Connect with us

Markets

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

Published

on

IMF
  • 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.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Published

on

Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

Continue Reading

Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Published

on

Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

Continue Reading

Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Published

on

oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

Continue Reading

Trending