The dismissal of Zambia’s finance minister was a politically motivated act seeking to distract from a planned constitutional amendment that would remove a requirement of parliamentary approval of government loans and guarantees. The risk of a default will rise further in the second half of 2019, although Zambia’s new finance minister may still seek abrupt recourse to the IMF to avoid such a scenario.
In President Buhari’s second term, the government will continue to prop up the local currency and maintain costly subsidies, policies which have fostered massive fraud and embezzlement and undermined economic recovery. As the budget deficit widens, debt servicing spikes, and some banks again face non-performing loans, there are growing concerns that Nigeria may be running into ‘bankruptcy’. However, oil sector state asset sell-offs might be sufficient, at least in the short term, to stave off another recession or liquidity crisis.
The Kenyan government will again raise spending over the next year, deriving new funding from taxes on businesses and increased borrowing, while refusing to cut wasteful expenditure. Combined with unsustainably high debt servicing costs and a need to pay rapidly maturing commercial debt and Chinese infrastructure loans, Kenya may soon face a debt crisis. EXX Africa assesses that a booming economy, record foreign reserves, and a strong external position may hold off a repayment crisis until next year, although accumulating non-performing loans in the local banking sector may augur a more immediate weakness.
In his second term, President Muhammadu Buhari will again oversee expansive debt-fuelled spending to develop Nigeria’s infrastructure, while seeking a dilution of the government’s stake in the oil sector. He may even consider joining Africa’s free trade pact that came into force in May. However, any firm decisions will take many months before being confirmed, starting with the appointment of a new cabinet and perhaps a reshuffle of the security forces command.
At best, a dispute over one of Zambia’s largest copper mining companies is a warning shot to prevent miners from suspending production and laying off workers in resistance to the new mining code and upcoming imposition of a sales tax. At worst, the government is planning to confiscate highly productive mining assets and to redistribute these to new investors in return for support on debt servicing. EXX Africa assesses the most likely scenarios for yet another high-profile commercial dispute.
Four months into his presidency, Félix Tshisekedi has at last agreed to appoint a prime minister loyal to his predecessor and main political rival Joseph Kabila. As a result, the incoming government will ensure that all key policy decisions will remain with Kabila. But Tshisekedi seems to have secured the return from exile of one of Congo’s most dynamic and powerful opposition leaders whose political support will be crucial to build up his own political constituency. If the power-sharing agreement holds, Congo’s thriving mining sector is set to improve the country’s economic outlook.
A three-year lending programme with the IMF, if approved by the Fund’s board, will offer immediate relief across Congo’s balance of payments and improve political stability in the short-term. However, IMF-mandated transparency conditions and disclosure of pre-export financing facilities will meet political resistance, while austerity and restructuring policies are likely to trigger a public backlash in the form of strikes, protests, and perhaps renewed political instability.
Cyril Ramaphosa has achieved a reversal of his party’s electoral decline in May’s elections. In fact, he faced a greater challenge from rivals within his own party than from South Africa’s weak political opposition. His next challenge will be to balance fractious interests in the next cabinet to avoid a permanent party split, while building a platform for restructuring cash-strapped state-owned enterprises that could trigger a backlash from labour unions and other allies. Much of the ANC’s actual election manifesto will be shelved to ensure fiscal discipline.
Despite more comforting assurances from the finance ministry, Zambia is again struggling to meet its obligations to the public payroll, construction contracts, and debt servicing. Meanwhile, the Zambian economy is noticeably slowing, and market confidence is sliding. As time runs out for an IMF credit deal, we assess the drivers of risk that could steer the country towards a default on sovereign debt this year.
Uganda’s long-time strongman leader is seeking to extend his tenure of the presidency at a time of probable economic slowdown and sustained opposition momentum. These are key motivators for political instability. The government is cracking down on any resistance from the opposition, NGOs, and foreign partners, as well as broadening its tax base to offset falling government revenues.
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