Fund times: Angola, South Africa and the IMF - Capital Economics
Africa Economics

Fund times: Angola, South Africa and the IMF

Africa Economics Weekly
Written by William Jackson
The Angolan authorities are seeking to expand the country’s IMF programme, which would help to ease balance of payments strains. But it’s far from a done deal as the Fund may require a restructuring to put public debt onto a sustainable footing. Elsewhere, South Africa’s IMF emergency rapid financing deal was approved this week, and the accompanying communications re-affirmed our view that a turn to austerity is on the cards next year, which will act as a brake on the recovery.

Angola’s debt sustainability in the spotlight

Angolan authorities are reportedly seeking to expand the country’s $3.7bn IMF Extended Fund Facility (first approved in 2018) which, if granted, would ease balance of payments strains. But that’s a big if given the country’s unsustainable debt load.

Reports suggest that Angola is seeking an extra $800mn, which would take the programme to $4.5bn. The request may be tied to a recent move by the Fund to increase access limits. However, it’s not clear that the IMF would approve the expansion (or the latest disbursement under the existing program for that matter) as Angola is almost certain to fail the Fund’s debt sustainability requirement for lending.

Angola entered this crisis with one of the weakest fiscal positions in the region. Government debt stood at about 110% of GDP at the end 2019. And low oil prices will cause the budget deficit to blow out this year. The IMF, in its latest report on Angola published in late 2019, warned that a decline in oil prices is one of the main risks to Angola’s debt sustainability. It would be hard for the Fund to conclude that public debt is still sustainable.

The IMF would need to make further financing contingent on measures to put the debt trajectory back on a sustainable footing, likely through a debt restructuring. The government has already announced that it is negotiating with oil importers to reprofile debts. We think that significant debt restructuring, including on debt owed to private creditors, will be needed to restore sustainability. But that will also have to be accompanied by austerity.

Investors certainly appear to remain concerned about default. The spread between Angolan sovereign bonds and US Treasuries remains in distressed territory even after dropping back in recent months. And compared to other oil producers in Sub-Saharan Africa, Angolan spreads are the highest.

S. Africa & the IMF: austerity on the cards

South Africa’s long-awaited IMF $4.3bn rapid financing deal approved this week doesn’t seem to have re-assured the markets – as policymakers might have hoped. The rand has been one of the worst performing EM currencies this week and the spreads on sovereign dollar bonds have widened (even though they have narrowed in most other EMs).

One explanation for this is that the deal comes very late in the day – the balance of payments strains that such deals are meant to be used to tackle were most acute in March and April. External financing conditions have improved significantly since then. Most African economies that have secured similar deals did so in April or early May. This goes to show that there are major political hurdles within the ANC to get such external help.

In the meantime, the IMF’s accompanying documents reinforce the message that the primary concern is the rising debt ratio and austerity is the solution. The Staff Report endorsed the government’s emergency budget in June, which set out a plan for harsh austerity from 2021. That will hold back the economic recovery.

In case you missed it

We published our Outlook this week, which details our latest views on the region. Apart from South Africa, we think that recoveries will also be particularly weak over the coming quarters in the major oil producing countries (Angola and Nigeria) and tourism-dependent economies (Mauritius, Namibia and Botswana).

The week ahead

It’s a quiet week in terms of data and events. The main release will be the South African manufacturing PMI on Monday, which will provide an early sign of how the sector shaped up at the start of Q3. It is likely to show a further improvement.


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (BST)

Previous*

Median*

CE Forecasts*

3rd Aug

SA

Absa Manufacturing PMI (Jul)

(10.00)

53.9

5th Aug

Ken

Markit/Stanbic Bank PMI (Jul)

(08.30)

46.6

6th Aug

SA

Electricity Production (Jun)

(12.00)

(-13.2%)

7th Aug

Mau

CPI (Jul)

(+1.7%)

(+1.8%)

Also expected during this period:

6th – 13th Aug

SA

SACCI Business Confidence

9th-16th Aug

Tan

CPI (Jul)

(+3.2%)

Selected future data releases and events

11th Aug

SA

Unemployment Rate (Q2)

(10.30)

30.1%

SA

Manufacturing Production (Jun)

(12.00)

-44.3%(-49.4%)

12th Aug

Ang

CPI (Jul)

Gha

CPI (Jul)

SA

Retail Sales (Jun)

(12.00)

+74.2%(-12.0%)

13th Aug

Uga

Interest Rate Announcement

7.00%

SA

Mining Production (Jun)

(10.30)

+44.0%

(-29.8%)

17th Aug

Nga

CPI (Jul)

(+12.6%)

19th Aug

Nam

Interest Rate Announcement

4.00%

Zam

Interest Rate Announcement

9.25%

SA

CPI (Jul)

(09.00)

20th Aug

Bot

Interest Rate Announcement

4.25%

Moz

Interest Rate Announcement

13.25%

27th Aug

Zam

CPI (Aug)

28th Aug

SA

Budget (SAAR, Jul)

(13.00)

Also expected during this period:

13th– 20th

Bot

CPI (Jul)

(+0.9%)

16th – 23rd

Nam

CPI (Jul)

(+2.1%)

17th Aug-17th Sept

Nga

GDP (Q2)

(+1.9%)

18th – 24th

Mau

Interest Rate Announcement

1.85%

*m/m(y/y) unless otherwise stated

Sources: Bloomberg, Capital Economics

Main Economic & Market Forecasts

Table 1: GDP & Consumer Prices (% y/y)

Share of

World (1)

2009-18

Ave.

GDP

Inflation

2019

2020f

2021f

2022f

2019

2020f

2021f

2022f

Nigeria

0.86

4.4

2.2

-5.5

3.5

3.0

11.4

13.0

12.5

12.0

South Africa

0.57

1.5

0.2

-11.0

4.5

2.5

4.1

3.0

3.0

3.3

Ethiopia

0.17

9.7

9.0

2.5

8.0

9.0

15.7

19.0

14.0

10.0

Ghana

0.15

7.0

6.5

0.0

6.5

6.0

8.7

10.0

9.0

8.0

Angola

0.14

2.4

-0.3

-6.0

3.0

2.0

17.3

22.5

20.0

17.5

Kenya

0.14

5.6

5.6

0.5

5.5

6.5

5.2

5.0

5.0

5.0

Tanzania

0.14

6.5

5.6

1.5

6.0

6.0

3.4

4.0

5.0

4.5

Côte d’Ivoire

0.08

6.1

7.5

1.0

7.0

7.0

0.8

2.0

1.0

1.0

Uganda

0.07

5.3

6.7

1.0

6.0

5.5

2.9

4.5

5.5

6.0

Zambia

0.05

5.6

1.5

-4.5

3.5

4.0

9.1

15.0

11.5

10.0

Mozambique

0.03

3.7

2.2

1.0

5.0

4.0

2.8

3.5

4.0

4.0

Botswana

0.03

3.7

3.5

-6.5

4.0

3.5

2.8

2.0

2.5

3.0

Rwanda

0.02

7.2

9.4

-2.5

10.0

9.0

2.4

8.0

5.5

5.0

Mauritius

0.02

3.7

3.5

-10.0

6.0

4.5

0.4

2.5

3.0

3.5

Namibia

0.02

3.4

-1.4

-5.5

4.0

3.0

3.7

2.5

3.5

3.5

Sub-Saharan Africa

2.5

4.2

2.9

-4.8

4.7

4.1

8.4

9.5

8.8

8.1

Sources: Refinitiv, National Sources, Capital Economics. (1) % of GDP, 2019, PPP terms (IMF estimates).

Table 2: Central Bank Policy Rates

Policy Rate

Latest

(31st Jul.)

Last Change

Next Change

Forecasts

End

2020

End
2021

Nigeria

MPR

12.50

Down 100bp (May ’20)

Down 50bp (Sep. ’20)

12.00

11.50

South Africa

Repo Rate

3.50

Down 25bp (Jul ’20)

Down 25bp (Sep ’20)

3.00

3.00

Angola

BNA Rate

15.50

Down 25bp (May ’19)

Down 75bp (Q3 ’21)

15.50

14.00

Kenya

Central Bank Rate

7.00

Down 25bp (Apr ’20)

None on horizon

7.00

7.00

Ghana

Policy Rate

14.50

Down 150bp (Mar ‘20)

Down 100bp (Q2 ’21)

14.50

13.50

Uganda

Central Bank Rate

7.00

Down 100bp (Jun ’20)

None on horizon

7.00

7.00

Sources: National Sources, Capital Economics

Table 3: Key Market Forecasts

Forecasts

Forecasts

Currency

Latest
(31st Jul.)

End

2020

End

2021

Stock Market

Latest
(31st Jul.)

End

2020

End
2021

Nigeria

NGN (Official)

381

400

400

NGSE

24,694

25,500

30,000

NGN (Nafex)

389

450

450

South Africa

ZAR

17.0

16.0

16.5

JALSH

56,104

59,425

71,300

Angola

AOA

554

625

625

n/a

Kenya

KES

108

110

115

NSE 20

1,804

2,300

2,700

Ghana

GHS

5.7

6.0

6.1

GSECI

1,878

2,000

2,300

Uganda

UGX

3,683

3,900

4,000

UGSE

1,302

1,600

1,800

Sources: Bloomberg, Capital Economics


William Jackson, Chief Emerging Markets Economist, william.jackson@capitaleconomics.com
Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com