Rand Merchant Bank is warning of constrained fiscal policy in African countries such as Ghana and Zambia due to elevated costs of funding.

The two countries are presently undertaking debt restructuring to bring their debt levels to sustainable levels.

In its forecast for the year 2023, the South African based research arm of First National Bank, said it expects further reliance by African countries on multilateral and domestic funding to support the various country deficits.

“Fiscal policy will remain constrained across most markets, partly due to elevated costs of funding. Nevertheless, we expect further reliance on multilateral and domestic funding to support the various country deficits”.

“Similarly, the impact of debt sustainability will remain a theme as was seen during the pandemic. Focus in 2023 will be on debt restructuring in markets like Ghana and Zambia, as well as observing vulnerabilities in other markets”, it said.

Growth to remain divergent

Furthermore, Rand Merchant Bank said growth is expected to be divergent and heavily dependent on commodity price movements throughout the year.

“Investment in key sectors such as mining, agriculture, logistics and energy will continue, but within reason given the higher cost of funding and the lacklustre global backdrop”, it added.

Inflation to remain above long-term average

On inflation, it said while it is expected to ease across the continent, it will remain structurally above its long-term average.

“Combined with high interest rates and further shocks that could emanate from the oil market, we are concerned about personal consumption expenditure as real incomes decline given the strain on consumers. We expect most countries to reach the peak of their hiking cycle by the first half of next year (barring further shocks to inflation).”

Meanwhile, Rand Merchant Bank said the Russia-Ukraine war remains the key geopolitical risk.

“We continue to observe the effects of the sanctions against Russia and their disruptive nature on oil prices and on broader supply chains. The current EU ban on Russia’s seaborne crude and the expected ban on imports of refined oil products from Russia in first quarter 2023 are some of the challenges that will add volatility in the energy market’.

“China — Africa’s key trading partner — is expected to gradually recover next year given its commitment to relax the strict covid-19 policies. This move, if sustained, should lead to stronger growth in China’s economy relative to 2022, which could offer some upside risk to commodity prices”, it added.