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
TagsTrade Euro Area MENA Exchange Rate Inflation Commodities Eastern Europe United States Gold Healthcare Company News Australia Banking Sector Spain Housing Market Economic Growth (GDP) Energy Commodities Turkey Nordic Economies Portugal Argentina Unemployment rate European Union Cryptocurrency oil prices India UK Iran United Kingdom Infographic Germany Vietnam Mexico Japan China Bitcoin Major Economies South Africa Colombia Italy Brazil IMF Venezuela Ukraine OPEC Asia Russia Forex Canada Greece Brexit USA Sub-Saharan Africa Tunisia Consensus Forecast Latin America Emerging Markets Investment G7 Oil Precious Metals Commodities Agricultural Commodities Africa Base Metals Commodities France precious metals
Concerns about supply and healthy demand for agricultural products are expected to boost prices. Get price forecast… https://t.co/IrZqMNXer3
1 hour ago
Dominican Republic expected to grow 4.5% in 2018 and 4.4% in 2019. https://t.co/pbNXEn1uhj
2 hours ago
Precious metal prices for Q4 2018 seen rising 2.7% YOY and 2.9% YOY in Q4 2019. https://t.co/7XITZDvWA8
3 hours ago
Few institutions are as treasured, or can spark such passionate debate, as a country's healthcare system. But which… https://t.co/kg1wR5wd0j
7 hours ago
8 hours ago
- How Student Loan Debt Affects the Economy
- 2018 & 2019 Economic Outlook for the Top Oil Producing Countries
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- Venezuela's Electoral Conundrum
- The Poorest Countries in the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Gold: The Most Precious of Metals (Part 3)
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- China’s growing influence on the Latin American economy
- How Latin America emerged from recession in 2017
- Top Economics & Finance Blogs of 2018
- Is this the beginning of the end for Bitcoin?
- Risks and Opportunities for 2018 - Daniel Lacalle
- Emerging Markets 2018 Economic Outlook
- The role of FDI in Vietnam’s socio-economic development
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- What will be the most miserable economies in 2018?
- The World's Top 10 Largest Economies
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- How will emerging market economies perform in 2017?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- 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
- 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
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- 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