Macro Analysis /

Talks between Ghana and the IMF are set to commence today

  • Forex: Impending IMF talks provide some relief for the Ghanaian Cedi

  • Fixed Income: Collapse in oil and intensifying growth concerns ease pressure on bonds

  • Macroeconomic: Economic risks in Sub-Saharan Africa are rising

Kieran Siney
Kieran Siney

Head of African Markets

Takudzwa Ndawona
Takudzwa Ndawona

Financial Markets Analyst

ETM Analytics
6 July 2022
Published byETM Analytics


Oil is recovering this morning following yesterday’s sharp plunge, which sent Brent benchmark futures back down towards $101 per barrel. WTI, meanwhile, has stabilised below $100 per barrel this morning when looking at the front-month contract. Commodities took a battering yesterday amid growing recession fears and a surging USD, with oil unable to escape even though market fundamentals remain very tight at the moment. As we have noted before, thinner than usual trading conditions in the oil space have increased volatility in the market, which would have contributed to yesterday’s notable price slump. However, the balance of supply and demand still favours higher crude prices; thus, once this bout of risk-off eases, we could see oil recover. There are still significant supply concerns coming from Africa, while OPEC struggles to meet its production targets. Russian exports may also come under further pressure now as a local court has ordered a halt of Black Sea oil loadings for 30 days due to violations of a spill prevention plan. However, it is not clear when this pause will occur. Demand from China is also starting to improve following its exit from strict lockdown measures, with oil and gas consumption for June at 90% of 2019 levels.

US Treasuries have stabilised this morning following yesterday's rally, which took the benchmark 10yr yield down to 2.800% as global recession fears swept through the markets once again. Other core markets couldn't escape the rally either, with UK 10yr yields down to around 2.05% and Bund yields closing yesterday at 1.175%. The tug-of-war between recession fears and expectations for more policy tightening globally has generated some notable volatility in the fixed-income market, with the MOVE Index, a measure of 30-day implied Treasury volatility, rising to its highest since March 2020.


Egypt: The latest data from the central bank of Egypt showed that remittances from Egyptians living and working abroad rose to $3.1bn in April from $2.5bn in the comparable month a year earlier, representing a 24% y/y in increase. Meanwhile, January-April remittances were recorded at $11.1bn vs $10.3bn in the same period a year ago. Given that remittance flows are a major foreign currency earner for Egypt, the broader rising trend will be a positive for the country. Remittance inflows in Egypt play a crucial role in helping narrow the country's chronic current account deficit.

Egypt: Taking advantage of a dip in global prices with Chicago futures erasing gains made since Russia's invasion of Ukraine, Egypt loaded up on wheat again just days after buying a massive amount in a tender, securing about 10% of its annual needs in less than a week. Egypt's state-run buyer purchased 444k tons of wheat on Monday in private negotiations with traders in what marked a shift from its historical process of securing supply exclusively in tenders, such as last week when it purchased 810k tons, the most in a decade. The US government expects Egypt to purchase 11mn tons for the 2022/23 season, about 50% of which is typically bought to help subsidize bread. Note that wheat prices have been pressured by concerns that an economic slowdown will dent demand for commodities.

Egypt: Data published this morning showed that Egypt’s headline PMI reading slipped deeper into contractionary territory in June, falling to 45.2 from 47.0 in May. The PMI data suggests that the Egyptian non-oil economy suffered its worst slump in business conditions in two years last month as businesses saw demand tank amid rising prices, a devalued pound and material shortfalls. S&P highlighted that input costs rose at the fastest pace in almost four years, leading to a marked acceleration in the rate of selling charge inflation. Encouragingly, while business conditions continued to deteriorate in June, businesses showed a greater degree of confidence in the 12-month outlook in June. 

Ghana: In a statement yesterday, the finance ministry said that it would ask the International Monetary Fund to support a program aimed at improving the credibility of government policy and regaining access to capital markets. The ministry added that the Enhanced Domestic Program, which would last three years, will also aim to restore debt sustainability and macroeconomic stability, strengthen the central bank’s monetary policy and build buffers against economic shocks. Ghana aims to accelerate talks that begin today with IMF by “sharing relevant data as well as presenting its enhanced economic program that will anchor the IMF program.” The ministry did, however, not disclose the amount it would be seeking.

Mozambique: The World Bank has agreed to come to the aid of Mozambican consumers facing record-high fuel prices. The IMF said it would subsidize urban transport users in the country after bus operators on Monday brought the capital to a standstill demanding fare increases to compensate for record fuel prices. According to a spokesman from the bank, the lender will provide unconditional cash transfers to the most vulnerable and poorest citizens for as long as six months while also subsidizing urban transport passengers. However, no details were provided on how much the World Bank plans to spend on the support or whether it would come in the form of a loan or grant.

Uganda: At a special meeting yesterday, the Bank of Uganda raised its benchmark interest rate by 100bp to 8.5%, its highest in two years, on concerns over mounting price pressure and weakening currency. The 100bp rate hike adds to another 100bp increase a month ago and brings the benchmark rate to the highest since early April 2020. The policy tightening by the BoU shows that the central bank is committed to curbing inflation and anchoring inflation expectations as inflation pressures remain elevated amid the lingering Ukrainian war, which is choking supply chains and driving the import bill higher. The prudent monetary policy stance will also help maintain the interest rate differential with the US Fed, which will help prevent massive capital outflows.   

Forex: Impending IMF talks provide some relief for the Ghanaian cedi

The Ghanaian cedi has enjoyed a strong start to the month and H2 of 2022. For context, the cedi has gained around 0.34% against the USD on a month-to-date basis, making it Africa's third best-performing currency. The cedi and other Ghanaian assets have been supported by improving sentiment and investor optimism that the country's decision last week to seek an IMF program will ease refinancing stress. Negotiations between the government and the IMF on the modalities of a package to support Ghana's economy are set to commence today.

While the cedi has strengthened on the back of these developments, it is worth noting that the broader bias remains to the downside, with the currency losing almost 30% on a year-to-date basis. The cedi has been weighed down by a worsening fiscal outlook and tightening global financial conditions preventing Ghana from accessing international capital markets.

While the broader bias on the cedi remains bearish, the currency is mildly undervalued on a real effective exchange rate basis, suggesting that there is room for the cedi to recover should a program with the IMF be agreed upon and Ghana’s fiscal trajectory altered. An IMF program would help bolster the government's fiscal reform efforts and reduce debt vulnerabilities.

Fixed Income: Collapse in oil and intensifying growth concerns ease pressure on bonds  

Tuesday turned out to be an eventful day for global markets, with the USD surging to a fresh high on the back of expectations that other major central banks may not hike as aggressively as previously thought amid mounting growth concerns. The resurgent USD, together with intensifying growth concerns, came as stern headwinds for commodities, particularly oil, which lost more than 9% on the session to flirt with levels close to $100/bbl.

The correction lower in oil and mounting growth concerns drove traders to adjust their interest rate expectations lower, prompting a broad-based receiver bias across major bond and swaps markets. US Treasury yields continued to plunge, with the 2yr yield closing the session at 2.82%, levels last seen since at the start of June. European bond yields also tanked on Tuesday as traders repriced for a less hawkish ECB.

While the bullish bias in core bonds and the correction lower in oil helped ease pressure on African bonds yesterday, the broader bearish bias remains intact. As highlighted in recent commentary, inflation risks in Africa are intensifying as currencies continue to weaken and supply-side pressures persist. As such, there has been a hawkish shift from African central banks in recent months as policymakers look to rein in inflation and inflation expectations.

Although there was some reprieve for African bonds on Tuesday, the accompanying chart, which plots short-dated African Eurobond yields, shows that the broader bias in regional bond yields is firmly to the upside, reflecting the hawkish shift from central banks and deterioration in global risk appetite. While we expect African bonds to remain under pressure over the next three to six months, we are likely to see a significant correction post that, given our view that global monetary policy will turn dovish as recession risks materialise.

Macroeconomic: Economic risks in Sub-Saharan Africa are rising

A wave of PMI data has been released over the past few days. The Sub-Saharan Africa PMI average edged lower in June, falling to 50.5 in June from 50.6 in May. Note that PMI is a diffusion index. Therefore a reading above 50 indicates improving business conditions, and a reading below 50 points to a deterioration. The major takeout from the regional PMI releases is that near term growth risks remain elevated as global recession risks intensify, inflation pressures persist, and monetary conditions tighten. While growth risks have increased, commodity prices remain elevated, and Covid restrictions have been removed, which should continue to underpin the regional economic recovery.

Ghana’s June PMI reading came in at 48.5 from 47.4 in May, pointing to a sustained decline in business conditions. Businesses surveyed said that purchase costs continued to rise sharply, with the rate of inflation posting well above the long-run series average in June. Higher fuel prices, currency weakness and increases in costs for raw materials all added to purchase prices. Respondents said that demand is expected to improve over the next 12 months, supporting the outlook for business activity in the coming months.

Nigeria’s headline PMI reading fell to 50.9 in June from 53.9 in May, the lowest reading in almost a year and a half. Surging cost pressures have continued to persist within the country, which is impacting input prices and weighing on improving business conditions. Sentiment regarding output for the year ahead does still remain firmly in positive territory. Although there have been some signs that soaring inflation has weighed on optimism since May, there is a high risk that inflation is likely going to increase and weigh on optimism in the coming months.

South Africa’s economy-wide PMI rose for the second consecutive month in June, showing that business conditions in the private economy continued to improve. Specifically, the headline PMI gauge jumped from 50.7 in May to 52.5 in June, its highest level in thirteen months. However, the private economy continues to face considerable pressures from rising input costs due to surging global fuel prices and supply-chain bottlenecks, as well as the unprecedented load shedding faced in recent weeks.

Business conditions in Kenya continued to deteriorate in June. This is reflected by the drop in Kenya’s economy-wide PMI reading, which fell to 46.8 in June from 48.2 in May, marking the lowest reading in more than a year. S&P said in the report that the downturn was led by further contractions in both output and new orders at the end of the second quarter. In both cases, rates of decrease quickened from May. Firms commented that rising price pressures had weighed on client demand, while weaker cash flow and the upcoming elections were also noted as contributing factors. S&P noted that the downturn in sales was concentrated in the manufacturing, construction, wholesale and retail sectors in June. Expectations for future activity improved for the first time in four months during June, after reaching a record low in May.