Frontier Markets Weekly, November 28th 2022

Ghana’s debt U-turn | Vietnam backtracks on coal | Iran beefs up border | Bahamas reels from FTX collapse

By Ken Stibler, Noah Berman and Dan Keeler

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Deepening economic crisis forces Ghana to backtrack on promises and restructure foreign debt. Amid a fragmenting political environment, Ghana has reversed previous promises and proposed a 30% “haircut” on foreign debt. The restructuring announcement came after the mid-November budget was delayed, and finance minister Ken Ofori-Atta faced substantial parliamentary opposition to his plan to restructure only domestically-held debt. While investors were left without key details, markets reacted positively to the move, which many observers saw as inevitable

The proposed debt swap will likely be treated as a restricted default by rating agencies and marks a stunning reversal for the country, which had been an investor favorite on the back of a stable democracy, growing gold mining and a nascent oil sector.

Loans taken to support oil production and pandemic spending had pushed debt service costs to over half of the government revenues by early 2022. As the government printed money to cover its costs, bond yields have soared, reaching 50% this month from 21% in March. The government moved slowly and appeared to ignore the economy’s precarious situation in its attempts to borrow more from international markets, domestic banks and the central bank. Despite domestic borrowing absorbing 85% of all debt issued, President Nana Akufo-Addo promised creditors there would be no haircuts on international debt—a move that would have seriously impacted Ghanaian banks.

Now, Ghana is spreading the pain to international bondholders who will be forced to take on losses as high as 30% and forgo interest payments for three years. This debt reduction will allow Ghana to qualify for an IMF deal to support the government while large deficits are slowly unwound.

‘Coup’ thwarted in São Tomé and Príncipe. The prime minister of the African island nation of São Tomé and Príncipe said the country’s military had thwarted a coup attempt overnight on Thursday. According to Prime Minister Patrice Trovoada, at least four people attacked the military headquarters, Africanews reports. The state news agency later reported that four people had died in the alleged attack.

Former head of the country’s National Assembly, Delfim Neves, was one of six men arrested on Friday in connection with the alleged coup attempt. Neves lost his position after elections held November 11 saw Trovoada’s center-right Independent Democratic Action party consolidate its lead in the country’s parliament.

São Tomé and Príncipe. Source: VoA

São Tomé has long been heralded for its stability, although it beat back a coup in 2003, when military leaders sought to depose former Prime Minister Fradique de Menezes. Since 2017, 13 of the 14 coups recorded globally have been in Africa, according to the BBC.

Ceasefire in DR Congo. Congolese troops and members of the M23 rebel group agreed to a conditional ceasefire, promising an end to the most significant outbreakof violence between the groups in a decade. 

Despite the truce, M23 has refused to disarm or withdraw from the land in Eastern DRC it has seized over the past several months. The agreement followed a summit during which leaders of the DRC and neighbors RwandaBurundi and Angola agreed to a ceasefire, although no member of the M23 was present, raising concerns about its implementation.

Thousands of people have been displaced as DRC’s army has struggled to stop the M23’s advance. Photo: Goran Tomasevic/Reuters

On Friday, M23 leader Bertrand Bisimwa said M23 would accept the conditions of the ceasefire and called for direct talks with DRC leadership. The DRC has previously refused to talk with the M23, which it classifies as a terrorist group.

Rwanda’s participation in the discussions is notable because both the DRC and the UN have accused it of supporting M23. Rwanda has denied any support.


Kazakh president wins re-election. President Kassym-Jomart Tokayev coasted to victory in last week’s election, winning over 81% of a vote in which the second-place finisher was the option to reject all six candidates. Tokuyev will serve a second seven-year term, as he continues to balance Kazakhstan’s relationship with Russia and its economic relationship with the West.

President Kassym-Jomart Tokayev. Source: Astana Times

Like other central Asian leaders, Tokayev has declined to recognize the sovereignty of breakaway Ukrainian states in the Donbas region, and Kazakhstan has become a popular destination for Russians fleeing the draft. But Kazakhstan’s economy is still heavily dependent on Russia, and Tokayev has called on Russia for support, including by bringing in Russian troops to quash political protests that left over 230 dead in January.

In his first trips after his re-election, Tokayev will pay an official visit to Russia on Monday and to France on Tuesday, Astana Times reports. In his inauguration speech he promised to continue pursuing reforms

Vietnam backtracks on coal commitment. Despite a draft agreement to decrease its coal dependency in exchange for $11 billion in financing from wealthy nations, Vietnam has increased its coal power target for 2030, The Diplomat reports

According to the latest plan, Hanoi would begin to meaningfully move away from coal in 2045. In the meantime, it has a plan in place to build 11 new coal-fired power plants over the next decade.

The Vinh Tan thermal power plant in Binh Thuan province, Vietnam. Photo: Depositphotos

Officials from Vietnam and the EU failed to finalize the agreement as the COP27 climate summit came to a close last week, although policymakers from the EU are hopeful they can restore the deal at the EU-ASEAN summit in Brussels next month.

Vietnamese negotiators wanted more control over the funding, Reuters reports, most of which came in the form of loans. Unless the proposal is significantly altered to satisfy Vietnamese demands, Vietnam-based investors and analysts expect that a deal will remain out of reach.

Malaysia’s parliament picks a PM. After 20 years as opposition leader Anwar Ibrahim was sworn in this week as Malaysia’s fourth prime minister in three years. He will be tasked with reviving a slowing economy and reuniting the country after a divisive election. 

No party won a majority in parliamentary elections last week, which pitted the progressive Anwar against former Prime Minister Muhyiddin Yassin’s conservative coalition. The country’s constitutional monarch, King Al-Sultan Abdullah, selected Anwar after meeting with several lawmakers, CNN reports.

Anwar Ibrahim greets supporters on November 5, 2022 in Perak, Malaysia. Photo: Sadiq Asyraf/Getty Images

Markets applauded the end of the political deadlock. The benchmark KLCI index closed up 4.4% on Thursday at a two-month high. The ringgit climbed modestly higher, posting its highest gain in two weeks.

Middle East

Iran strengthens military presence on Iraq border in push against Kurdish groups. Iran is deploying armored and special units along its western border to prevent the infiltration of Kurdish opposition groups based in Iraq, Sune Engel Rasmussen reports in the WSJ. The deployment follows an intensification of Tehran’s response to protests sweeping the country, particularly in the Kurdish border areas, which have experienced some of the most consistent antigovernment rallies.

A Kurdish fighter amid the destruction caused by a reported Iranian rocket attack in Iraq’s autonomous Kurdistan region. Photo: Safin Hamed/AFP/Getty Images

Mahsa Amini, the 22-year-old woman whose death in police custody in mid-September sparked the unrest, was born in Kurdistan. Kurdistan could suffer more violence if Tehran amplifies its military confrontations with Kurdish groups on both sides of the border.

Brig. Gen. Sardar Mohammad Pakpour, the commander of the Revolutionary Guard’s ground forces, said the guard was strengthening forces in the area, “following activities of evil and separatist anti-Iranian terrorist groups.” He accused the groups of destabilizing the northwest of the country, according to Iranian news agencies.

Latin America

FTX collapse undermines Bahamas’ regulatory credibility and diversification strategy. Cryptocurrency exchange FTX’s collapse has hit the Bahamas’ hopes for development and diversification after the country bet big on crypto for its future, the WSJ’s Matt Grossman and Angel Au-Yeung report. FTX moved its headquarters from Hong Kong to the Bahamas over a year ago after the island nation promised light-touch regulations and sweeteners for making the move. Bahamian authorities saw the move as central to their plan to diversify away from tourism and offshore banking, which generate around 85% of GDP.

Philip Davis, prime minister of the Bahamas, has made digital assets a centerpiece of his agenda. Photo: Bloomberg News

On the surface, the campaign was successful, with other crypto firms such as rival exchange OKX also investing in the Bahamas. FTX’s collapse leaves a hole, though, as its liberal spending on leasing fleets of cars, staging events and catering dries up. 

The exchange’s implosion also poses a major challenge for prime minister Philip Davis, who publicly championed crypto as a driver of recovery after Hurricane Dorian and Covid dented tourism revenue. “The Bahamas is getting a black eye at every turn on this,” one of the Bahamas’ largest newspapers, the Nassau Guardian, wrote in an editorial this week that criticized Mr. Davis’s embrace of FTX

Drought dashes Argentina’s food-export hopes. A third year of drought in Argentina has drastically reduced wheat production, threatening the country’s ability to supply anemic global food markets and pressuring the fragile economy, the FT’s David Feliba reports. Earlier this year, President Alberto Fernández touted the country’s agribusiness exports as a potential solution for the world’s food shortage. 

In the 2021/22 season, Argentina exported 16.25 million tons of wheat, but persistent drought conditions have led the US Department of Agriculture to cut estimates to 15.5 million tons this year, while local exchanges forecast as little as 11.8 million.

A farmer stands in a drought-hit corn field near Chivilcoy, Argentina. Photo: Martin Acosta / Alamy

The super-ministry that oversees the economy and agriculture announced a subsidy for small producers as the drought, according to agroconsultancy Nóvitas, threatens cash crops such as corn and soy. However, the government lacks the budgetary space for more support and has retained high export levies and complicated exchange rates, which undermine exporters.

  • Backstory: Argentina’s drought prompts farmers to abandon land. (Tasting Table)

 The combination of lower crop yields and depressed exports will result in a wheat harvest worth $5.5 billion, down 36% from $8.6 billion in the previous season, according to projections by Quantum, an economic consultancy. Such a shortfall poses a substantial risk for an Argentina economy heavily dependent on agricultural exports. 

The current situation is reminiscent of the 2017/18 season when drought caused lower-than-expected crop yields and implied macroeconomic effects triggered outflows that resulted in the 2018 default.


Resilient emerging markets stand to gain from recovery in global risk appetite. After a year of worsening economic and financial conditions, pressures facing emerging markets appear to be leveling off, leading to a rise in bullish investor sentiment according to FT and Reuters analyses. Proactive monetary policy tightening has staved off worst-case scenarios for outflows and depreciations without destabilizing economies with excessively high interest rates, which appear close to peak levels. 

The dollar has also weakened in the past weeks, providing relief for emerging-market currencies. The combination of a falling dollar, slowing rate rises, and surprise resilience is leading to a risk-on streak for the EM recovery narrative after the 15-25% recorded losses for the asset class.

Investment bank forecasts for 2023 suddenly have turned bullish on EMs—based on assumptions that interest rates will stabilize, China will relax Covid restrictions and Russia won’t start a nuclear war. Bank of America’s latest global fund manager survey shows “long EM” is the top contrarian trade. UBS expects EM assets to earn between 8%-15%, while Morgan Stanley expects nearly 17% returns on local currency debt. Credit Suisse likes hard currency debt.

“It’s a kind of a wholesale de-grossing of risk,” said T. Rowe Price EM portfolio manager Samy Muaddi, who has started dipping his toe back into what he describes as “well-anchored” EMs such as the Dominican RepublicCôte d’Ivoire and Morocco.

What We’re Reading

Can EU stop Algeria from financing Russia through its military purchases? (The Africa Report)

Trapped between extremists and extreme weather, Somalis brace for famine. (NYT)

Kenyan electric bus maker BasiGo scores $6.6m to electrify mass transit. (ImpactAlpha)

Kenya’s forex reserves drop below key level for first time since 2015. (Bloomberg)

Equatorial Guinea ruling party wins 99% of votes. (Reuters)

Chinese mining deals under review as Congo targets windfall profits. (Bloomberg)

Isolated North Korea struggles to throw off Chinese yoke. (Nikkei

Vietnam tops tech growth market index. (FT)

Clothing piles up at Bangladesh warehouses as West cuts imports. (FT)

Foreign companies in Myanmar bide their time with eye on long view. (Nikkei)

Insurgency and neglect hurt flood relief in Pakistani province. (AP)

Pakistan winter gas crunch threatens to chill economy, stoke unrest. (Nikkei)

Kazakhstan seen tilting to China after president’s landslide win. (Nikkei)

Mongolia puts its faith in China railway to boost Covid-battered economy. (FT)

Iran nuclear chief announces enrichment program expansion. (FT)

UN to investigate Iran’s alleged human-rights violations during protests. (WSJ)

Iran says it has stepped up production of highly enriched uranium. (WSJ)

Saudi Arabia in talks to deposit $5b into Turkey’s central bank. (FT)

UN boosts food aid budget to feed a third of Lebanon. (AP)

European parliament links Serbia’s progress to sanctions on Russia. (Balkaninsight)

Russian strikes leave six million in Ukraine without power. (WSJ

Hungary to provide $195m in financial aid to Ukraine. (Radio Free Europe)

EU to freeze funds until Hungary delivers on rule of law. (FT)

IMF unveils guidelines for Paraguay to unblock foreign financing. (Mercopress)

Uruguayan defense minister reviews troops in Middle East. (Mercopress)

Mauricio Macri’s possible comeback threatens to divide Argentina opposition. (FT)

Latin America’s democratically elected leaders face daunting odds. (FT)

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