Question:

Do you have the detailed format of CSO's release of the flash CPI? I haven't found it on the website, just so we can use it to update the main tables after the release of the data.

The question was asked in relation to the following story: CPI impact

Answer:

According to the Czech statistical office, it will be similar to Eurostat's euro area flash HICP release, the latest of which you can find here:

https://ec.europa.eu/eurostat/en/web/products-euro-indicators/w/2-03022025-ap

There is a detailed breakdown of the new publication, but only in Czech, which you can find in this presentation (slide 12):

https://csu.gov.cz/docs/107508/c541e67b-f5ce-232a-5c8e-302b7155eb23/csu_tk250113_inflace_2024_prezentace.pdf?version=1.1

Here is a translation of each line:

Headline

Headline without:

• energy
• energy and non-processed foods
• energy, foods, alcohol and tobacco
• processed foods, alcohol and tobacco

Foods, alcohol and tobacco

• processed foods, alcohol and tobacco
• non-processed foods

Energy (including fuel and oil)

Services (including water & sewerage, unlike the HICP, where these are classified as goods)

Goods (excluding water & sewerage, unlike the HICP).

The columns are respectively weights (constant weighting from 2022), year-on-year change for November 2024 and December 2024, and month-on-month change for December 2024.

The Czech statistical office said they did a test run for the entire 2024, and they never got more than a 0.1pp deviation from the final headline number, so the flash release should be quite accurate.

Question:

Dear Editor, in addition to my previous question: Is there any indication of when the parliament will decide on the appointment of the four proposed board members? In addition, I assume that now, with a new president, the decision of the parliament will only be a formality? Or are there chances that the parliament will reject the proposed members? Best regards

The question was asked in relation to the following story: President submits for approval 4 candidates for vacant positions of NBG's Board

Answer:

Indeed, there is little doubt that they will be approved, especially given the composition of the new Parliament. Yesterday the Parliament terminated the mandates of 49 opposition members, so the approval of proposed new members of the Board will be a formality. Three of the proposed persons have been associated in some capacity with Georgian Dream.

Question:

Dear Editor, is there a source for this information? Kind regards

The question was asked in relation to the following story: President submits for approval 4 candidates for vacant positions of NBG's Board

Answer:

Here is one source: https://bm.ge/news/vin-arian-da-ra-vitsit-mikheil-yavelashvilis-mier-shercheul-seb-is-sabchos-tsevrobis-4-kandidatze

Question:

Last summer there were talks that Montenegro could be a potential candidate of a fast-track EU accession process, were there any news in this respect? many thanks

Answer:

Regarding Montenegro's EU accession, notable progress in its EU accession talks was made last year when the government received a positive Report on the Assessment of the Fulfilment of Interim Benchmarks (IBAR) at a ministerial conference in June 2024 in Brussels. The positive IBAR related to Chapter 23 - Judiciary and Fundamental Rights and Chapter 24 - Justice, Freedom and Security in the EU accession talks paved the way for the closure of three more chapters in the EU accession negotiations - Chapter 7 - Intellectual Property Law, Chapter 10 - Information Society & Media and Chapter 20 - Enterprise & Industrial Policy in the EU accession talks on Dec 16, which was essentially part of the plan to fast-track the EU accession process, following the positive IBAR. However, the unresolved bilateral issues with Croatia prevented the opening of an additional chapter (Chapter 31 - Foreign, Security & Defence Policy) in the EU accession talks last December. Further chapters are set to be closed this year, however, their closure will still depend on the approval of the 2025 state budget and the necessary reforms, as well as progress in resolving the bilateral issues with Croatia. EU Commissioner for European Neighbourhood and Enlargement Marta Kos said last month that Montenegro should be able to compete its EU accession negotiations by end-2029

The question was asked in relation to the following story: FinMin Vukovic calls for urgent approval of 2025 state budget

Question:

Any insights on what makes Poland and Portugal more optimal locations with respect to North Macedonia? Any red flags about ease of doing business?

The question was asked in relation to the following story: Swiss-based automotive supplier Aptiv to close its factory near Skopje

Answer:

We guess that Aptiv is optimising its production due to the overall crisis in the European automotive sector by focusing on its core markets and divesting from its fringe markets, such as North Macedonia. The company has a much larger footprint in Poland (it has operated there for 20 years and employs over 5,500 employees) and operates its most extensive research and development facility in the country. In Portugal, Aptiv's predecessor companies have been active since 1965 and the company currently operates three production sites and employs around 2,000 workers. Our take is that the divestment from North Macedonia, where Aptiv operates one factory and employs around 500 workers, has more to do with optimisation and not with some significant deterioration in the conditions for doing business.

Question:

I was just wondering if there's much we can read into monetary policy and Glapinski's reaction function if the KO lead holds? The NBP wages survey, Trump escalations, and a still volatile energy market at this point seem to offer support for Glapinski's argument for 2026 cuts....

The question was asked in relation to the following story: Trzaskowski leads with 34.1%, PiS's Nawrocki is second with 24.6% - Ariadna

Answer:

, I don't think there has been any fundamental change to the monetary policy outlook that would get me to change my view the most probable timing for the first cut is July (with the caveat that I am going to increasingly be looking at MPC comments to see if they would prefer September in order to peg the cut to July CPI inflation, which should slow sharply, and to not cut in a July that goes into the holiday month of August).

The KO leads the government now and that is unlikely to change to 2027, with some small possibility of a coalition collapse in the runup to the autumn 2027 election (one must remember that if early elections are triggered both junior coalition allies will be hurt badly and so there will be low incentive for fresh elections). This means Glapinski will have political rivals in the government through nearly the end of his term in June 2028 and this means the State Tribunal case against him will be pressed after the presidential election no matter who wins the latter.

I am thus not sure how big of an impact the presidential election result will have on monetary policy in this sense of making a cut more or less likely. The end of the campaign will free up monetary policy to make a decision, but if the KO candidate wins, this will mean an easier cohabitation whereas if the PiS one wins, then the cohabitation will be similar to what it is now. I'm not sure either makes a decision one way or another more likely. I suppose there is the lingering question of whether Glapinski will oppose cuts no matter what happens just in order to frustrate the government for as long as possible. That would definitely reduce the chance of a cut. A more intense State Tribunal campaign against Glapinski might disincline him to backing cuts and that could work against one as well.

As for the NBP survey, I think that we knew wage growth was still planned (the labour market remains relatively tight), but I think the survey also confirmed the pace should slow. I think that as long as wage growth slows into the single digits, the door to a cut will swing open. But if wage growth were to remain in double digits, that would definitely work against a cut.

The Trump impact is harder to gauge. One question is does having 25% tariffs on Canada and Mexico and 10% on China make EU products relatively cheaper, especially those from Germany. That could help Poland. On the other hand, I don't think there is that much exporting of cars from Germany to the US due to all the different rules and so this impact could be limited in a manufacturing sense. I would also be reluctant to believe the tariffs will be long-lasting since it seems there is a big question about how long they will be imposed. The tariff moves do seem to be performative in some sense. If global GDP is hurt broadly, then that would make a weaker backdrop and that would hurt Poland in the end, which could make cuts more likely.

As for the energy market, I have seen some news about Europe-wide natural gas prices rising. If there were to be a sharp rise in the gas tariff in July (remember that the current tariff is in place to end-H1 2025), then that definitely could work against a cut in July. It would also make it more likely the council would want to see July inflation and thus a September cut becomes more likely. I am less sure about power prices, but we shall see where they go in the coming few months.

In the end, I think we are still in wait-and-see mode with regards to the latest data and events. There is of course lots of risk out there and that could push back a cut. It is starting to look like September could supplant July, but for now, I am sticking to July. I think the only way that the cut actually slips to 2026 is if energy prices jump in Q4, the economy hits 4% growth or above, wage growth remains in double digits, and the global economic backdrop looks secure.

Question: What do you make of this story? is this something that can escalate? Real estate scandal engulfs Romania's Social Democrats BUCHAREST - Romanian authorities have detained former Social Democratic MPs for their alleged involvement in a property scandal that has defrauded several Romanians, with media speculating that Prime Minister Marcel Ciolacu and Transport Minister Sorin Grindeanu may be implicated. The Directorate for the Investigation of Organised Crime and Terrorism (DIICOT) in Bucharest announced on Tuesday that it had ordered the detention of 11 people in the Nordis case and placed two defendants under judicial supervision. On Monday and Tuesday, police and prosecutors carried out more than 60 searches at locations in Romania and Monaco. Among those detained are former Social Democrat MP Laura Vicol, who chaired the legal affairs committee of the Chamber of Deputies in the previous legislature, and her husband, Vladimir Ciorbă, the main shareholder in the Nordis group.

The question was asked in relation to the following story: Parliament expectedly approves 2025 budget bills without notable amendments

Answer: The major scandal about this scam of Nordis residential developer is mostly focused on the financial harm to clients (media speculates hundreds of millions of euros). Vladimir Ciorba is the major shareholder and CEO of Nordis. His wife is Laura Vicol, a former PSD MP, so initially only the party image seemed to be at risk to be damaged. The PSD expelled Vicol from the start, before the scandal took such proportions and before arrests were made.

However, a media investigation discovered later that Vicol was not just party colleague with PM Marcel Ciolacu and Transport Minister Sorin Grindeanu. The three took several luxurious trips with private jets, which means that they might be closer than just colleagues. Both Grindeanu and Ciolacu strongly affirm that they paid with their own money those trips, but none has yet provided clear proof sustaining this, which fuelled speculations. PSD's political enemies and opposition media accuse them of knowing about Nordis scam and of using their influence in state authorities for covering it. In exchange, Vicol rewarded them with those luxurious trips. Ciolacu and Grindeanu firmly deny all allegations which I doubt are true, because Vicol could have disclose this to prosecutors in exchange of not being arrested.

The opposition started asking for PM Ciolacu resignation, but in absence of clear evidence that he was involved or knew about this scam, we doubt he will step down just for the sake of the party image. In fact, we don't see much damage to PSD's reputation because the party is already perceived by opponents as having numerous corrupt members and we don't think it would lose voters due to this scandal.

Obviously, if prosecutors find evidence that incriminate Ciolacu or Grindeanu, they will have to resign. We think there is a low probability of this to happen, but we'll keep an eye on this and report in case anything occurs to lead to an escalation.

Question:

Do you have any sense of who owns the 4% of OFZs that are not owned by Russian investors? Is there any information about Chinese ownership or Middle Eastern, Indian, or others?

The question was asked in relation to the following story: Share of non-resident OFZ holdings drops to 4.0% in December

Answer:

We are not aware of any publicly available data regarding the residence of nonresident investors in OFZ bonds. Before the war in 2022, the majority of these investors were from the UK and the EU, as the US had already prohibited its entities from investing in OFZ bonds in 2021. Following the imposition of sanctions and Russia's countermeasures, nonresident investors were unable to sell their holdings or were forced to sell at steep discounts. As a result, many chose to retain their positions. While some investors managed to sell, the share of nonresident ownership has been declining, largely due to maturing debt and new auctions being subscribed to by residents only. We have not observed interest for OFZ bonds from investors in friendly countries, despite the attractive current yields. Therefore, it is reasonable to assume that the remaining 4% of holdings are primarily from original EU/UK investors who have opted to hold onto their bonds in the hope that sanctions may eventually be lifted.

It is also noteworthy that nonresident holdings dropped more sharply in December, with no maturing OFZ debt during that month. This decline coincided with the Eurobond debt exchange organized by the FinMin. While this event should not have directly impacted OFZ holdings, it is possible that it allowed nonresident OFZ investors to exit their investments on more favorable terms. According to CBR data on external debt, nonresident holdings of Russian debt saw a sharp decrease in December, which can likely be attributed to the debt exchange. The total drop in Q4 was USD 11.6bn, with OFZ bonds accounting for USD 3.8bn of this reduction. This means that nonresident holdings of Eurobonds decreased by USD 8bn approximately.

Question:

I think Cumhuriyet had a story a while back about Simsek possibly being moved in a Cabinet reshuffle. Have you seen any other stories to indicate that this might be a possibility, and do you have any view on whether this is likely or unlikely? .

The question was asked in relation to the following story: Simsek focuses on reforms, fiscal discipline, and supply-side measures for 2025

Answer:

Cumhuriyet is a pro-opposition platform, so such reports occasionally surface. Indeed, there were speculations in late August regarding Simsek's position, but these were officially refuted by the Presidency's directorate of communications' centre for combating disinformation, which deemed the claims baseless and designed to provoke market instability.

The ruling AK Party is reportedly preparing for significant changes in the cabinet, with these shifts expected to follow the party congress in late Feb 2025, as previously noted in our story. Initially, only a few ministers were expected to be affected; however, based on recent rhetoric, the minister of tourism is now almost certain to be replaced due to the Bolu Kartalkaya fire disaster, which resulted in the deaths of 77 people. Media reports also indicate that the ministers of the interior, justice, labour, family, energy, and agriculture could also be replaced.

Recent reports from reputable media outlets do not suggest that Simsek will be removed. On the contrary, President Erdogan has expressed support for the current economic program-and, by extension, for Simsek himself. In this context, we believe that removing Simsek would jeopardise Turkey's delicate economic equilibrium. Based on our assessment, President Erdogan is more inclined to retain him unless political considerations begin to outweigh the benefits of maintaining stability. Consequently, for the time being, we consider Simsek's position to be secure.

Question:

Do you have a series on the minimum wage?

The question was asked in relation to the following story: Minimum wage rises 9.54% for 2025

Answer:

A file with the series can be downloaded here.

Question:

Does the reform to Pemex Law eliminates requirements to regularly provide financial and operational reports on the company's website? It also gives Pemex greater flexibility to manage its financial instruments, including bond issuance and credit line approvals.

The question was asked in relation to the following story: Govt moves to end oil blocks' auctioning, to prioritize PEMEX

Answer:

We do not have access to the reforms announced by President Claudia Sheinbaum and can only report on their content on the back the information presented by the president and her team, which focuses on their political agenda.

The current PEMEX Law does force the company to present a number of reports on its webpage but most are not related to their financial or operative reports. Article 110 of PEMEX Law does force the company to publish in its portal information that shows the state of the firm financially, administrative and operational. This article is linked to Article 104 of the Stock Market Law, which forces all firms listed at the Mexican Stock Market (BMV) to present some of this information. In any case, all that would change if Article 100 of PEMEX Law were eliminated or significantly change, would be the publication of these data in PEMEX's portal, but does not cancel the firm's obligation to comply with the rules of where it was listed.

The reform does strengthen the central administration of PEMEX, in our view, eliminating a number of subsidiaries that, according to the own firm, have acted "like private companies". Moreover, the reform gives PEMEX the possibility to decide if it partners with private firms in mixed contracts, something we see as a positive development. However, it's unclear to us how the firm gains control over the management of its financial instruments; the current law does force PEMEX to coordinate with the Treasury the management of its debt; however, we'd be surprise if this were to change following the reform.

Question:

Are you sure the funding will go to GASC? Isn't Mustakbal Masr the entity responsible for importing commodities now? How does this work?

The question was asked in relation to the following story: Government secures USD 1.5bn financing from ITFC for fuel and food imports

Answer:

Since the military agency Mostakbal Misr took over the imports of strategic commodities from GASC, it makes sense that it would receive the USD 700mn ITFC financing. However, according to this statement from the planning ministry (English), GASC is the recipient. This is not a translation error, because the Arabic version of the website also names GASC.

One possible explanation is that, given this long-term financing program has been running for years, GASC may still be the original signatory to the terms and conditions in the Egypt-ITFC agreement. Since Mostakbal Misr assumed the responsibilities previously held by GASC, it is likely that it will ultimately receive the fresh ITFC financing.

Question:

Is there a difference in banks' capital or tax treatment for these external-currency T-Bills? Why wouldn't a local bank invest excess USD / EUR in 1Y Eurobonds in the 7.25-7.5% YTM area?

The question was asked in relation to the following story: CBE sells USD 1,061mn one-year T-bills, average yield falls to 4.25%

Answer:

This is a very interesting question. My understanding is that these T-bills are treated the same way as the local-currency T-bills for capital requirements and tax purposes and I couldn't find information that would contradict this. I have also checked the Prospectus for the Jan 2025 Eurobond, which is - I believe - the most comprehensive document that has been published recently. The document only says:

The Ministry of Finance began issuing U.S. Dollar-denominated treasury bills in the local market in November 2011 with the purpose of absorbing the excess liquidity of foreign currencies that was available with local banks.

Neither the Eurobond prospectus, nor the IMF have mentioned that these T-bills are treated any differently.

Regarding your second question - I am not sure why the banks would not invest their excess hard currency in alternative assets. The only reason I could think of is that since there are three large state-owned banks operating in Egypt, maybe they are the main buyers of these notes. The CBE does not publish the names of the banks that participate in the auction, so we cannot know for sure. I selected Banque Misr, one of the large state-owned banks, to see if it provides a detailed breakdown of its investments in T-bills in its quarterly financial statements - this could've been helpful in gaining insight into the bank's investment in short-term debt. However, all investments in T-bills are aggregated together in one single category - T-bills, so I cannot say if the state-owned banks are indeed the main investors in the USD/EUR notes.

Question:

I can see that official inflation in Morocco is very low, 0.7% yoy in Dec, but the unions are repeatedly referring to rising prices. Is there something wrong with the official data, or is just wage growth just that low?

Answer:

This issue largely stems from perception, following the inflation spike in 2022 and early 2023, particularly during Ramadan. Food prices saw a significant surge in early 2023, prompting government intervention to curb the rising costs of meat and vegetables. However, overall food price levels have remained higher than before.

According to the Q4 consumer confidence survey from the national statistics office, 97.5% of households reported price increases in 2024, and 83.3% expect further rises in 2025. With inflation expectations remaining elevated, trade unions have leveraged this narrative in their demands.

Regarding wage indexation, unions have accused the government of reneging on social dialogue agreements. While some wage increase agreements were reached last year, the government did not commit to a specific implementation timeframe. The most recent adjustment was a 5% increase in the guaranteed minimum wage for non-agricultural (SMIG) and agricultural (SMAG) workers, effective January 1, 2025. However, this measure is unlikely to have broader economic implications.The rising unemployment rate further exacerbates this situation.

The question was asked in relation to the following story: Five major trade unions prepare for nationwide strike on Feb 5-6

Question:

Hi there, We're concerned with the arbitration case in Angola and how it might impact current loans being finalised between lenders and MOF Angola? Is there a chance the courts rule it as an EOD and it triggers a cross-default across new policies too?

Answer:

Given my limited legal background, I am unable to speculate on the potential outcome of the court ruling. While it is important to acknowledge that such a risk cannot be entirely dismissed, it has been explicitly highlighted in the December Eurobond issuance prospectus. However, the Ministry of Finance has refrained from disclosing any details about the lender or the size of the debt associated with the arbitration process, citing concerns about the potential impact on ongoing legal proceedings. It is also worth noting they did not reveal the court where the proceedings began but according to Financial Times there is no data in the public registries of the WB or UN. This lack of transparency leaves us uncertain about the amount of debt that could be required for immediate repayment if the situation escalates.

While the mention of a sanctioned lender may suggest the involvement of Russia, official statistics from the Central Bank indicates that Angola has not had any debt exposure to Russia since 2019. Based on the available information, there does not appear to be significant exposure to any sanctioned country. The primary creditors seem to be China, the UK, Germany, and the United States, IFIs.

While the exact extent of Angola's exposure remains unclear due to the lack of transparency, it is essential to consider the potential avenues available to the country if the risk materializes. The significant debt service burden, projected to reach USD 13.5bn in 2025, already accounts for more than half of Angola's oil-dependent national budget. This high debt load raises concerns about the country's capacity to manage additional financial obligations should the situation worsen.

The recent Eurobond issuance, which involved JPMorgan in December, indicates that there may still be some level of risk appetite among international banks for lending to Angola. However, this raises important questions about the associated costs. If Angola were to seek additional financing, it is likely that the terms would be considerably more expensive given the country's existing debt profile and the uncertainties surrounding its legal and financial position. The key issue is whether Angola would be able to service such new, potentially more costly debt, given its already strained fiscal situation.

In the worst-case scenario, if the legal risks were to materialize and worsen Angola's financial position, the country would likely turn to its historical partner, the International Monetary Fund (IMF), for support. Angola has a long-standing, generally positive relationship with the IMF, which has provided assistance in the past during periods of economic instability. Given the current circumstances, it is reasonable to expect that the IMF would step in to provide financial support if necessary, though the specifics of any potential assistance would depend on the evolving situation and the country's ability to meet the conditions for such support.

Please note once again that these are my personal thoughts.

Also, here is what the recent Eurobond prospectus says about this particular risk for reference:

Angola has on occasion been in breach of covenants or default under certain existing financing agreements and has sought waivers and/or amendments to remain compliant. If Angola is unable to remain in compliance with its existing or future financing agreements (including loan agreements and terms and conditions of bonds) and is unsuccessful in amending the relevant covenants or obtaining waivers, lenders in such facilities may accelerate their loans, which could result in a cross acceleration on the Notes.

Angola has entered into certain financing agreements that include, inter alia, covenants regarding the use of proceeds and the repayment of amounts borrowed under such financing agreements. Angola has been in breach of the use of proceeds covenant under the IBRD Facility due to an administrative error (see "Composition of Angola's external debt - Bita water production, transmission and distribution facilities and system"). Angola is also a party to an arbitration in relation to a syndicated facility entered into with certain lenders. The facility was performed in accordance with its terms until each of the lenders became subject to international sanctions, the effect of which was to restrict the parties' ability to perform the facility in accordance with its terms. One lender has recently commenced arbitral proceedings claiming that an event of default has occurred and that it is entitled to full repayment of its portion of the loan. There is no evidence that that lender has the required majority lender consent of 66 2/3rds and therefore, any demand or action taken by that lender in its own name contravenes the terms of the loan documentation. As such, Angola denies that the lender is entitled to accelerate the loan or pursue the claim and intends to defend the arbitration. (see "Composition of Angola's external debt - Other defaults"). Angola is working towards remedying these breaches and/or defaults, but if Angola is not able to comply with the terms of its agreements, amend its financing agreements and/or repay or prepay its existing loan facilities, new waivers or amendments for non-compliance will have to be obtained in respect of the existing breaches or any future non-compliance. There can be no assurance that Angola will be able to obtain waivers for non-compliance that may be required from time-to-time or on a repeated basis in the future. If Angola fails to obtain any required waiver, Angola could be in default of the applicable financing agreement, which could give the relevant lender or financing provider the right to accelerate or redeem the relevant facility or security instrument. Any such acceleration or redemption could trigger cross-default provisions in Angola's financing agreements, including Notes issued under the Programme, which could, in turn, require Angola to repay, restructure or refinance certain of its outstanding indebtedness. There can also be no assurance that Angola would be able to repay or complete any such required restructuring or refinancing. Any of the foregoing may adversely impact Angola's ability to repay its debt, including the Notes and/or to refinance its debt.

The question was asked in relation to the following story: Constitutional Court approves Liberal Party's legalization

Question:

Have the debt arrears pertaining to Gabon been fully cleared yet? If not, do we know what the total size of arrears position is now and what loans / external debt obligations these pertain too? Lastly, did the arrears accumulated on World Bank loans trigger any X-Default clauses and Events of default?

The question was asked in relation to the following story: Govt discloses XAF 17bn debt arrears amid World Bank suspension

Answer:

As of Feb, Gabon's arrears to the World Bank remain unresolved with XAF 17bn still outstanding. Media reports indicate that discussions between Gabonese authorities and the World Bank are ongoing, but no formal resolution has been announced. It's unclear whether arrears remain on other external debt obligations, as detailed loan information has not been publicly disclosed.

There's also no indication that the World Bank arrears triggered cross-default clauses or events of default. Following the suspension of disbursements, the government announced its commitment to clearing arrears "as quickly as possible" and noted that it had made significant debt payments, including XAF 1.21tn in November 2024.

Question:

Kenya's sovereign spread increased 32bps last week. What drove this increase? How does this square with Moody's new outlook?

The question was asked in relation to the following story: Moody's shifts country's outlook to positive on easing liquidity risks

Answer:

Kenya's sovereign spread started to widen mid-January, coinciding with the release of the government's draft medium-term fiscal plan. The document (along with releases in the following week), confirmed that revenue underperformance persisted throughout H1, financing needs remain elevated in the coming years, and domestic pending bills clearance plans remain vague. While not new, these concerns were reinforced by the government's draft medium-term debt strategy, which came out last week, warning of the negative consequences of rating downgrades and signaling a continued shift toward greater reliance on domestic borrowing. This shift has already been evident this year, and was also underpinned by a recent announcement that in February the govt will be seeking KES 70bn via tax-free bond (traditionally enjoying large interest), despite successful frontloading of domestic borrowing earlier in the fiscal year.

On the political front, the spread widening coincided with signs of dysfunction within the cabinet. Notably, the public service minister openly criticized the government over the abduction of his son, while three new ministers allied with former president Kenyatta formally joined the cabinet. Meanwhile, impeached deputy president Gachagua intensified his anti-Ruto rhetoric, and pressure on the judiciary escalated, with the national lawyers' association demanding the resignation of the Supreme Court.

As to Moody's decision, it reflects the resolution of short-term liquidity pressures, and the decline in domestic financing costs, but the agency maintained its Caa1 rating assigned in July 2024, suggesting longer-term risks persist. Indeed, the government has, in our view, a short window to push with revenue-enhancing measures and structural reforms before electioneering ramps up in 2026-27, however prospects for meaningful progress are dimmed by the social pressures and the dysfunctionalities within the broad-based coalition government.

Question:

Can you summarise or point me towards an overview of the content of the 4 Tax reform bills as they currently stand? Also key points where they may yet be substantially altered.

The question was asked in relation to the following story: Tax reform bills to be passed in Q1 2025 - tax committee chair

Answer:

This is a recent and good summary of the reform bills from the Policy and Legal Advocacy Center: https://placng.org/Legist/understanding-the-tax-reform-bills/ Also an overview and some thoughts below:

1. Nigeria Tax Bill

The bill wants to simplify the current tax system by consolidating various tax laws into one framework; main proposals include:

• A reduction in the CIT rate from 30% to 27.5% in 2025, and to 25% from 2026 onwards. Small companies with an annual turnover of below NGN 50mn will be exempt from profit tax.
• A new development levy is introduced at 4% in 2025/2026, which will decrease to 2% by 2030. This is designed to consolidate various special deductions into one.
• A planned increase in the VAT rate from 7.5% to 10% in 2025, with potential increases up to 15% by 2030, though essential services will remain exempt from VAT.

2. Nigeria Revenue Service (Establishment) Bill

This bill seeks to restructure Nigeria's tax administration system by converting the Federal Inland Revenue Service (FIRS) into the Nigeria Revenue Service (NRS). This will centralize the revenue collection process.

3. Nigeria Tax Administration Bill

The bill will increase the powers of the Nigeria Revenue Service (replacing FIRS) to collect all national taxes including royalties and excise duties. Additionally, the bill proposes a new VAT revenue-sharing formula, where states and local governments could receive a larger portion of VAT revenue depending on their contribution. This VAT formula has been a significant point of disagreement. In January, Nigerian governors suggested a new formula, where the allocation of VAT revenue is based on 50% equality, 30% on derivation and 20% on population. Tax committee chair Taiwo Oyedele said the tax committee endorses the proposed revision to the formula. The committee's earlier proposal was based on 20% equality, 60% derivation and 20% population, which faced resistance from northern governors.

4. Joint Revenue Board (Establishment) Bill

The Joint Revenue Board Bill proposes the creation of a tax ombudsman to help protect taxpayers. This would provide an established process for taxpayers to raise complaints and concerns.

Areas currently under the most scrutiny

As the bills are still under consideration, amendments are expected to be made in response to public feedback and consultations with stakeholders. Notably, the proposed VAT increase and VAT formula has sparked significant debate regarding their impact on various economic sectors and regions. The definition of small businesses and their eligibility for tax exemptions is also under scrutiny. The threshold for what qualifies as a small business might be reassessed to ensure it aligns with current economic realities. Similarly, the introduction of the development levy is facing scrutiny surrounding its allocation, particularly how it benefits educational institutions and entities like TETFUND and NELFUND. The proposal to phase out TETFund is being heavily criticized by Nigerians (the tax bills propose gradually reducing TETFund's funding starting in 2025, with it receiving no allocation from 2030 onwards.)

Question:

What is the latest around the FATF review of South Africa being on the grey list? Is there any risk that the recent land bill can politically impact this decision?

The question was asked in relation to the following story: Expropriation Bill implications for GNU and market

Answer:

The latest official update on the progress towards exiting the grey list was provided by the Treasury in late October. Here is a link to the statement.

This recent article may also be useful, it claims there are three outstanding issues that are unlikely to be closed by the February deadline.

As regards the Expropriation Act, I have not seen any comment by the most vehement critics of the act concerning the FATF. I am not an expert but in my view it does not have implications for South Africa's ability to fight financial crime. In addition, the FATF presents a set of requirements to the government, a list of items that it needs to be addressed. Then it meets regularly to discuss and monitor the progress. I think it would not be procedurally correct if the international body included additional requirements at this stage. That said, it does not seem that the country would be cleared for exit in February on technical grounds anyway (if these three items remain outstanding indeed as they claim in the article) and so they would not need any other reasons to delay the exit.

Question:

How are the relations with Niger today? There was a time the situation was tense.

The question was asked in relation to the following story: African leaders to hold summit on DR Congo conflict

Answer:

We do not cover Niger, but for context, the country recently formalized its departure from ECOWAS and, along with Mali and Burkina Faso, is advancing the Union of Sahel Countries (AES), which began as a defense pact during the crisis there in 2023. While diplomatic tensions persist with some ECOWAS members, the separation has been peaceful, with the bloc maintaining a reconciliatory stance. ECOWAS has pledged to keep its doors open to the three former members and maintain key benefits, such as trade preferences and free movement, while further arrangements are made.

Question:

Do you have data on USAID funding by country for SSA names? Which would be the most vulnerable to it ending?

The question was asked in relation to the following story: Govt plans development spending cuts to sustain programmes after US aid freeze

Answer:

The full dataset on US foreign assistance by country and agency (incl. USAID) may be downloaded here. Looking at the total disbursements in 2024 (partial data), the top five beneficiaries in absolute terms among the countries we cover are:

• Ethiopia (USD 1.22bn)
• Nigeria (USD 782.7mn)
• Kenya (USD 647.2mn)
• Uganda (USD 440.8mn)
• Zambia (USD 380.6mn)

Below is a table with the US foreign assistance disbursements for all countries we cover, including also the GDP ratios.

It is evident that some countries are more dependent on US aid than others. In those that receive relatedly little financing (in terms of ratio to GDP), such as Gabon, Angola, and South Africa, there is not much talk/concern about it. For example, South Africa's President Cyril Ramaphosa said that the country receives funds under PEPFAR (USAID is one of the implementing agencies of this programme), which comprise just 17% of South Africa's HIV/AIDS programme, with the government providing the majority of the financing. Hence, there are no significant worries that the program is overly reliant on US aid.

As to others, a freeze in U.S. aid would significantly impact humanitarian and health programs in these countries, leaving governments struggling to secure alternative financing. Ethiopia appears particularly vulnerable due to its multiple humanitarian crises, including past and ongoing conflicts, drought, and floods, as well as very limited financing options amid debt restructuring efforts.

Consequently, in most of them, the governments have been working to assess the impact and explore alternative funding sources to mitigate the impact of the aid freeze. The Kenyan government for example said it will reallocate funds from development projects to sustain key programmes, while the health ministry said it is "actively engaging with other development partners, international agencies, and private sector stakeholders to secure alternative resources and fill gaps in the supply of essential medicines". In Zambia, the government said it is engaging with the US government to clarify the specifics of the health support package and ensure that the already ordered medicines will not be affected by the aid suspension. In Uganda, President Yoweri Museveni met the US envoy shortly after the measure was announced and legislators have called for urgent response, but the government is yet to make its plans clear going forward. In Nigeria, a multi-ministerial committee was set up this week to develop a sustainability plan for essential health programs.

Other governments have not announced concrete plans to address the issue, but it is possibly because of the lack of clarity on the future of US international aid. While the USAID might be dismantled, some aid is expected to remain in place but how much and under which programmes is yet unclear as the Trump administration is yet to clarify their future plans.

You may access our latest coverage of this topic in specific countries through the following links:

• Ghana
• Uganda
• Zambia
• Ethiopia
• Nigeria
• Kenya

Question:

Given that the VAT hike did not go ahead, isn't the electricity price cut a surprise? To confirm, it will cost IDR 12tn over 2 months, that is IDR 6tn per month and IDR 72tn for 2025, if applied for the whole year?

Answer:

The VAT hike did go ahead, it is 12% as of Jan 1. There are a lot of goods exempt from it, and there is this social assistance package (inc. the electricity price cut) to help offset the VAT rate hike's impact on low-income households.

So the exemptions could lead to the loss of revenue of IDR 75tn, according to FinMin Sri Mulyani Indrawati. This likely includes the social safety measures as well, incl. the 50% electricity rate discount for low-income households. To confirm, it will cost IDR 12tn for two months.

https://emergingmarketwatch.com/browser#/article/1296087

Honestly, I would not be too worried about the fiscal impact, as Prabowo recently directed ministries to cut spending by IDR 306.7tn (USD 18.9bn). Given FinMin Sri Mulyani Indrawati's prudence, and rather good track record on meeting fiscal deficit targets, I would assume that even if some slippage occurs, the deficit would still remain below the 3% threshold.

https://emergingmarketwatch.com/browser#/article/1299406

The question was asked in relation to the following story: CPI inflation slows to 0.76% y/y in January

Question:

Is this electricity price cut only going to be in place for Jan-Feb? I presume it will worsen fiscal performance, too?

Answer:

The electricity price cut is in place only for two months, January and February. It aims to offset the impact of the 1pp VAT rate hike on low-income households. It will cost the government IDR 12.1tn (USD 756.1mn), though there is the possibility that it could be extended further. It was announced as part of the social policy package aimed to alleviate the impact of the VAT rate hike back in December.

Here's a link from the local press:

https://en.antaranews.com/news/338278/indonesia-to-provide-50-percent-electricity-discount-amid-vat-hike

The question was asked in relation to the following story: CPI inflation slows to 0.76% y/y in January

Question:

"South Korea Unveils 34 Trillion Won Fund to Boost Batteries and Biotechnology (Business Korea )" How will this KRW34tn likely be funded?

The question was asked in relation to the following story: Press Mood of the Day

Answer:

We already have a story on this, if you haven't seen it: https://emergingmarketwatch.com/browser#/article/1300225

Details about the scheme are still insufficient as the plan would be tabled in parliament next month. Still, I think the KRW 34tn refers mostly to the amount of low-interest loans that will be granted to companies, which means that the impact on the fiscal deficit will be much smaller. As Acting president Choi has said, a fund will be created in the Korea Development Bank (KDB), which is more than double the size of the current semiconductor support programme. Back in July 2024, the government invested up to KRW 2tn to create the KRW 17tn low-interest rate programme at the the KDB, as you can read in this press release here. If we extrapolate, the actual cost for the government to create a KRW 34tn battery and biotech low-interest loan fund could be in the region of KRW 4tn. At the same time, it should be noted that the bonds issued by the KDB are also guaranteed by the government, so such funds also increase the government's off-balance sheet liabilities.