Weekly Africa Update: 30-05-2023

Currencies

The International Monetary Fund (IMF) highlighted in a newly published regional report, that African currencies are facing challenges as US interest rates remain elevated. Adding to the headwinds for African currencies have been tight global financial conditions, heightened global geopolitical tensions and an impending global downturn which have prompted capital outflows from riskier assets.

Weaker currencies push up public debt, particularly for countries that have larger external debts. About 40% of public debt is external in sub-Saharan Africa, and over 60% of that debt is in US dollars (USD), according to IMF data. Several central banks in the region have tried to prop up their currencies by supplying FX to importers from their reserves. But with reserve buffers running low in many countries, there is little room to continue intervening in FX markets.

The Kenyan shilling (KES) has continued its depreciating trend against the US dollar due to the same reasons. On May 26, the KES closed the week at 138.25 against the USD, up from the 137.70 close the previous week.

The Tanzanian shilling (TZS) has declined marginally in value against the US dollar, closing the week at 2370 from 2365 recorded the week prior. The high demand for US dollars from the energy, pharmaceutical and manufacturing sectors held the local currency under pressure with US dollar inflows from the mining sector, NGOs and tourism activities.

Côte d’Ivoire

To support the country’s financial aftershocks from the coronavirus pandemic and Russia’s invasion of Ukraine, the IMF approved a USD 3.5 billion loan to Côte d’Ivoire. In a statement, the lender said the country would receive an immediate disbursement of USD 495.4 million from the combined Extended Fund Facility and Extended Credit Facility.

Ghana

The Bank of Ghana Monetary Policy Committee opted to keep interest rates flat broadly on the back of the disinflationary trend. Inflation peaked at 54.10% in December 2022 and has been declining since, moderating to 41.20% year-on-year (y-o-y) in April 2023. Since the onset of interest rate hikes in 2021, the committee has raised interest rates by a cumulative 16.00% to curtail inflationary pressures in the economy.

Kenya

Moody’s has downgraded both Kenya’s foreign-currency and local-currency ratings to B3 from B2, while the sovereign was placed on review for further downgrade. The agency said that the downgrade was primarily driven by increasing government liquidity risks, as domestic funding conditions have deteriorated significantly over the past few months, resulting in financing shortfalls and delays in government spending.

Mozambique

The economy grew by 4.20% y-o-y in Q1 2023, equal to the same period last year as well as for the final quarter of 2022. Growth was mainly on the back of the mining industry, which grew by 35.60%, as well as the hotels and restaurants sector, which grew by 11.20%. The growth figures were tempered by contractions in the construction and manufacturing sectors of -8.00% and -7.00%, respectively.

Nigeria

Nigeria’s Gross Domestic Product (GDP) growth rate stood at 2.31% y-o-y in the first quarter of 2023, down from 3.52% y-o-y in the previous quarter.  The reduction in growth is attributed to the adverse effects of the cash crunch experienced during the quarter. The performance of the GDP in the first quarter of 2023 was driven mainly by the Services sector, which recorded a growth of 4.35% and contributed 57.29% to the aggregate GDP.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted to hike the Monetary Policy Rate (MPR) by 50 basis points (bp) to 18.50%, with other policy parameters held constant. Cumulatively, the MPC has increased the policy rate by 700 bp since May 2022.

The committee’s rationale for a further hike is in keeping with its commitment to curb inflationary pressures. Inflation has continued to accelerate since the start of 2023, with the April figure printing at 22.20% y-o-y, up from 21.80% y-o-y in January.

Senegal

International Monetary Fund staff have reached an agreement with Senegal on financing facilities totaling about USD 1.9 billion, the IMF said in a statement. The deal is subject to approval by the IMF executive board, which is tentatively scheduled to consider it in mid-June.

Zambia

The Bank of Zambia (BoZ) hiked the policy rate by 25 bp from 9.25% to 9.50%. While the central bank’s revised inflation projection had moderated, the MPC noted that it still expects inflation to remain outside the target range of 6% – 8% over the forecast horizon of 18 months. Additionally, the MPC took into account fragile growth and vulnerabilities in the financial sector.  “Continued delays in external debt restructuring negotiations, tighter global financial conditions, higher maize prices due to the anticipated lower production amid strong regional demand as well as the impact of the prolonged Russia-Ukraine war on food and energy prices remain key upside risks to the inflation outlook.”

Headline inflation for May slowed to 9.90% y-o-y from 10.20% y-o-y in April, driven primarily by non-food inflation which receded from 8.30% to 7.60%. Food inflation, on the other hand, remained upwardly sticky at 11.60%. Core inflation, which excludes food and transport, remained unchanged at 7.10% y-o-y.

Source:  United Bank for Africa PLC