Macro Analysis /

Moroccans head to the polls today, IMF approves emergency support for Tanzania

  • Broader bullish bias in the Ugandan Shilling supported by forex inflows

  • Heavily indebted Zimbabwe plans debut USD domestic bond sale

  • Chad faces one last hurdle before securing an IMF support program

Kieran Siney
Kieran Siney

Head of African Markets

Takudzwa Ndawona
Takudzwa Ndawona

Financial Markets Analyst

ETM Analytics
8 September 2021
Published byETM Analytics


A slight rise in risk aversion has seen the USD find added support. The more stocks are on the defensive, and the more yields rise, the greater the level of support the USD will find. Despite the weaker payrolls data last week, the USD has recovered to a one-week high with some caution expressed ahead of the ECB statement tomorrow. The risk exists that the central bank will seek to cut back on its asset purchases to join other central banks that are looking to do the same. Any tightening in monetary policy conditions will cause some consternation across riskier markets and cause a moderate rotation to safety. The USD may well benefit from that now that investors have priced in the prospect that the Fed will be slower to taper than first thought.

In the commodity space, gold bulls took it on the chin yesterday as the price of the yellow metal slipped around $20/oz during yesterday’s session following a firming of the dollar and a rise in US Treasury yields. Many were left scratching their heads as to the catalyst of the move, with some attributing the fall to the news that US President Joe Biden will be presenting a six prong strategy this Thursday which is intended to fight the spread of the delta Covid-19 variant. Looking at the base metal counters this morning focus remains squarely on aluminium even though the metal gave back some of the gains overnight. A coup in Guinea with major mining disruptions expected of the key ingredient bauxite has kept the price of aluminium at near decade highs. Oil prices meanwhile have steadied this morning following a two-day slide with the benchmark front-month Brent contract trading near $71.70 per barrel while WTI is near $68.50, having slipped below its 100DMA to suggest that more selling may be on the cards from a technical perspective. Recent trading activity has reflected some notable uncertainty over the demand outlook, and this may continue until we see some signs that economic growth across the globe is stabilising, especially in Asia


Morocco: Moroccans head to the polls today for the pivotal legislative, regional, and local elections. Voters will choose among candidates from 31 political parties and coalitions that are competing for the 395 seats in the lower house of parliament. They will also be selecting representatives for 678 seats in regional councils. Job creation, boosting Morocco’s economy, education, and health rank at the top of parliamentary contenders’ campaign agendas. However, the role of lawmakers is limited by the powers of King Mohamed VI, who oversees strategic decision-making. The moderate Islamist Justice and Development Party, at the helm of the government since 2011, is seeking a third term.

Tanzania: The IMF executive board approved $567.25mn worth of emergency support to Tanzania to address the COVID-19 pandemic, according to a statement released last night. The emergency assistance is aimed at supporting health, humanitarian and economic costs. The IMF said that the resources are also expected to play a role in mobilising additional support from development partners. The international lender said that the government has committed to strengthening governance and transparency to ensure that the financial resources are efficiently spent on addressing the crisis. With Tanzania still reeling from the economic fallout triggered by the COVID-19 pandemic, the additional financial support will be well received.

Ethiopia: The World Food Program has indicated that it needs around $426mn in emergency funding over the next six months to feed millions of people in Ethiopia, including 5.2mn people in the conflict-ridden region of Tigray. The food crisis has been fueled by a conflict between federal forces and troops from the northern Tigray region that erupted in November and has spread into the neighbouring Afar and Amhara regions. Tens of thousands of farmers have fled their land, missing the agricultural planting season in many parts of Tigray. A failure to address the food shortages is seen as risking broader civil unrest in the country.

Ghana: According to Fitch Solutions, Ghana’s international reserves excluding gold is set to grow by 16.8% in 2021 to $9.5bn, an upward revision from an earlier forecast of $8.8bn. Fitch added that this would equate to 4.2 months of import cover, and the increase is a result of a recovery in global growth, which has triggered demand for the country’s export commodities, particularly oil and cocoa. Fitch forecast exports to pick-up swiftly, on the back of rebounding growth in major markets such as China. For 2022 foreign reserves are forecast to rise further to $10.6bn. Rising levels of reserves could help underpin the Ghanaian Cedi’s resilience going forward.

Kenya: Kenya Ports Authority is seeking a financial advisor to raise the majority of the KES 17.4bn it requires to complete construction and operationalise the first three berths of the new Lamu port. According to a document calling on the expression of interest, the bulk of the amount will be loans, while KES 5bn of KPA’s internal funds will be spent on general equipment, security, and ICT. The document further noted that “KPA seeks to optimise its annual debt service costs” and “mitigate foreign-exchange risk” given that over 100% of the current borrowings is unhedged on a long-term basis and denominated in Japanese yen while 85% of income is in dollars.

Kenya/Mozambique: The Paris Club yesterday accepted Kenya’s request to extend the Debt Service Suspension Initiative by six months. Kenya is set to use freed resources to boost spending to mitigate the health, social and economic impact of the coronavirus pandemic. Given the fiscal pressures Kenya is facing, the Debt Service Suspension will provide a sigh of relief for the government as it continues to fight the COVID-19 pandemic. The Paris Club meanwhile extended Mozambique’s debt suspension to December 31.

Uganda: Reports from a local newspaper, citing a government bill, suggests that Uganda is planning to offer the East Africa Crude Oil Pipeline company a 10-year exemption for corporate income tax, which is currently 30% of taxable income. Moreover, the bill proposes the exemption of VAT for imports of goods and services for EACOP as well as export. Uganda also plans to exempt the company from paying transit costs.

Forex: Broader bullish bias in the Ugandan Shilling supported by forex inflows

The Ugandan Shilling (UGX) halted a three-day winning streak to close on the back foot along with most emerging and frontier market currencies as the dollar regained its footing yesterday. However, it is worth noting that the broader bullish bias in the currency remains intact. The UGX is up by 3.30% on a year-to-date basis, making it the third best performing African currency after the Zambia Kwacha and Mozambique’s Metical.

The UGX’s stellar performance has been underpinned by dollar inflows from coffee exporters and foreign investors chasing yield. Africa’s biggest coffee exporter saw its shipments climb to a record high in June on better yield from new trees, favourable weather, and improved prices. Data from the Uganda Coffee Development Authority showed the exports in the first ten months of the season that started October 1 rose 20% y/y. Further supporting the UGX has been the coronavirus pandemic which has dented economic growth from the net importer, resulting in less demand for the dollar.

Looking ahead, the bullish bias is expected to remain entrenched on the UGX as portfolio investors are anticipated to stay active amid the high real positive rates on offer and as the economy rebounds. That said, a persisting current account deficit could cap gains.

Fixed Income: Heavily indebted Zimbabwe plans debut USD domestic bond sale

The latest African sovereign looking to tap the bond market to fund its budget is Zimbabwe. The Southern Africa nation, which is still reeling from a multi-decade economic and fiscal crisis, is reportedly planning to sell its maiden USD domestic sovereign bond. Bloomberg, citing two people familiar with the matter, reported that the bond would be listed on the recently launched stock exchange based in Victoria Falls.

The $100mn auction will be conducted by the African Export-Import Bank and will take place before the end of the year. Bloomberg noted that the Infrastructure Development Bank of Zimbabwe would help arrange the listing, and Afreximbank will provide credit insurance. The reports come just days after Finance Minister Mthuli Ncube spoke of potential plans for the local sale of a USD bond to help pay compensation of $3.5bn to farmers evicted from their land two decades ago.

Finance Ncube said in a webinar that the issuance of the maiden USD bond would help the nation build a yield curve. While there has been some progress on the reform front in Zimbabwe, the country remains riddled with structural impediments. Unless some more significant reforms are implemented, Zimbabwe is unlikely to emerge from the precarious fiscal and economic position it finds itself in.

Going forward, until there is concrete evidence that the country is implementing much needed structural reforms, we expect that it will find it hard to attract investment into its sovereign bonds. If it is indeed able to, it will come at a significant cost.

Macroeconomic: Chad faces one last hurdle before securing an IMF support program

Chad has made its way into the spotlight as it runs into one last hurdle before it can secure an International Monetary Fund support program. The IMF said in a statement released on Tuesday that it wants Chad’s private creditors to engage in credible talks before approving a much-needed support program for the country. Recall that in June, creditors China, France, India and Saudi Arabia agreed to a debt restructuring and backed an IMF loan program aimed at shoring up Chad’s economy under the G20 debt-relief plan.

This is the latest call from the IMF for a strong commitment from private creditors on their willingness to negotiate a debt restructuring. Director of the IMF’s African Department Abebe Aemro Selassie said in an interview on Tuesday that “debt has to be sustainable for us to be able to proceed with financing,” adding “without a clear path forward to bringing debt to a sustainable position, we cannot move forward.”

As is the case with Zimbabwe, Chad faces a number of severe structural impediments. One of the key hindrances to growth in the economy is that two-thirds of the population of its capital N’Djamena don’t have access to electricity. On the fiscal front, a series of oil price crashes have also led to debt servicing issues for the oil producing nation. Chad also faces a massive political conundrum after a militia group seized power following the death of President Idriss Deby, who had ruled the country for 30 years.

Despite all the headwinds facing Chad, it is encouraging to see that the new regime has shown that it is committed to engaging with creditors and has shown that it wants to steer the nation towards a sustainable fiscal path. In its closing remarks, the IMF said, “the international community will be monitoring developments closely and looks forward to concrete progress in the engagement between Chad and its private creditors in the coming days.”