Entries for 'Sub-Saharan Africa'
September 29, 2021
In this note, we update out view on inflation and monetary policy in emerging markets. Rising inflation, even if partially transitory, has forced the hand of EM central banks. We expect inflationary pressures in many countries to peak in the next six months. Slowing growth, favorable base effects, and lower commodity prices will be the drivers. However, rate hikes were also prompted by expansionary fiscal policy in some cases. Furthermore, tightening global liquidity in 2022 may add pressure on central banks.
September 22, 2021
Renewed pandemic containment measures weigh on economic activity in Kenya and Uganda. Low vaccination rates due to supply constraints make a stop-and-start recovery more likely. Benign inflation dynamics have allowed the BoU to continue its accommodative policy stance. However, real interest rates are still attractive and foreign capital has flown into the local market. This has supported the UGS, which continues to appreciate in nominal and real effective terms.
September 15, 2021
Upside inflation surprises prompted rate hike in most CEEMEA countries. We expect inflation to ease across the region, but high uncertainty remains. In Russia, we now see a higher terminal rate and easing to start later in ’22. The SARB can likely afford to stay on hold longer with only one hike in ‘22. We expect gradual cuts in Turkey through 2022 in line with market pricing. Despite above-target inflation, the Ukrainian NBU will likely stay on hold.
August 25, 2021
The Zambian Kwacha appreciated sharply in July-August, by ~25%. High copper prices and larger non-resident flows are likely responsible. The IMF’s SDR allocation will provide substantial relief to FX reserves. While external pressure is lower, high inflation will weigh on the ZMW. If transitory factors do not dissipate, interest rate hikes may be needed. Our outlook turns more constructive as an IMF program appears likely.
August 18, 2021
Fiscal challenges in Sub-Saharan Africa have been exacerbated by the COVID-19 shock. We conduct a detailed analysis of adjustments under recently-approved IMF programs. Kenya and Uganda appear to be in need of the most ambitious consolidation efforts. Primary balance improvements are mostly driven by cuts to non-interest expenditures. We believe that program targets are largely achievable, with Uganda’s most ambitious. More IMF arrangements in SSA are on the horizon and Zambia will likely be a priority.
August 4, 2021
Mobile money use in Sub-Saharan Africa has grown substantially in recent years. Limited reach of traditional banking services likely contributed to this dynamic. We estimate that mobile money transactions reached around $275 bn in 2020. However, their importance differs considerably among countries in the region. The industry will likely undergo a fundamental transformation in coming years. Changes will include market entrance of existing app-based payment platforms.
July 7, 2021
Nigeria’s multiple exchange rate regime continues to give reasons for concern. We estimate the Naira to be overvalued by ~14% despite the recent devaluation. A weaker exchange rate could pass through to already high headline inflation. However, monetary policy tightening moderated the impact during past episodes. Thus, the transition to a market-determined exchange rate appears manageable.
June 30, 2021
We use VAR models to decompose the effect of commodities and FX on EM inflation. Turkey and Russia, for different reasons, appear most exposed to exchange rate shocks. Headline inflation in South Africa and Brazil appear to be driven by energy prices, while price dynamics in Indonesia are more responsive to non-energy commodities. We expect tight stances in Brazil, Mexico, Russia, Turkey to keep expectations anchored.
June 23, 2021
We continue our series on EM inflation by turning towards country specifics. In this note, we examine inflation dynamics in Russia, South Africa, and Turkey. As demand is a key driver of inflation in Russia, we expect further tightening. In South Africa, we see the pickup as transitory and largely driven by base effects. Turkey stands out with the highest inflationary pressures and little room to ease.
June 14, 2021
Sub-Saharan African countries will receive an estimated SDR16.2 bn in 2021Q3. While this will increase holdings markedly, it represents a small share of the total. We assess the impact of the allocation in four areas and find it relatively limited. For most of SSA’s largest economies, reserve adequacy will improve marginally. Respective allocations are also too small to fundamentally affect financing needs.
May 18, 2021
IMF support to Sub-Saharan African countries reached unprecedented levels in 2020. Short-term instruments with limited conditionality accounted for most of the funding. Additional financing will likely be needed to support a robust recovery from COVID-19. In particular, multi-year arrangements could help anchor needed fiscal consolidation. The allocation and possible reallocation of SDRs could be very beneficial for the region.
May 12, 2021
The COVID-19-induced collapse in international tourism was unprecedented. Even in an optimistic scenario, tourism revenues will remain subdued in 2021. As a result, the economic recovery in countries such as Thailand will be slower. Furthermore, external pressures are set to rise as imports rebound strongly.
April 28, 2021
Pent-up demand should support robust output growth in 2022. The SARB is expected to keep its accommodative policy stance. South Africa’s current account will gradually revert to a deficit. The government is expected to stand firm against labor unions. Fiscal consolidation could narrow risk premia in coming years.
April 21, 2021
We compare the cases of 12 countries that have attempted to unify their FX markets. Unified exchange rate systems eliminate distortions, reduce rent-seeking, and boost fiscal revenues. However, successful unification hinges on consistent underlying credit and fiscal policies and broad reforms.
April 7, 2021
Depreciation pressure on the Rand has been weaker and yields risen less than in 2013. However, South Africa’s fiscal position is much weaker than during the taper tantrum. Substantial financing needs leave the country vulnerable to shifts in market sentiment. Furthermore, structural issues will continue to constrain growth in the coming years. This will add to already-heightened foreign investor concerns over debt sustainability.
March 29, 2021
Domestic banking systems financed widening deficits in Sub-Saharan Africa in 2020. Tighter financial conditions and less IFI support will likely require the same this year. Absent robust deposit growth, this will lead to a crowding out of private sector credit. Meaningful fiscal consolidation would enable banks to expand lending significantly.
March 3, 2021
In its 2021 budget, the government cut deficit targets relative to last October’s MTBPS. As a result, it expects public debt to peak at a lower level of 88.9% of GDP in FY25/26. We see risks to underlying revenue and spending projections, in particular the wage bill. In our estimate, larger deficits will cause debt to peak at a higher level of 92.9% of GDP.
February 17, 2021
Improved market sentiment will allow African sovereigns to return to the market in ‘21. We expect Egypt, Nigeria, Ghana, and South Africa, among others, to issue Eurobonds. However, debt sustainability and liquidity concerns are rising in the context of COVID-19. African countries face Eurobond repayments of close to $100 bn in the coming years. An end to the current low-interest rate environment could make rolling over of debt costly.
January 27, 2021
CEEMEA countries recovered faster from the initial COVID-19 shock than expected. This is mainly due to virus containment allowing for a faster reopening of businesses. As a result, we are revising our estimate of the contraction in 2020 from 5.2% to 3.2%. However, a second wave of infections weighed on economic activity in recent months. We expect modest growth of 3.8% in 2021, but much depends on vaccinations efforts.