Africa

Zambia

Debt data disclosures, SA fiscal buffer evaporating

Reports suggesting that many developing countries, including some in Africa, have larger external debts to China than officially reported reinforce concerns about a lack of transparency. At the very least, debt restructuring talks will get tougher. Meanwhile, in South Africa, the public finances have almost certainly taken a turn for the worse since the rosy outturn in the second quarter.

1 October 2021

Debt restructuring talks inching forward

The threat of messy outcomes to Sub-Saharan Africa’s debt problems seems to have diminished recently. In Zambia, the new administration vowed to tackle debt problems and press on with restructuring talks under the G20’s Common Framework. And Ethiopia, another participant in the programme, held its first creditor meeting as a political crisis reignited debt concerns. Even so, debt restructuring negotiations will not be smooth sailing, especially following recent revelations that Zambia’s debt owed to China may be substantially larger than officially reported. And elsewhere, debt problems may come back to bite down the line. While immediate risks in South Africa and Ghana are low, policymakers will need to undertake large fiscal consolidation to stabilise public debt-to-GDP ratios.

30 September 2021

Good and bad news from SA, Tanzania gets IMF support

Data this week showed that South Africa recorded robust GDP growth in Q2, but there was little time to celebrate as a slump in manufacturing output in July has raised the risk of a contraction over Q3. Elsewhere, Tanzania secured financing from the IMF this in a further sign of good start by the new president, Samia Suluhu Hassan. Finally, the sharp fall in the birr this year drove Ethiopia’s inflation rate to 30.4% y/y in August. Currency weakness and the growing threat of an all-out civil war have increased the risk of a sovereign default.
CE Spotlight 2021: The Rebirth Of Inflation? We’re holding a week of online events from 27th September to accompany our special research series. Event details and registration here.

10 September 2021
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Zambia’s new president off to a good start, SOEs in SA

Zambia’s newly elected president has wasted no time to push to restore macroeconomic stability, and reassure investors. But recent concerns about hidden debts could pose a risk to the debt restructuring process. In South Africa, reports suggest that the authorities are adopting a harder line on state-owned enterprise bailouts, but we think that it will be a case of not all SOEs being created equal.

BIG a non-starter, rand on the rocks, Hichilema hired

The South African authorities appear to be devoting increased attention to the idea of a permanent basic income grant (“BIG”) but, in practice, such proposals are probably dead on arrival. Meanwhile, the sell-off in the South African rand has gathered pace this week and we think that the currency has further to fall. Finally, the election of Hakainde Hichilema as Zambia’s next president has been embraced by investors. While it looks like he will adopt more prudent policies than his predecessor, we think these will only pay off in the long-run.

Zambia: on the rocky road to restore macro stability

The victory of Hakainde Hichilema in last week’s Zambian elections will probably nudge the country in the direction of more prudent macroeconomic policies and reforms under an IMF deal. These may bear fruit over a long time horizon, but we think that the recovery will remain sluggish in the near-term.

Lagging behind

Vaccination campaigns across Sub-Saharan Africa will continue to struggle, leaving the region vulnerable to renewed virus outbreaks. This, combined with tight fiscal policy, a slow return of tourists and falls in commodity prices means that economic recoveries will lag behind those in other parts of the world. GDP across most of the region is likely to stay well below its pre-crisis path over 2021-23.

SDR allocation a positive but won’t solve debt woes

The $650bn allocation of IMF Special Drawing Rights (SDRs) that was finally signed off by the IMF yesterday should provide welcome relief to some frontier markets such as Ghana and Kenya that still face very high foreign borrowing costs. But it won’t solve the underlying problems in EMs where debt dynamics look unsustainable, such as Tunisia and Argentina.

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