According to Moody’s, the recent wave of interest rate hikes in industrialised nations to lower rising inflation has curbed investor risk appetite in Africa.
A new research report stated that this has decreased the flow of foreign currency into the continent, which had an effect on Africa’s banks.
In addition, Moody’s noted that things are becoming worse due to weaker local currencies and the ongoing effects of the COVID-19 pandemic on supply chains.
As a result of the rate rises, inflows of foreign currency into the continent have decreased to a trickle.
“The Eurobond market has largely dried up as aggressive rate hikes have made previously affordable debt more costly and many African economies are effectively priced out of the Eurobond market,” Ighosime Oyofo, AVP-Analyst at Moody’s said in the report.
“Aggressive rate hikes in developed economies, as well as the spillover effects of the Russia-Ukraine war on emerging economies, have meant investors are shunning riskier assets and seeking attractive yields in more mature markets,” Oyofo added.
According to Moody’s, in the past 18 months, only a few African sovereigns, including Angola, Egypt, Nigeria, Morocco, and South Africa, have issued Eurobonds, while several have been able to successfully complete loan syndications.
Following moves by the Federal Reserve of the United States and the European Central Bank, the Bank of England increased its benchmark interest rate to a 15-year high of 5.25%, marking its 14th straight increase.
Separately, the International Monetary Fund has claimed that the pressure imposed on African currencies by the longer-term increases in US interest rates has made it more difficult to battle inflation given the area’s reliance on imports.
According to Moody’s, dollar shortages are making already challenging operating conditions worse in import-dependent economies like Nigeria, where many importers and manufacturers are unable to obtain all of their foreign exchange needs.