The conclusion of 2023 witnessed a global economy in a more favorable condition than anticipated, attributed to the restoration of investor and business confidence post-pandemic economic constraints.
Nonetheless, the outlook for 2024 remains uncertain, particularly in developing nations. Factors contributing to this uncertainty include inflationary pressures, depreciating domestic currencies, elevated interest rates in developed economies, surging debt levels, and economic downturns on both domestic and global scales.
A pivotal determinant of global economic performance in 2024 is the monetary policy stance of major central banks, notably the US Federal Reserve, the European Central Bank, and the Bank of Japan.
The majority of these central banks maintained their interest rates towards the end of 2023. Key economies such as the U.S., Eurozone, and the UK are nearing their 2.0% inflation target due to stringent monetary policies in the past few years. As inflationary pressures ease, central banks are expected to relax monetary policies, stimulating increased investments. This decision will significantly impact global interest rates, exchange rates, bond yields, and asset prices.
Furthermore, a decrease in interest rates in developed economies will make international capital markets more accessible to the Sub-Saharan Africa (SSA) region. Consequently, an upswing in Eurobond issues is anticipated in the SSA region for 2024, following a lockout from international capital markets in 2023 due to elevated interest rates and investor demands. Ivory Coast has already taken a proactive step, raising USD 2.6 billion from oversubscribed Eurobond issues, receiving subscriptions exceeding USD 8.0 billion.
Global interest rates will hinge on the pace at which developed economies achieve their inflation targets. However, the threat of inflation resurgence looms, especially if tensions, particularly in the Middle East, remain uncontained, potentially disrupting supply chains and escalating global inflation. Additionally, geopolitical unrest tends to elevate investor uncertainty, leading to increased demands for higher interest rates.
In the domestic market, short to medium-term expectations include persistently high interest rates. This is driven by heightened government borrowing to address upcoming debt maturities and fund a widening budget deficit, currently projected at 5.5% of GDP, up from the prior June estimate of 4.4% for the FY’2023/24.
The imminent USD 2.0 billion June maturity adds to economic uncertainty, prompting investors to continue attaching higher risk to government borrowing and, consequently, demanding elevated yields.
