Entries for 'Ghana'

Frontier Sub-Saharan Africa is emerging from the pandemic shock, but growth is comparably weak. We project a strong pickup in non-resident capital flows to $56.1 bn in 2021 from last year’s $23.6 bn. The recovery in FDI is robust, but persistently higher investment will be needed over the medium term. Financial conditions remain favorable, and strong Eurobond issuance drives the rise in portfolio flows. IMF emergency financing in 2020 and this year’s general SDR allocation have provided critical support. Assistance from IFIs will continue going forward, albeit at lower levels and with stronger conditionality. In addition, external financing needs are set to rise as substantial Eurobond amortization looms large. Thus, the region will need to attract higher and less volatile inflows to reduce external vulnerabilities. External financing risks are highest in Ghana, where market concerns over the country’s dent are rising. Angola and Nigeria are under less pressure, while IMF programs should help Kenya, Senegal, and Zambia.

Fiscal challenges in Sub-Saharan Africa have been exacerbated by the COVID-19 shock. We conduct a detailed analysis of adjustments under recently-approved IMF programs. Kenya and Uganda appear to be in need of the most ambitious consolidation efforts. Primary balance improvements are mostly driven by cuts to non-interest expenditures. We believe that program targets are largely achievable, with Uganda’s most ambitious. More IMF arrangements in SSA are on the horizon and Zambia will likely be a priority.

Mobile money use in Sub-Saharan Africa has grown substantially in recent years. Limited reach of traditional banking services likely contributed to this dynamic. We estimate that mobile money transactions reached around $275 bn in 2020. However, their importance differs considerably among countries in the region. The industry will likely undergo a fundamental transformation in coming years. Changes will include market entrance of existing app-based payment platforms.

Sub-Saharan African countries will receive an estimated SDR16.2 bn in 2021Q3. While this will increase holdings markedly, it represents a small share of the total. We assess the impact of the allocation in four areas and find it relatively limited. For most of SSA’s largest economies, reserve adequacy will improve marginally. Respective allocations are also too small to fundamentally affect financing needs.

IMF support to Sub-Saharan African countries reached unprecedented levels in 2020. Short-term instruments with limited conditionality accounted for most of the funding. Additional financing will likely be needed to support a robust recovery from COVID-19. In particular, multi-year arrangements could help anchor needed fiscal consolidation. The allocation and possible reallocation of SDRs could be very beneficial for the region.

Domestic banking systems financed widening deficits in Sub-Saharan Africa in 2020. Tighter financial conditions and less IFI support will likely require the same this year. Absent robust deposit growth, this will lead to a crowding out of private sector credit. Meaningful fiscal consolidation would enable banks to expand lending significantly.

Improved market sentiment will allow African sovereigns to return to the market in ‘21. We expect Egypt, Nigeria, Ghana, and South Africa, among others, to issue Eurobonds. However, debt sustainability and liquidity concerns are rising in the context of COVID-19. African countries face Eurobond repayments of close to $100 bn in the coming years. An end to the current low-interest rate environment could make rolling over of debt costly.

Sub-Saharan Africa experienced the first recession in thirty years in 2020 due to the COVID-19 shock. The global recession weighed on external demand and pandemic-related shutdowns on domestic activity. However, commodity prices fared better than expected, and the virus spread less than in other regions. Oil exporters were hit hardest, while countries with more diversified export bases appear less affected. The economic slowdown has had a strong effect on countries’ fiscal positions, and policy space is scarce. As a result, debt is rising across the region, and many countries are seeking relief through the G20 DSSI. Improved market sentiment has led to a return of foreign investors and alleviated financing pressure. Growth is expected to rebound strongly in 2021 where macro and policy environments are supportive. Risks, however, skew to the downside and stem from a second COVID-19 wave and poliical instability.

Foreign investor interest in Sub-Saharan Africa has picked up in recent months. This is partially due to a marked shift to risk-on sentiment in financial markets. Countries from the region are now gradually returning to the Eurobond market. Still, the outlook for deficit financing and flows to local markets remains uncertain.

We assess Ghana’s external financing risk as low compared to regional peers. Eurobond issuance and multilateral support help offset impact of COVID-19. As a result, we estimate only moderate reserve losses of $800 mn in 2020. External debt amortization appears manageable this year and over 2021-22. Outflows could be triggered if deficits grow and/or are financed by the BOG.

Pressure on SSA assets has intensified due to COVID-19 related shocks. In this note, we analyze the composition of external flows to the region. SSA has become more globally integrated and reliant on portfolio flows. This makes the region more exposed to swings in investor sentiment.

COVID-19 presents a challenge to BoPs in the Sub-Saharan Africa region. Lower commodity prices will sharply reduce exports in many countries. Dependence on tourism and remittances will also have a negative effect. C/A deficit financing is going to be challenging due to risk-off sentiment. Multilateral funding can cover some gaps, but solvency is an issue as well.

COVID-19 is exacerbating existing vulnerabilities in Sub-Saharan Africa. The global recession and drop in commodity prices hit the region hard. We present a framework to summarize SSA’s exposure to different risks. Multilaterals need to play an important role in the region going forward.

Growth across Sub-Saharan Africa is expected to slow down markedly. This is a result of lower global demand and falling commodity prices. Lower growth will inhibit advances in living standards across the region. We are concerned that COVID-19 outbreaks in SSA could be disastrous. Multilateral support, including from the IMF, is needed going forward.