AZA Finance FX Week Ahead: Cedi to cross 8 per dollar amid cost-of-living protests


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.

Inflation pressures drag Kenyan Shilling to fresh low
The Shilling tumbled to a new record low against the dollar this week, trading at 117.70/117.90 from 117.50/117.70 at last week’s close amid increased global inflationary pressures.

The weaker exchange rate has led to inflated external debt costs, with the treasury requiring more Shillings to service its debt obligations. Kenya’s FX reserves fell to $8.03bn from $8.11bn a week earlier, adequate for 4.77 months of import cover.

We expect the Shilling to continue weakening in the near term as August’s presidential election approaches and as the dollar continues to strengthen.

Shilling weakens as Uganda pushes for wheat substitutes
The Shilling weakened this week, slipping to 3759 from 3749 at last week’s close amid increased demand for dollars. Uganda continues to grapple with rising import costs for wheat and other commodities.

The country spends about $120m a year on wheat imports, with the government claiming those imports could be replaced by locally produced substitutes such as cassava and pumpkin flour, in turn driving economic growth and reducing its dependency on imports. We expect the Shilling to stabilise in the coming days in the absence of any major economic developments.

Shilling steady amid Tanzania tax overhaul

The Shilling was little changed against the dollar this week, trading at 2332 from 2331 at last week’s close. Tanzania’s Finance and Planning Minister Mwigulu Nchemba this week made 35 adjustments to the 2022/23 Finance Bill as he seeks to introduce a more reliable tax regime. The government has been putting pressure on citizens to pay their taxes to help accelerate domestic development projects. We expect the Shilling to be more volatile in the week ahead, likely steered by US economic data.

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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