Market News

*UK pledges IMF reserves for African post-COVID recovery*

The UK is the first of the world’s wealthy nations to assign its special
drawing rights to the African Development Bank to channel cash to the
continent’s poorest economies.

The IMF last year allocated $650bn of funds to member nations to help
tackle the coronavirus pandemic, but poorer countries received a
significantly smaller slice of the funds because the IMF split the SDRs
in part according to the size of a country’s economy.

That meant African nations received $33bn in total—the same as France
and Italy combined and less than half the amount for the US. African
leaders say the continent needs at least $100bn.

The plan builds on an initiative of the United Nations Economic
Commission for Africa for SDRs to be utilised to enhance the IMF´s
capacity to support countries in need, leveraging the multilateral
development banks and creating a new Liquidity and Sustainability
Facility (LSF) to lower the liquidity premium on sovereign bonds offered
by developing countries.

AfDB will use the pledged reserves to leverage 4 times as much in funds.
With the AfDB in talks with other countries including Canada and France,
there is hope for meaningful amounts being deployed, providing much
needed relief.

*Record low Naira to see further losses*

The Naira slumped to a fresh record low against the dollar this week on
the unofficial market, trading at 615 from 611 at last week’s close.

Nigerian bakers are threatening a two-week strike in July unless the
government intervenes to tackle the rising cost of flour and other
baking ingredients.

Meantime, large fuel subsidy payouts by Nigeria’s national oil company
have constrained its ability to make full contributions to the
government for a fifth straight month. This was exacerbated by higher
global fuel prices, forcing the federal tax agency to step in and fill
the gap. We expect to see further Naira depreciation in the near term as
FX scarcity in the unofficial market persists.

*Cedi to cross 8 per dollar amid cost-of-living protests*

The Cedi edged back from a record dollar low this week, trading at 7.97
from 7.98 at last week’s close. Demonstrators clashed with police in
Ghana’s capital Accra this week amid protests over the worsening
economic environment and surging inflation, which hit a record 27.6% in May.

Ghana’s debt currently stands at 78% of GDP. With more than half of that
debt in external borrowings, the rise in interest rates globally is set
to make the country’s sovereign debt harder to service. We expect this
to put further pressure on the Cedi, which we anticipate will cross the
8.00 threshold in the near future.

*Electricity outages to increase Rand pressure*

The Rand weakened against the dollar this week, trading at 16.08 from
15.80 at last week’s close. That weakness was fueled by concerns about
South Africa’s power supply, with Eskom announcing longer electricity
outages due to worker strikes.

The stage six loadshedding measures will see South Africans around the
country go without power for roughly 12 hours at a time on a rotational
basis, putting stress on the Rand and the country’s credit rating. Given
that backdrop and the broader risk-off mood persisting, we expect the
currency to remain under pressure in the near term.

*Egyptian Pound stable with rates on hold*

The Pound was steady against the dollar this week, trading at 18.78—in
line with last week’s close. Egypt’s central bank has kept interest
rates on hold despite surging inflation due to higher import
costs—notably wheat—caused by Russia’s war in Ukraine.

The central bank said there is little it can do about external price
shocks. We expect the Pound to remain stable at or around its current
level over the coming days.