Macro Analysis /

S&P cuts Ghana’s sovereign credit rating, putting it in default territory

  • Forex: Nigeria’s anti-graft agency intervenes to stem naira freefall

  • Fixed Income: S&P cuts Ghana’s sovereign credit rating, putting it at the same level as some countries in default

  • Macroeconomic: Recent data suggests that food price inflation may have peaked

Kieran Siney
Kieran Siney

Head of African Markets

Takudzwa Ndawona
Takudzwa Ndawona

Financial Markets Analyst

ETM Analytics
8 August 2022
Published byETM Analytics


Bond markets were put under pressure on Friday from the strong US payroll numbers, which sent yields globally surging as bets on aggressive monetary policy were reignited. Yields across the US curve were up by more than 18bp on the session with the curve inverting further and the 2v10 spread nearing -40bp. Market pricing for Fed rate hikes now shows more chance of a 75bp increase at the September meeting than 50bp. With such aggressive tightening priced in, volatility for the sort-end of the curve is expected to remain. The longer-end may also be subjected to some notable gyrations given the disconnect between what the market is pricing in and what the Fed’s official guidance points to. This morning we have Friday’s losses being held in the UST futures market, while Asian bond markets are under pressure as they catch up to Friday’s moves. Focus will now be turning to Wednesday’s US CPI report, which could provide further market volatility.


Nigeria: S&P affirmed Nigeria's long and short-term foreign and local currency sovereign credit ratings at 'B-/B' with a stable outlook. According to S&P, the stable outlook balances fiscal risks from reduced oil production and delays to subsidy reform over the next 12 months against Nigeria's comparatively deep domestic financial markets and its stock of FX reserves, especially given the limited external commercial debt repayments through 2025. Improved oil prices alongside oil sector reforms and upcoming refinery projects should support Nigeria's longer-term economic growth. Nigeria's ratings could be upgraded if the country experiences significantly stronger economic performance than currently expected while external financing pressures moderate and fiscal imbalances reduce, particularly the very high cost of servicing government debt. Conversely, the ratings could be lowered if the fiscal performance is weaker than expected or the, if the government's deficit financing strategy comes under strain, and if unrest were to rise significantly in the run-up to the elections.

Egypt: In a statement, Saudi Arabia's Public Investment Fund (PIF) said that it had started a company that will invest in swathes of Egypt's economy, from infrastructure and real estate to pharmaceuticals. The statement added that the Saudi Egyptian Investment Co. is interested in the country's "promising sectors." The new company will "contribute to enhancing access for PIF and its portfolio companies, along with the Saudi private sector, to a variety of investment opportunities in Egypt." Previously, Saudi had pledged $15bn worth of support to Egypt as the country has come under pressure this year amid the war in Ukraine, driving commodity prices higher.

Ethiopia: Headline inflation edged marginally lower in July, coming in at 33.5% y/y from 34% y/y, helped by a drop in food inflation. Food inflation decelerated to 35.5% y/y from 38.1% y/y in June, while non-food inflation picked up to 30.4% y/y from 28.4% y/y. Month-on-month inflation slowed to 3.1% in July from 4.5% in June. While the headline reading was the slowest since November 2021, upside risks to the inflation outlook remain amid a weak currency and a persisting drought triggering food shortages.

Ghana: Ghana is seeking a strategic investor to modernize and expand its state-owned aluminium smelter as it looks to build an industry out of its untapped bauxite reserves. According to the Ghana Integrated Aluminium Development Corporation, the plan to lift the annual production of Volta Aluminium to 300,000 metric tons from roughly 50,000 tons currently will require an investment of at least $600mn.

Mozambique: President Felipe Nyusi has called on private companies to resume activity in the gas-rich northern Palma district that stalled as Islamic State-linked fighters overran the town last year. According to Nyusi, the conditions now allow for a return to the area, even as terrorist attacks continue in the northern province of Cabo Delgado. The violence prompted TotalEnergies SE in April 2021 to declare force majeure on a $20bn liquefied natural gas project it was building to export the fuel whose prices have soared since the war in Ukraine curbed supplies to Europe.

Nigeria: A report from the budget office showed that Nigeria owes NGN 20trn ($47bn) to the central bank, and the obligations are yet to be added to the country's outstanding public debt. The debt figure is as of March 31, and the outstanding public debt is NGN 41.6trn. According to the report, the country remains "within Nigeria's self-imposed" limit of 40% debt to GDP even with the additional obligations. Meanwhile, the budget office also noted that Nigeria barely earned enough revenues to cover debt service payments last year, while in the first four months to April, government income of NGN 1.63trn was less than NGN 1.94trn needed to cover debt-service payments. The budget report office added that while the debt portfolio remains vulnerable to revenue and export shocks, "the challenges are being addressed by the government through its ongoing strategic revenue growth initiatives."

Tanzania: To combat a surge in inflation, Tanzania's Monetary Policy Committee (MPC) over the weekend pledged to reduce liquidity for the rest of the year. According to a statement, "the MPC approved the Bank of Tanzania to reduce the speed of expanding liquidity in the remainder of 2022, to tame inflationary pressures from the demand side, while safeguarding the economy's growth." The statement, however, stopped short of providing further details. The MPC in the statement also warned that inflation could accelerate further due to global prices for food, fuel and fertilizer.

Zambia: In a mid-term budget presentation, Zambia's acting secretary to the Treasury forecasted the fiscal deficit to be "much lower" than the projected 9.9% of GDP for 2022 if Zambia completes debt restructuring this year. The official added that Zambia has shared on a non-disclosure basis with Eurobond holders on Thursday the macro indicators used for the International Monetary Fund's debt sustainability analysis (DSA) that will be published next month. Bondholders had complained that official creditors had access to the DSA, which Zambia's debt restructuring will be based on, while private creditors were yet to receive the document. Meanwhile, Finance Minister Situmbeko Musokotwane on Friday said that official debt restructuring talks would commence next month. According to the minister, talks will be on how to restructure official bilateral loans, and there will be similar talks with private creditors, including Eurobond holders and commercial banks.

Forex: Nigeria’s anti-graft agency intervenes to stem naira freefall

Following the Nigerian naira’s free fall last month in the unauthorized market, Nigeria’s anti-graft agency has vowed to arrest foreign currency traders found to be hoarding US dollars. The Economic and Financial Crimes Commission has called foreign exchange dealers to a meeting in a bid to end “brazen foreign exchange speculation” that’s causing “a run on the value of the naira.” A shortage of dollars and supply rationing by the central bank has forced individuals and firms to turn to the parallel market, driving the naira to successive record lows this year.

However, the naira on the parallel market has strengthened recently, partly due to increased surveillance from authorities. For context, the naira strengthened on Friday to 660 per dollar after weakening to a record low of 710 last month. According to an operator of a bureau de change that tracks data in Lagos, “speculators are realizing that the EFCC are coming after them and as a result decided to dump their dollars.”

Although the naira has strengthened on the parallel market, it still represents a premium of around 55% when compared to Friday’s official close of NGN 424.50 per dollar. Despite the interventions by officials in Nigeria, the naira remains significantly overvalued on a real effective exchange rate basis, and risks for another devaluation exist in the near term.  

Fixed Income: S&P cuts Ghana’s sovereign credit rating, putting it at the same level as some countries in default

While there have been some positive developments on the fiscal front in recent weeks with the government making an about-turn on entering into an International Monetary Fund program, the move comes a little too late for global credit rating S&P. S&P lowered Ghana’s sovereign credit rating to CCC+ with a negative outlook from B- previously. The agency said in its statement that the negative outlook reflects Ghana’s reduced fiscal, monetary and reserve buffers in an environment of multiple external shocks as well as intensifying domestic fiscal and financing challenges and weaker economic performance.

S&P said that the double-edged sword of the Covid-19 pandemic and the war in Ukraine had amplified the country’s fiscal and external imbalances. The agency highlighted that foreign outflows from the domestic bond market, a lack of access to the Eurobond market, retail USD purchases, dividend payments to foreign investors and more expensive refined fuel imports are weighing on the currency and dragging the country’s FX reserves lower. The domestic pressures are coinciding with tighter global monetary policy and risk-off conditions.

S&P said lawmakers approved a $750mn loan from Afrexim Bank, which should temporarily boost reserve levels while noting that the loan will add to already high debt servicing costs. The government has also recently initiated talks with the IMF over an extended arrangement. The agency expects that one key objective of any program with the IMF would be to improve Ghana’s debt sustainability and unlock fiscal space so that the government can invest more in its growth potential.

Although there were some positive takeouts, they were few and far between. The overall narrative was negative and highlights just how severe the fiscal degradation has been over the past two and a half years. S&P said it could further lower Ghana’s credit rating if financing and external pressures continue to intensify. S&P said it would continue closely monitoring the country’s FX and fiscal position in the months ahead. From a financial market perspective, the rating downgrade coupled with the better-than-expected US jobs report on Friday suggests that Ghanaian bonds are likely to open the new week on the back foot.

Macroeconomic: Recent data suggests that food price inflation may have peaked

Adding to the notion that global inflation may be peaking, data published by the United Nations on Friday showed that the FAO World Food Price Index dropped by 8.6% m/m in July, marking the fourth consecutive monthly decline. While this is encouraging from an inflation perspective, the index is 13.1% higher than year-ago levels. Although global food prices remain elevated, concerns over supplies of grains and vegetable oils are easing, suggesting that food prices could continue correct lower in the months ahead.

Helping to ease supply concerns was reports that the first grain shipment had departed from Ukraine last week after an agreement was reached between Russia and Ukraine to ensure the safe passage of grains in the black sea. On Friday, three shipments of maize left Ukraine. The hope is that the amount exported will increase significantly in the coming months. There has also been an increase in seasonal availabilities in Argentina and Brazil, where the pace of the maize harvest has increased since last year. 

Note that the FAO Index tracks export prices for raw goods and excludes the retail mark-ups and, therefore, may not fully reflect the prices being paid by consumers. Many retailers are having to increase their prices as the costs of inputs such as transport and storage continue to rise. Retailers, therefore, have to push some of these costs onto the consumer. This is more pronounced in less wealthy countries, including many countries in Africa, resulting in them experiencing the worst food-security crisis in a decade.