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The American Central Bank, the Fed, is due to carry out its fourth key rate hike of the year on Wednesday, November 2, in an attempt to curb record inflation in the United States. These increases have consequences for other economies, given the influence of the greenback in the world. Developing countries, particularly in Africa, suffer from it, although unequally.
Mechanically, a increase in the Fed’s key rates, it is an increase in the cost of debt for these countries. When the Fed – or the European Central Bank for that matter – raises its key rates, this attracts investors’ capital to Europe and the United States… and therefore diverts it from emerging countries. This therefore increases the cost of their debts. We saw this scenario at work, in the worst proportions, in 2013. But not all African countries are going through this tightening of financing conditions in the same way.
« There are countries that will no longer have access to the capital market, voluntarily, at least in the short term. Côte d’Ivoire or Nigeria have voluntarily decided not to pay this cost increase “, Explain Benoît Chervalier, investment banker and teacher at Sciences Po Paris. The specialist recalls that Côte d’Ivoire, which the markets continue to finance in view of its good growth prospects, saw its borrowing rates go from 5% in 2021 to nearly 7% at the end of 2022. It is different. from countries like Ghana or Tunisia. « These countries today no longer have access to international capital markets sums up Benoît Chervalier.
« double penalty » for low-exporting countries
The situation is, in fact, critical for States which export little and which depend on foreign capital for their imports. It’s even “ double jeopardy sums up Anouar Hassoun, regional director of the pan-African rating agency PBR Rating. ” You find yourself in a situation where the inflow of foreign currency is no longer sufficient to repay the debt. which supposes – second quantitative effect –, the need to increase the level of foreign currency debt. It is at the very moment when emerging countries, which are mainly importers, need currency. The conditions for granting credit by international lenders in foreign currency are tightening “, emphasizes the expert.
Stuck between the need to curb inflation with devastating consequences for their populations, and to finance their economy, some states are sinking into crisis. Some pay for old vulnerabilities. Zambia, the first African country to default in 2020, declared another default last month.
IMF interventions
Ghana appealed to the IMF, as did Tunisia. Tunisia was already heavily indebted even before the health crisis. Ghana has seen its current account deficit widen. One rating agency after another downgraded its sovereign rating. So much so that the cedi, its currency, collapsed, despite the interventions of the Ghanaian central bank. From now on, the International Monetary Fund, which cited Ghana as an example a few years ago, must intervene… and of course, not without compensation.
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« Who says massive support from the IMF, says a certain number of conditionalities, therefore, of reforms to be undertaken in terms of governance, in terms of public employment. What determines a better virtue », stresses Benoît Chervalier. ” The goal is to extinguish the fire and, therefore, inject substantial liquidity, both to meet the financial obligations of these countries and to fill their growing budget deficit. Their budget deficit is increasing all the more because, once again, these same countries can no longer have recourse to the financial markets to fill them. sums up the banker.
Faced with a public debt whose increase is accelerating and will continue to accelerate, the intervention of the IMF seems unavoidable. Before development institutions like the World Bank, or even partner states, come to support the most vulnerable among them. The risk is social uprisings. Both in Ghana and in Tunisia or Egypt, governments are moving cautiously.