Naira at record low as CBN governor eyes presidency; Rand weakest in 6 months; Mozambique IMF deal to spur investment


Mozambique IMF deal to spur investment
Mozambique has agreed a new International Monetary Fund loan worth $456m, six years after the fund suspended a previous programme with the country following a ‘hidden debt’ scandal where $2bn of debt was kept concealed from the IMF. The resumed relationship will see Mozambique receive an immediate disbursement of $91m, part of a three-year arrangement that the IMF says will likely spur further financing from other development agencies. The IMF deal will support the country’s reform agenda, which includes plans to establish a sovereign wealth fund to transparently manage proceeds from its liquified natural gas projects. Against that backdrop, we project a broader economic recovery which in turn should attract renewed foreign investment.

Naira at record low as CBN governor eyes presidential bid
The Naira slumped to a fresh low against the dollar this week, depreciating to 591 from 588 at last week’s close. The latest bout of weakness comes amid calls for Nigeria’s central bank Governor Godwin Emefiele to step down after he announced his intention to run in next year’s presidential election. Meantime, JPMorgan has removed Nigeria from its list of emerging market sovereign debt recommendations, citing the country’s fiscal woes. The US bank said Nigeria’s national oil company failed to transfer any revenue to the government during the first quarter of the year due to oil subsidies and low oil production. We expect the Naira to weaken further in the short term given uncertainty around Emefiele’s position at the central bank. 

Ghana in European talks for higher cocoa prices
The Cedi appreciated marginally against the dollar, trading at 7.51 from 7.53 at last week’s close, shrugging off news that Ghana’s inflation level jumped to 23.6% in April from 19.4% in March—the highest in 18 years—amid rising transport and food prices. Meantime, Ghana and West African neighbour Ivory Coast, which together account for 60% of global cocoa production, are seeking to negotiate higher cocoa prices with the European Commission to ensure farmers receive a living wage. The countries are hoping to appeal to the EU’s plan to shun imports linked to environmental degradation, claiming that low cocoa prices are a key driver of deforestation. We expect the Cedi to depreciate in the near term as the economy feels the pinch of higher import prices and capital outflows.

Rand declines to near six-month dollar low
The Rand weakened to its lowest level against the dollar in almost six months, trading at 16.18 from 15.96 at last week’s close. Global risk-off sentiment has hit emerging market assets more broadly as US inflation remained near a four-decade high in April, raising the prospects of the Federal Reserve hiking rates faster than expected this year. Local problems are also weighing on the Rand, including rolling power cuts that are hindering South Africa’s hopes of a speedy economic recovery. To that end, we expect the Rand to remain under pressure unless there is a significant change in international risk appetite.

Investor outflows to weaken Egyptian Pound
The Pound flip-flopped against the dollar this week, settling at 18.48, broadly in line with last week’s close. Foreign investors continued to pull cash out of the country, however, with Egypt’s net foreign assets falling to negative $221.3bn in March from negative $51.69bn in February, the biggest decline since the start of the coronavirus pandemic and the sixth consecutive month of outflows. We expect the Pound to weaken in the near term due to a stronger dollar and continued investor outflows.

Kenyan Shilling drops to fresh dollar low
The Shilling hit another record low this week, trading at 116/116.2 from 115.75/115.95 amid higher dollar demand from the manufacturing and energy sectors as they contend with rising inflation. Kenya’s economy grew 7.5% in 2021, according to the country’s statistics agency, up from a 0.3% contraction in 2020 as the East African nation recovered from the stresses of the Covid-19 pandemic. Meantime, Kenya’s FX reserves were broadly flat at $8.4bn, adequate for 4.99 months of import cover. Given the challenging global economic conditions and ongoing uncertainty around the country’s upcoming elections in August, we foresee continued pressure on the Shilling over the coming week. 

PMI uptick unable to prevent Ugandan Shilling slide
The Shilling depreciated against the dollar this week, trading at 3592 from 3562 at last week’s close even as economic sentiment improved. The Stanbic Bank Uganda Purchasing Managers Index rose to 53.9 in April from a three-month low of 51.9 in March, indicating a recovery from the Covid-19 lockdown at the start of the year. Output increased in all five sectors covered by the survey, as did new orders, employment and purchasing activity. We expect the Shilling to stabilise or gain in the near term in line with the positive data, though our 12-month outlook remains under 3600 given the likelihood of sustained dollar strengthening.

Fuel subsidy plans trip up Tanzanian Shilling 
The Shilling weakened marginally against the dollar this week, trading at 2326 from 2324 at last week’s close after President Samia Suluhu Hassan on Monday announced a TZS100bn fuel subsidy that will come into effect from the start of next month. Rising oil prices have hit Tanzanians hard at the pumps, with petrol prices smashing through TZS3000 a litre—a record high in some regions. As a result of the relief measures, Energy Minister January Makamba warned that the government will need to be more cautious on spending for the remainder of the fiscal year. We expect the Shilling to stabilise over the coming week, hovering around the 2325 level.