| LAGOS (Capital Markets in Africa): Losing access to foreign capital markets is tough, especially for a statist government with a number of fingers in a number of economic pies. Ethiopia has had to lean on its underdeveloped domestic financial sector to keep the machinery of state going, and it is now dealing with the second-round effects of this approach: strong domestic money growth is amplifying the liquidity imbalance between hard currency and birr supply. Staying with matters monetary policy, both Kenya and South Africa have recently hiked policy rates. Kenya is struggling with dollar shortages and upward-trending price inflation, while in South Africa, the magnitude of the latest hike caught many by surprise, and there is some uncertainty whether we have in fact reached the end of the hiking cycle.
Ethiopia: Pivot in public sector debt underway, albeit ever so slowly
Ethiopia was forced to exploit domestic debt financing sources in recent years as the country lost access to conventional capital markets. While external public debt to GDP is becoming less burdensome, the strong growth in public domestic debt is a concern due to the passthrough effects on price stability and the fiscal position. Furthermore, the high growth in public domestic debt amplifies the imbalance between hard-currency and local-currency liquidity conditions, which in turn worsens the degree to which the birr is overvalued.
Kenya: MPC hikes interest rates to a near five-year high
Monetary authorities in Kenya surprised financial markets with a 75-bps rate hike on March 29, bringing the key interest rate to 9.5%. As per the press release, the Monetary Policy Committee (MPC) assessed the impact of sustained inflationary pressures and global risks on the domestic economy and concluded that a further tightening of monetary policy was required to anchor inflation expectations.
South Africa: SARB surprises and delivers bigger-than-expected 50-bps rate hike
The South African Reserve Bank’s (Sarb) Monetary Policy Committee (MPC) opted for a 50-bps rate hike during its March meeting, instead of a widely expected 25-bps increase. Risks to the inflation outlook and a weaker rand exchange rate were among the main reasons for the larger rate rise, with the repo rate now set at 7.75%. The apex bank’s 2023 real GDP growth forecast is little changed at 0.2%, while its headline inflation forecast for this year is notably higher at 6.0%, compared with 5.4% expected during the January meeting.
South Africa: Predictable outcome as DA prepares for congress.
The main opposition Democratic Alliance (DA) will choose new leadership at its federal congress on the weekend of April 1 – 2, but expectations are that there will be nothing new about the cohort that will lead the party’s challenge in the crucial 2024 general elections.
South Africa: Private sector credit growth moderates somewhat in February
Total private sector credit growth dipped slightly in February, coming in at 8.3% y/y. Household sector credit growth softened marginally while corporate sector credit demand continued to grow at pace. With the South African economy undermined by incessant power outages, economic growth is expected to slow notably in 2023 – threatening the prospects of lending. Uncertainty about concerns regarding global banking stress is unlikely to go away soon and can also lead to changes in domestic credit conditions. At the same time, a push for self-sufficient electricity generation could open up new demand for credit.
Uganda: Economic growth takes a dip as industrial activity sinks
The latest real GDP data published by the Uganda Bureau of Statistics (Ubos) indicates that the economy ended 2022 on a feebler note, as growth deteriorated from a revised 10.0% y/y in Q3 2022 to 4.5% y/y in the final quarter of the year. While the agricultural sector performed well, weaker growth in the services sector and a contraction in the industrial sector dragged growth lower. |
