Macro Analysis /

Mozambique's Eurobond firms on IMF optimism, Ghanaian Cedi depreciation persists

  • Forex: Ghanaian Cedi continues to sell off as fiscal fears haunt the currency

  • Fixed Income: The outlook for Zambian bonds rests on the government securing an IMF deal

  • Macroeconomic: Mozambique’s Eurobond firms after the government secures a staff-level agreement with the IMF

Kieran Siney
Kieran Siney

Head of African Markets

Takudzwa Ndawona
Takudzwa Ndawona

Financial Markets Analyst

ETM Analytics
29 March 2022
Published byETM Analytics


It is quite telling that the USD is struggling to gain more ground when it remains the standout hawkish developed market central bank in the world at the moment. The BoJ is stimulating, while the ECB will not budge on normalising while there is a war that holds economic consequences for the bloc. The BoE is turning a little more sensitive to growth, and the BoC and RBA are biding their time while telling the world they will act tough if needed. And yet the USD still struggles to gain more ground.

Some would argue that a lot has been priced in, which would be true. But equally important is the inflation differential that confirms that ultra-loose monetary policy undermined the USD and that the USD's inability to gain ground despite risk aversion is justified. Rate hikes in the US are happening for a reason. The US is running record high twin deficits, and the countervailing market response would be a rise in rates. The faster that rates rise, the quicker the correction, and so while at face value, this creates a positive carry for the USD, the flattening of the US yield curve, which might soon invert, tells a different story.


Kenya: Today, the Bank of Kenya will become the latest Sub-Saharan African central bank to decide on its policy rate. Policymakers are likely to keep the policy rate unchanged for a 13th straight meeting, given inflation is at a 16-month low. This will also allow policymakers to assess the impact of a depreciation in the shilling and the spillover from effects from the war in Ukraine on inflation. However, higher-than-expected price pressures from rising wheat and oil costs may lead the policy committee to revise its inflation forecasts upwards. This all said, a hawkish tone is expected, and the outside risk of a rate hike can’t be ruled out.

Algeria: Soaring oil and gas and prices spurred by Russia’s invasion of Ukraine are temporarily giving more fiscal leeway for Algeria, and the country has taken advantage of it to tackle social unrest. Specifically, Algeria has become one of the first countries in Africa to start a permanent unemployment-benefits program for its young population. About 580k job-seekers between 19-40 years of age are eligible to collect monthly payments of 13,000 dinars ($91) from the state starting Monday. Although it represents a tiny fraction of the total jobless population, the number is set to increase and is one of the clearest bids yet by authorities to address simmering economic discontent that’s driven three years of sporadic protests against the ruling elite.

Egypt: Minister of Planning Hala El-Said has downgraded Egypt’s economic growth forecast for the current fiscal year 2021-2022 to 5.7% from 6.4% previously. The lowered growth forecast comes on the back of the negative impact of the war in Ukraine. According to El-Said, “ we expected that the growth for the whole year would reach 6.4%, but the repercussions of the Russian-Ukrainian crisis and its effects on inflation and global growth were also reflected on us, and therefore we expect that our growth rate will slow down so that by the end of the year, we will register a growth of 5.7%.” Note the war in Ukraine has heightened Egypt’s external vulnerabilities, and last week Cairo asked the International Monetary Fund for assistance for the third time in six years.

Ghana: In a bid to kickstart a flagging economy, Ghana yesterday reopened its land and sea borders after a two-year closure as it lifted some coronavirus restrictions. President Nana Akufo-Addo also announced in a televised address on Sunday night that wearing masks is no longer mandatory as active Covid-19 cases drop below 100. Moreover, all outdoor functions can resume at full capacity for fully vaccinated people, while travellers will no longer require a coronavirus test for entry, provided they are vaccinated.

Morocco: The World Bank has approved a $180mn Investment Project Financing loan to Morocco to support resilient and sustainable agriculture in Morocco. Specifically, the loan aims to enhance the governance of water in agriculture and improve the quality of irrigation services, as climate change is placing increased pressure on water resources in the country. Note that Morocco has experienced severe drought and heatwaves this year, which has affected the agricultural sector, which is a major driver of economic and social development for Moroccan citizens. According to the World Bank, it amounts to 21% of GDP and accounts for nearly 39% of employment, even more so in rural areas.

South Africa: So the USD is struggling with traction, but some negative attention will fall SA's way today through the release of the latest non-farm payrolls data that will show that SA's narrow definition of unemployment rose above 35%. This is a desperate situation, and it is telling that SA's very strong terms of trade have done so little to boost formal employment. The unemployment rate will drop as the year unfolds, and SA eventually opens up fully in a boost to tourism and other sectors, but there has been much damage done. The only silver lining to this cloud is that it has kept consumption restricted and has assisted the trade account to remain in surplus through weaker demand for imports.

Forex: Ghanaian Cedi continues to sell off as fiscal fears haunt the currency

While the Bank of Ghana increased borrowing costs by the biggest margin in two decades last week, the Ghanaian Cedi (GHS) has continued to sell off. The USD-GHS closed at a fresh high on Monday, reaching levels just north of 7.500, according to Bloomberg data going back to March 1994, and added to month-to-date losses of more than 11%. These losses have seen the GHS rank as the second-worst performing African currency tracked among those tracked by Bloomberg and place it on course to record a fifth straight month of losses. Only the Egyptian Pound (-14.27%) has fared worse.

The GHS depreciation has been a result of several factors. The GHS has weakened on the back of concerns that the country won't achieve its revenue and debt targets, which has sparked a sell-off of its foreign debt. Meanwhile, increased hard currency demand by importers amid limited supply as the economy reopens has added downside pressure. The country's high debt ratios and inability to access funds from the international money markets limit its ability to manage the situation. More recently, the developments in Ukraine have led to elevated commodity prices and, more importantly for Ghana, higher oil prices, which has exacerbated the selling pressure on the currency.

There are reports that the government plans to raise around $2bn in syndicated loans from commercial banks and multilateral lenders to try and bolster the GHS. In addition to last week's significant rate hike, we could see some support for the GHS materialize. That said, we remain of the view that the GHS's biggest detractor comes from the fiscal side. While the finance minister announced measures to reduce expenditure last week, it is not enough to meaningfully alter the country's debt trajectory and restore confidence amongst investors that the government is fully committed to steering the country back towards a sustainable fiscal path. As such, risks remain tilted to the upside for the GHS until there is concrete evidence that the government is committed to bold fiscal reforms and the country's tax revenue issues are resolved.

Fixed Income: The outlook for Zambian bonds rests on the government securing an IMF deal

 Zambia has made its way back into the spotlight following reports from local media that the country’s creditors are due to form a committee to assess the sustainability of the nation’s $31.74bn debt and how the debt can be restructured. The reports come following comments from Finance Minister Musokotwane in parliament on Friday that a committee will be formed within the next few weeks.

The discussion over Zambia’s debt sustainability is a step that should help the country unlock a much needed $1.4bn credit facility with the International Monetary Fund that was passed at a staff level and now awaits the final stamp of approval by the international lender's board. Commenting on the IMF deal, Finance Minister Musokotwane noted that “everything is going to plan,” adding that the Debt Sustainability Analysis, which forms the basis of the country’s restructuring plans, had been completed.

Zambia’s debt pile currently sits at an eye-watering 120% GDP, making it one of the most fiscally fragile countries in the world. Recall that Zambia was the first African country to default on a debt repayment during the Covid-19 era. Zambia defaulted on an interest payment in late 2020 under the previous government. However, under the new government, the country has made some massive strides in terms of resolving its debt crisis, with the Hichilema administration initiating processes to restructure the country’s debt while at the same time rolling out much-needed reforms.

Although the country still finds itself in a very fragile position, it is looking more and more likely that the country will strike a deal with the IMF, which the Finance Minister hopes to have completed by the middle of the year. From a financial market perspective, investors continue to demand a massive fiscal premium for holding Zambian bonds. It is worth noting that bonds yields have fallen sharply under the new government amid promising signs that President Hichilema is steering the country toward a more sustainable debt path.

For Investors and Zambian bond bulls, it is imperative that the government seals a deal with the IMF. It will significantly boost investor confidence and confirm that the country is making meaningful progress toward unwinding almost a decade of wasteful fiscal expenditure. For now, we remain cautiously optimistic about the outlook for Zambian bonds.

Macroeconomic: Mozambique’s Eurobond rallies after the government secures a staff-level agreement with the IMF

Similar to Zambia, Mozambique’s debt to GDP ratio sits north of 100% of GDP, putting it amongst the most fiscally fragile countries in the world. Although fiscal risks in Mozambique remain acute, with the country still in a position of fiscal distress, the country appears to be on a path of improving fiscal dynamics with the government rolling out some key reforms. Also underpinning the country’s fiscal outlook is the massive liquified natural gas projects that will significantly boost economic activity in the country and government revenues when they come online.

Investor confidence will be enhanced by the fact that Mozambique has undertaken to announce several reforms that are prerequisites for the IMF deal, including a series of tax administrative and VAT reforms. The IMF noted that the recently approved wage bill reform would, over time, reduce pressure on public finances from remunerating public servants and lead to convergence of the wage bill, as a ratio to GDP, towards average levels observed in the wider region.

While still subject to Executive Board approval, the extended credit facility with the IMF should also provide some fiscal reprieve for Mozambique while at the same time boosting economic growth. The IMF said in a statement released on Monday that the extended credit facility aims to foster sustainable, inclusive growth and macroeconomic stability in the country. The IMF noted that Mozambique’s economy has been hit by a series of severe shocks that risk intensifying vulnerabilities and worsening socioeconomic conditions in recent years.

Furthermore, the IMF highlighted that devastating terrorist attacks in the north of the country have displaced more than 800k people and delayed the development of LNG projects. After months of deadly conflict, the government has managed to stabilize the security situation with assistance from bilateral and regional partners. Moreover, cyclones and the COVID-19 pandemic have taken a toll on physical infrastructure and public health. That said, strong pandemic containment measures, paired with a successful vaccination campaign, have allowed a gradual rollback of restrictive measures, resulting in an improved economic outlook. Although near term risks remain acute, we remain bullish on Mozambique over the medium to longer term.