AZA Finance FX Week Ahead: Debt risks dampen FX outlook in five African economies


The prospect of rising interest rates in the US is piling pressure on debt repayments for the most indebted African nations, with Ghana, Kenya, Ethiopia, Zambia and Angola all facing heightened risks – a group Standard Bank Group labels the “fragile five.”

Ghana’s deteriorating public finances, Kenya’s heavy public debt and high borrowing costs, and Ethiopia’s civil war and FX shortage are all likely to crimp their ability to service their external debt.

Meantime Angola, which benefited from the G20’s Debt Service Suspension Initiative, could also come under renewed strain as delayed debt payments fall due. Zambia needs an IMF deal in order to restructure its debt load. This backdrop is already weighing on currencies from Ghana’s Cedi to the Ethiopian Birr. We expect escalating debt issues to further impact FX markets in the months ahead.

Fuel shortage holding Naira at four-month low
The Naira held at a four-month low against the dollar this week, trading at 575. Nigeria’s inflation slowed slightly in January, falling to 15.60% from 15.63% a month earlier, resuming its downward trend after eight months of consecutive falls halted with a rise in December.

The Nigerian National Petroleum Company said it expects at least 2.3bn litres of petrol to arrive in the next two weeks as it scrambles to ease supply shortages following the recall of ‘dirty fuel’ that had been circulating across the country.

The NNPC said its retail depots will be open 24 hours-a-day in a bid to ease queues at the pumps. We expect the Naira to remain at this level—the weakest against the dollar since October—until the fuel supply shortage recedes in the coming weeks.

Dollar clamour plunges Cedi to record
The Cedi depreciated to a new low against the dollar this week, trading at 6.479 from 6.375 at last week’s close, as the Bank of Ghana’s FX auctions failed to meet heightened dollar demand.

The BoG’s recent move to reduce the cost of credit for commercial banks in a bid to spur investment and domestic liquidity could help stabilise the Cedi longer term by supporting economic activity and reducing inflation.

However, we expect the currency to remain under pressure in the immediate term while dollar demand remains elevated amid concerns over the nation’s debt level.

Rand rides commodity rally to three-month high
The Rand strengthened this week to its highest level against the dollar since early November, trading at 15.05 from 15.20 at last week’s close, boosted by higher gold prices and fresh reform pledges from President Cyril Ramaphosa.

 FX outlook in five African economies

South Africa plans to spend $17.8bn on green energy projects over the next decade, as well as industrialise cannabis production, which could generate as many as 130,000 new jobs.

The President also said he will extend a social grant put in place to cushion the impact of the Covid-19 pandemic for another year. Further Rand gains were tempered amid the prospect of a more hawkish US Federal Reserve and escalating geopolitical tensions between Russia and Ukraine.

We expect the currency to continue trading at current levels in the coming days, supported by higher commodity prices.

Pound range-bound as Egypt plans new import rule  
The Pound traded in a narrow band between 15.71 and 15.73 to the dollar this week, maintaining a range started in late January.

Egypt this week agreed a $1.5bn deal with the Islamic Trade Finance Corporation to finance petroleum and food commodities imports.

 FX outlook in five African economies

Meantime, the country’s central bank Governor Tarek Amer shunned calls from business groups and traders to halt a new rule that will require importers to use letters of credit. Critics of the new rule, which is due to be implemented next month, say it would inflate their import costs.

We expect the Pound to continue stabilising around the 15.71 level as the government prioritises local production and foreign investment in a bid to boost the currency’s appeal.

Infra bond inflows may pause Kenyan Shilling slide 
The Shilling depreciated against the dollar this week, trading at 113.6/114.2 from 113.55 at last week’s close—in touching distance of a fresh record low.

 FX outlook in five African economies

Kenya’s central bank dipped into its FX reserves to prevent a steeper decline, with remaining reserves falling to just under $8.2bn from $8.22bn a week earlier.

The bank issued a 19-year government infrastructure bond this week, raising KES75bn, which is likely to attract foreign investors due to its tax-free status. Meantime, President Uhuru Kenyatta travelled to the UAE this week as the two countries seek to improve trade and remove obstacles to business.

We expect the Shilling to stabilise this week in anticipation of dollar inflows.

Growth optimism buoys Ugandan Shilling
The Shilling strengthened against the dollar this week, trading at 3507/3517 from 3513/3523 at last week’s close.

The Bank of Uganda held its key interest rate at 6.5% this week as it maintains an accommodative policy stance to meet its inflation target of 5% and to support economic growth.

 FX outlook in five African economies

The bank said the economy grew between 6.5% and 7% last year, recovering from 2020’s 1.5% contraction. The bank forecasts the economy will expand by 6% this year. We expect the Shilling to remain stable in the near term as economic activity increases.

French deals maintain Tanzanian Shilling levels
The Shilling held steady this week, trading at 2308/2318 as dollar demand was matched by supply from increased exports, particularly within the East African Community region.

President Samia Suluhu Hassan met with her French counterpart Emmanuel Macron this week to discuss trade and business deals.

The French Development Agency signed three financing agreements worth €259m that will go towards improving access to finance, technical assistance for the agricultural sector and development of the urban transport sector. Given the prospect of foreign currency inflows, we expect to see the Shilling maintain current levels in the coming days.

 FX outlook in five African economies

Note to journalists: please feel free to quote from this briefing for news reports and let us know any requests for further comment or interviews via the contact details at the end, or by reply to this email. AZA is Africa’s largest non-bank currency broker by trading volume at over $1 billion annually. See 

Issued by AZA. This Newsletter is produced as a service to our clients. It is prepared by our dealing professionals and is based on their understanding and interpretation of market events. AZA cannot be held responsible for any losses of whatever nature sustained as a result of action taken based on comments contained in this publication.

For more information, high-resolution charts or interviews, please contact:

Gavin Serkin
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