IMF financing North Africa as Chad loan in doubt
Tunisia is set to finalise an agreement with the IMF to access a $1.9bn loan to help ease the impact of food and fuel shortages in the country. Morocco is also considering tapping around $1bn through its credit line with the IMF, scrapping earlier plans to issue bonds. Tunisia’s Dinar has depreciated 15% against the dollar this year as the Moroccan Dirham has plunged 22%, adding to the strain of repaying foreign denominated debt. We expect Morocco’s IMF line to help strengthen the Dirham, while a sluggish pace of economic reform in Tunisia, particularly in the agriculture sector, may hamper recovery for the Dinar. Meantime, debt relief for Chad has been thrown into doubt by international creditors arguing that rising oil prices have benefited the central African country. The IMF called on the Paris Club of official creditors not to use higher oil prices as an excuse to abandon commitments to the country. The Fund approved a $570m three-year loan programme for Chad last year, though this could be at risk if the money is being used to repay unsustainable debt in the absence of a deal with creditors. While higher oil prices will provide some support to Chad, recovery depends on the IMF’s ability to convince the Paris Club to fulfil its debt relief promise. The Central African CFA Franc has dropped 19% against the dollar this year.

Record low Naira faces more losses
The Naira edged to a fresh record low against the dollar, trading at 748 from 745 at last week’s close as annual inflation climbed to a 17-year high of 20.8% in September, from 20.5% a month earlier. Rising food prices together with higher natural gas, diesel and transport costs were behind the increase. Nigerian senators called on the aviation ministry, the central bank and other stakeholders to find a way to curb surging air fares. Flight costs have rocketed due to airlines’ inability to repatriate around $500m of funds trapped in the country via the central bank-managed FX windows. Around $265m of blocked funds had previously been released by the central bank following threats by some airlines to halt Nigerian routes. Heavy demand for imports and dwindling FX reserves continue to pile pressure on the Naira, which we expect will translate to further losses against the dollar in the near term.

World’s worst currency has further to fall in Ghana
The Cedi slumped to a new record low against the dollar, shooting past the 11 level to trade at 11.74, and taking losses for the year to more the 45% as the worst performing currency globally. Foreign holdings of domestic government and corporate bonds fell to 12.3% in August, the lowest proportion on record, down from 17.3% in April, as international investors exit amid rising external borrowing costs that have forced Ghana to seek a financial lifeline from the IMF. Domestic unrest continues, with Ghanaian shop owners this week closing their businesses for three days to protest surging inflation, which hit 37.2% in September. Given these strains, we expect the Cedi to weaken beyond the 12 level in the near term.

Rand steady as Transnet halts strike
The Rand strengthened marginally against the dollar, trading at 18.34 from 18.36 at last week’s close. Adding to ongoing concerns about energy supplies, a strike by Transnet workers over wages has dragged coal exports to the lowest level in more than a year, with just 600,000 tons exported in the second week in October. Transnet said recovery plans are in place and most of its employees have returned to work following the signing of a new wage deal. We expect the Rand to trade at similar levels this week given the continued risk off sentiment in the markets and lack of positive economic events affecting the currency.

IMF deal won’t save Egypt Pound from falling further
The Pound continued to trade around its record low, with one dollar fetching 19.68, a slight depreciation from the 19.66 level at last week’s close and just short of the record 19.69 reached earlier this month. Egypt is expected to finalise a new loan agreement with the IMF when the two parties meet this weekend, following progress on monetary and exchange rate policies aimed at helping the outlook for inflation, monetary policy and functioning of the FX market. Even with an IMF deal, we expect the Pound to depreciate further in the months ahead as the central bank cuts back on market interventions.

Record low Kenya Shilling faces rising loan rate pressure
The Shilling fell to a fresh low against the dollar, trading at 121.05/121.25 from 120.80/121 at last week’s close, as FX demand for energy and manufacturing imports continued to outpace inflows. Following last month’s 75 basis point interest rate hike to 8.25%, Kenyan banks have started to increase loan rates, making it more expensive for households and businesses to borrow and potentially stifling economic growth. With the new government complaining that loan servicing costs are choking the economy, Kenya this week called on China to extend the payment period for $5bn in loans the African country borrowed to finance a railway project. We expect the Shilling to remain under pressure in the near term, particularly given that FX inflows from agricultural exports are low due to unfavourable weather conditions.

Ugandan Shilling buoyed by six-quarter growth streak
The Shilling strengthened against the dollar, trading at 3810 from 3834 at last week’s close as Uganda clocked up a sixth consecutive quarter of economic growth, advancing 4.9% in the second quarter compared to the same period a year ago. That was driven by improved momentum in agricultural activity and faster industrial output, notably in mining and quarrying. Improved economic sentiment is punctured by the continued Ebola outbreak, with Uganda imposing a three-week lockdown in two districts. We expect the Shilling to continue strengthening in the near term due to the country’s growth performance. 

Tanzanian Shilling to gain on agricultural inflows
The Shilling was broadly unchanged against the dollar, trading at 2332, in line with last week’s close. Trading activity on the Dar es Salaam Stock Exchange fell over the past two weeks as investors wait on listed companies to release their third-quarter financial results next week. Credit to the agricultural sector rose by 42.6% in the year ending August compared to a decline of 14% during the same period a year earlier, according to the Bank of Tanzania. We expect the Shilling to strengthen in the week ahead driven by an increase in stock trading activity and inflows from export crops including cashew, tobacco, coffee and cotton.