Markets

Nigeria, Others Need Commodity-price Surge to Avert Debt Crunch –IMF

Published

7 years ago

December 18, 2017

Nigeria, Others Need Commodity-price Surge to Avert Debt Crunch –IMF

The sub-Saharan Africa faces a potential debt crunch unless commodity prices improve and boost the pace of economic growth, the International Monetary Fund has said.

The Washington-based Fund said the region’s median government debt level would probably exceed 50 per cent of the Gross Domestic Product this year from 34 per cent in 2013, while the cost of servicing the liabilities would average almost 10 per cent compared with half of that four years ago, Bloomberg reported.

There have been no investment-grade dollar-debt issuers in sub-Saharan Africa after Moody’s Investors Service and Fitch Ratings Limited cut Namibia to junk this year.

Commodity returns have dropped in six of the past seven years and expectations for slower growth in China, the biggest consumer, don’t bode well for African nations that depend on mining, crops and oil for the bulk of their income.

The IMF had said in October that the region’s growth might average 2.6 per cent this year, almost double 2016’s level but barely above population expansion, with delays in making policy changes risking this.

“Rising debt levels present a major risk to progress in sub-Saharan Africa, especially if there is another major shock in the global commodity market and if African markets are still in a recovery stage in the economic cycle,” a London-based economic-research head at Ecobank Transnational Incorporated, Gaimin Nonyane, said.

The Federal Government of Nigeria’s debt-sale plans would more than double its outstanding dollar bonds to about $9bn.

That would add to issuances by South Africa, Ghana, Senegal, Ivory Coast and Gabon.

The Fund said policy uncertainty in South Africa and Nigeria, the region’s biggest economies, were restraining growth, with the IMF reducing their 2017 expansion forecasts to below one per cent for the two nations.

In Kenya, the central bank said the nation couldn’t continue its current debt build-up path if it would remain sustainable.

Authorities are also negotiating with the IMF to rollover a standby facility of $1.5bn.

The number of sub-Saharan African countries in or at risk of debt distress almost doubled to 12 over the past four years, while Mozambique – which defaulted this year – is among those engaging creditors to restructure debt.

Gabon, Ghana and Zambia are most susceptible to the risk of financing stress given large Eurobond maturities in the next decade, according to Moody’s, which said sub-Saharan Africa sovereign downgrades outnumbered upgrades 20 to two since 2015.

“We don’t envisage a debt crisis, but it’s clearly a risk for a handful of countries,” a London-based economist at Capital Economics, William Jackson, said by phone.

With no long track record of repaying international bonds, it will be a test for nations like Ghana, scheduled to make a principal payment of $2.75bn through 2026, Moody’s said in a report last month.

Gabon owes $2.2bn by 2025, and Zambia $3bn from 2022 to 2027.

“Because the payments are too large, these economies will be very sensitive to any change in external financing conditions,” Jackson said.

“If commodity prices fall, or capital inflows to emerging markets are low, then these countries will struggle to roll over these debts. They may then need to pay higher interest rates or suffer from weaker currencies.”

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Samed Olukoya

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Crude Oil

Oil Prices Surge as Hurricane Threat Looms Over U.S. Gulf Coast

Published

16 hours ago

September 9, 2024

Investors King

Oil jumped in Asian trading on Monday as a potential hurricane system approached the U.S. Gulf Coast, and as markets recovered from a selloff following weaker-than-expected U.S. jobs data on Friday.

West Texas Intermediate crude oil rose 72 cents, or 1.06%, to $68.39 a barrel while Brent crude oil was up 71 cents, or 1%, at $71.77 a barrel.

Prices had gained as much as $1 during early Asian trading before pulling back.

Analysts said the bounce was in part a reaction to a potential hurricane in the U.S. Gulf Coast.

A weather system in the southwestern Gulf of Mexico is forecast to become a hurricane before it reaches the northwestern U.S. Gulf Coast, the U.S. National Hurricane Center said on Sunday.

The U.S. Gulf Coast accounts for some 60% of U.S. refining capacity.

“Sentiment recovered somewhat from last week’s selloff,” said independent market analyst Tina Teng.

At the Friday close, Brent had dropped 10% on the week to the lowest level since December 2021, while WTI fell 8% to its lowest close since June 2023 on weak jobs data in the U.S.

A highly anticipated U.S. government jobs report showed nonfarm payrolls increased less than market watchers had expected in August, rising by 142,000, and the July figure was downwardly revised to an increase of 89,000, which was the smallest gain since an outright decline in December 2020.

A decline in the jobless rate points to the Federal Reserve cutting interest rates by just 25 basis points this month rather than a half-point rate cut, analysts said.

Lower interest rates typically increase oil demand by spurring economic growth and making oil cheaper for holders of non-dollar currencies.

But weak demand continued to cap price gains.

The weakness in China is driven by economic slowdown and inventory destocking, Jeff Currie, chief strategy officer of energy pathways at U.S. investment giant Carlyle Group, told the APPEC energy conference in Singapore on Monday.

Refining margins in Asia have slipped to their lowest seasonal levels since 2020 on weak demand from the two largest economies.

Fuel oil exports to the U.S. Gulf Coast fell to the lowest level since January 2019 last month on weaker refining margins.

Crude Oil

Oil Prices Rebound on OPEC+ Output Delay Talks and U.S. Inventory Drop

Published

4 days ago

September 5, 2024

Samed Olukoya

Oil prices made a modest recovery on Thursday on the expectations that OPEC+ may delay planned production increases and the drop in U.S. crude inventories.

Brent crude oil, against which Nigerian oil is priced, rose by 66 cents, or 0.9% to $73.36 per barrel while U.S. West Texas Intermediate (WTI) crude appreciated by 64 cents or 0.9% to $69.84 per barrel.

The rebound in oil prices was a result of the American Petroleum Institute (API) report that revealed that the U.S. crude oil inventories had fallen by a surprising 7.431 million barrels last week, against analysts 1 million barrel decline projection.

The decline signals better than projected demand for the commodity in the United States of America and offers some relief for traders on global demand.

John Evans, an analyst at PVM Oil Associates, attributed the rebound in crude oil prices to the API report.

He said, “There is a pause of breath and light reprieve for oil prices.”

Also, discussions within the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, are fueling speculation about a potential delay in planned output increases.

The group was initially expected to increase production by 180,000 a day in October 2024.

However, concerns over softening demand in China and potential developments in Libya’s oil production have prompted the group to reconsider its strategy.

Despite the recent rebound, analysts caution that lingering uncertainties around global oil demand may continue to weigh on prices in the near term.

Energy

Power Generation Surges to 5,313 MW, But Distribution Issues Persist

Published

6 days ago

September 4, 2024

Samed Olukoya

Nigeria’s power generation continues to get better under the leadership of President Bola Ahmed Tinubu.

According to the latest statement released by Bolaji Tunji, the media aide to the Minister of Power, Adebayo Adelabu, power generation surged to a three-year high of 5,313 megawatts (MW).

“The national grid on Monday hit a record high of 5,313MW, a record high in the last three years,” the statement disclosed.

Reacting to this, the Minister of Power, Adebayo Adelabu, called on power distribution companies to take more energy to prevent grid collapse as the grid’s frequency drops when power is produced and not picked by the Discos.

He added that efforts would be made to encourage industries to purchase bulk energy.

However, a top official of one of the Discos was quoted as saying that the power companies were finding it difficult to pick the extra energy produced by generation companies because they were not happy with the tariff on other bands apart from Band A.

“As it is now, we are operating at a loss. Yes, they supply more power but this problem could be solved with improved tariff for the other bands and more meter penetration to recover the cost,” the Disco official, who pleaded not to be named due to lack of authorisation to speak on the matter, said.

On Saturday, the ministry said power generation that peaked at 5,170MW was ramped down by 1,400MW due to Discos’ energy rejection.