Slump in commodities hits bond markets in Sub-Saharan Africa
In the last two years, we have seen large amounts of sovereign Eurobond issuances in the Sub-Saharan African region, reaching a record of more than USD 8 billion in 2015. However, this situation changed dramatically in the first half of this year.
After years of booming economic growth due to ample liquidity and strong external demand, particularly from China, the decline in commodity prices seen since mid-2014 has clouded the outlook for most of Sub-Saharan Africa’s economies. Low raw material prices and the anticipation of an interest rate hike by the Federal Reserve, coupled with weaker dynamics worldwide and domestic vulnerabilities, have resulted in large fiscal deficits, instability in the FX and financial markets, worsening current accounts and, finally, slow growth. This situation has had a negative impact on bond yields and international investors’ appetite for emerging market assets.
Some analysts are concerned that the debt these countries are carrying may not be sustainable. This is particularly the case in countries, such as Ghana, which are feeling the brunt of this coupled with weak currencies and slower growth. Regional governments’ finances certainly deteriorated in 2014 and our panel of analysts foresees fiscal imbalances worsening this year. In fact, FocusEconomics panelists see the region’s fiscal deficit widening from 2.9% of GDP in 2014 to 3.8% of GDP in 2015. Public debt follows suit and it is expected to rise from the 29.5% of GDP recorded in 2014 to 31.6% of GDP this year.
Ghana is the most vulnerable country in Sub-Saharan Africa as the country has large twin deficits (in the fiscal budget and in the current account) and a ballooning public debt that is more than double the regional average. Moreover, Ghana is suffering from high inflation and slow economic growth. Against this backdrop, the government, in cooperation with the IMF, is trying to reign in public spending and push ahead structural reforms. In this regard, the government is expected to sell USD 1.5 billion in Eurobonds in September, which will allow for assessing whether recent improvements in the fiscal balance that the IMF praised recently and the initiatives Ghanaian authorities have taken to stabilize the economy are helping to ease economic fears.
The financial situation is still manageable as most of the governments in the region improved their fiscal positions in years prior in the wake of the commodity price boom. Moreover, low rates in advanced economies and still ample liquidity are likely to support a rise in Eurobond issues in the months ahead. Nevertheless, a prolonged situation of low commodity prices and rising uncertainty about the state of the Chinese economy could further hit the economies in the region and diminish appetite for African bonds.
Written by: Ricard Torné, Senior Economist
Author: Ricard Torné, Head of Economic Research
Date: August 31, 2015
TagsBase Metals Commodities Colombia Japan Banking Sector Latin America Housing Market Italy Company News South Africa OPEC Unemployment rate IMF Eastern Europe Fed Brazil Economic Growth (GDP) United States Venezuela Precious Metals Commodities Inflation Iran Exchange Rate Commodities Energy Commodities Sub-Saharan Africa Australia Argentina Mexico Emerging Markets Greece China Russia Ukraine Industrial Metals Commodities oil prices precious metals MENA USA G7 Financial Sector World Bank Gold Investment Portugal Turkey Africa Consensus Forecast Infographic UK Nordic Economies India Spain Forex Brexit Agricultural Commodities Trade Major Economies Canada Germany Asia Tunisia Euro Area France Panelists Oil Vietnam European Union
6 minutes ago
37 minutes ago
1 hour ago
2 hours ago
2 hours ago
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- 2017 & 2018 Economic Outlook for the Top Oil Producing Countries
- Which countries will have the highest and lowest inflation in 2017?
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Russian economy update in wake of OPEC deal announcement
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit