined to identify them directly. As many as 15 emerging markets tracked in a Bloomberg gauge have average dollar-bond yields trading at an excess of 10 percentage points over US Treasuries, an indication of distress. Among them are defaulter Zambia, Ethiopia, and Ghana. Tunisia, which last year struck a crucial accord with the IMF, is also on the list. Pedro also noted that African authorities are proposing several reforms to improve the Framework. They include developing a burden-sharing arrangement between private and official creditors, expanding creditor committees to incorporate private entities from the onset of restructuring talks, expanding access to the Framework to middle-income countries, and giving nations more time to take advantage of it.

Egypt: Prime Minister Mostafa Madbouly said that Egypt cleared a backlog of foreign goods that had been stuck at its ports for months due to a shortage of foreign currency, signalling some of the pressure on the currency may be easing. Madbouly said, “we emerged from the crisis of goods accumulated at the ports. We are back to levels before last February, before the crisis began.” The tackling of the import bottleneck suggests that foreign currency flows are beginning to stabilize. The central bank at the end of December removed a requirement that importers acquire letters of credit to bring in some goods, a step imposed earlier in 2022 to cool demand for dollars.

Ghana: Finance Minister Ken Ofori-Atta said that the Ghanaian government will “soon present a better offer to individual bondholders” to take part in the domestic debt exchange program. According to the minister, individual bondholders remain invited to participate in the debt swap, which is voluntary. Note that the IMF deal is contingent on a successful local and external debt restructuring. Ghana has already reached agreements with fund management firms and insurance companies. As Ghana intensified efforts to clear holdouts ahead of the latest deadline for a swap proposal for its domestic cedi-denominated debt, Ghana’s dollar bonds were on the front foot on Monday.

Ghana: Data from the Bank of Ghana showed that Ghana’s balance of payment deteriorated further to a deficit of $3.64bn in December from a $3.4bn deficit at the end of September. The pressure on the balance of payments account has been largely driven by a sharp reversal in capital outflows, with Ghana’s capital account deficit having worsened to $2.18bn in December from $1.64bn in September.

Nigeria: The Central Bank of Nigeria (CBN) has extended the deadline for the expiration of higher denomination naira notes to February 10 after queues developed at banks and commercial activities almost came to a halt for lack of the new currency. According to CBN Governor Godwin Emefiele, the extensions will give “all Nigerians that have naira legitimately earned” the opportunity to return them to banks. Nigeria started issuing redesigned 200-, 500-, and 1000-naira notes in mid-December to mop up excess cash liquidity and take control of money supply. The CBN said that the currency swap has so far resulted in the mobilization of NGN 1.9trn ($4.1bn) into banking vaults. After the February 10 deadline, Nigerians will have a 7-day grace period to return the old higher denominations directly to the central bank.

South Africa: There is not much positive domestic news currently, and most of the negativity revolves around Eskom and the impact of all the load-shedding. The latest development involves the government announcing a State of Disaster concerning Eskom. It would give the government a wide range of powers to circumvent any bottlenecks or regulatory hurdles to ensure that Eskom is well-funded and takes priority over most other matters.

Cameroon: In a statement on Monday, the IMF said that it had reached a staff-level agreement with Cameroon that will provide the country access to around $74.6mn once the board formally completes the review. The announcement followed an IMF mission to Cameroon earlier this month and virtual meetings to discuss progress made on reforms and policy priorities in the context of the third review of the program, supported by Extended Credit Facility and Extended Fund Facility arrangements. According to the lender, “the mission has reached a staff-level agreement with the Cameroonian authorities on the economic and financial policies that could support the approval of the third review of the program.

Forex: Ghana’s gross reserves drop to a six-year low in December

The latest data from the Bank of Ghana (BoG) showed that gross reserves ended the year under pressure. Specifically, gross reserves fell to $6.20bn in December from $6.60bn at the end of September and compared to $9.70bn at the end of December 2021. The December level of reserves is the lowest since December 2016 and equates to 2.7 months of import cover. For 2022, Ghana’s gross reserves declined by around 36%. Meanwhile, the net international reserve position stood at $2.4bn at the end of December 2022 compared to $6.1bn at the end of December 2021.

Ghana’s reserves declined in 2022, in part due to the BoG trying to intervene in the FX market to slow the rate of depreciation of the cedi. The cedi was the second worst-performing African currency against the USD, tracked by Bloomberg in 2022. Losses of over 38% were driven by portfolio reversals amid deteriorating macroeconomic fundamentals and tightening financial conditions, lower foreign direct investment inflows, and heightened demand for foreign currency against a backdrop of limited supply. Tighter global financial conditions triggered higher borrowing costs making it difficult for Ghana to access international capital markets to obtain foreign currency to help bolster its reserve position.

Given that Ghana is unable to access the international capital market, risks remain tilted to the downside for gross reserves in the near term. This suggests that the central bank’s ability to use reserves to cushion against liquidity constraints and defend the currency may be constrained going forward. However, a successful debt restructuring could see Ghana swiftly regain access to international capital markets.

Fixed Income: Central Bank of Kenya surprises markets and leaves interest rates on hold

While a number of major African central banks have continued to raise interest rates at the start of the new year, policymakers in Kenya opted to leave rates on hold. The Monetary Policy Committee concluded that the current monetary policy stance remains appropriate and therefore decided to retain the Central Bank Rate (CBR) at 8.75%. Note that economists polled by Bloomberg expected the CBK to raise rates by 25bps on Monday.

The MPC highlighted that the decision to leave rates on hold comes against the backdrop of a weak global growth outlook, a decline in global commodity prices, easing inflationary pressures, geopolitical tensions, persistent uncertainties, and measures taken by authorities around the world in response to these developments. The central bank also noted that headline inflation moderated to 9.1% y/y in December after hitting a 5-year high of 9.6% y/y in October.

On the fiscal front, the CBK said that the ongoing implementation of the FY2022/23 Government Budget, particularly the recent strong tax revenue collection reflects enhanced tax administration efforts and increased economic activity. The central bank added that the proposed FY2022/23 Supplementary Budget bolsters the government’s efforts to consolidate debt that has risen sharply over the past decade. While the government has shown efforts to pull in the reins on the fiscus, fiscal risks in Kenya remain skewed to the upside. The same thing can be said for the central bank and inflation. As such, although we could see Kenyan bonds regain some ground in the near term, particularly if the Fed tones down its hawkish rhetoric on Wednesday evening, any gains in Kenyan bonds are likely to be capped for now.

Macroeconomic: The Bank of Ghana delivers another outsized interest rate hike as inflation continues to run hot

The Bank of Ghana has extended its steepest phase ever of interest-rate hikes. The BoG hiked interest rates by 100bps yesterday as the bank continues to try to get inflation under control. Risks remain tilted to the upside in terms of inflation as the weakness in the cedi continues to compound import costs. The cedi has depreciated by 16.53% since the start of the year against the USD, adding to the steep losses recorded in 2022.

The government of Ghana has been facing serious liquidity challenges and has been struggling to repay its debt. Ghana has requested a USD 3 billion bailout from the IMF. However, the approval of the loan and market stability is contingent on a much-needed debt restructuring. Expectations are that the deal will be reached by the end of the first quarter, and therefore we could see a slowdown in the pace of interest rate hikes in the latter part of 2023.

The Domestic Debt Exchange Programme and external debt restructuring will help to restore fiscal and debt sustainability and bring down inflation. However, in the interim, “the MPC sees the need to remain vigilant and moderate liquidity in the system to underpin macroeconomic adjustments taking place to drive inflation on a downward path.” Therefore, the risks remain tilted to the upside for further aggressive interest rate hikes from the BoG.