By Jerome Kuseh
The summary of the Economic and Financial Figures July 2015 released by the Bank of Ghana (BoG) indicate that the government is sticking to the plan of fiscal discipline in an attempt to get the economy back on its feet.
The Monetary Policy Committee (MPC) of the BoG on Wednesday, July 15 announced that they were maintaining the policy rate at 22% citing the increase in inflation from 16.7% in March to 16.9% in May. They however expected the inflation rate to slow down to 8% (plus/minus 2%) by the fourth quarter of 2016 due to tight monetary policy, fiscal consolidation and the recent appreciation of the cedi.
Public debt has risen to GH¢89.5 billion representing 67.1% of GDP. The increase in the public debt from April to May was 1.6% which is lower than the 6% increase recorded between February to March and the 4.8% from January to February. The recent rebound of the cedi means it has depreciated only 3.4% from the start of the year. 60% of the public debt is external, equivalent to 40.4% of GDP.
The country is expecting a total inflow of about US$4 billion from the Eurobond, syndicated cocoa loan and others in the second half of the year. This is expected to increase reserves which stood at US$4.5 billion at the end of June 2015, which provides an import cover of 2.9 months. The fiscal deficit stands at 2% better than the target of 2.6%.
Dangers on the Horizon
As expected, the power crisis (dumsor) and the tight monetary policy of government has slowed economic growth. The BoG reports growth slower in the second quarter of 2015 as compared tothe same period last year. Information from the Ghana Statistical Service (GSS) shows a growth rate of 4.1% in the first quarter of the year. The power crisis, is estimated to cost Ghana over US$2.2m a day. Until a lasting solution is found the crisis will continue to hamper growth the growth of the economy.
Imports continue to be high, standing at a total of US$1.055 billion compared to an exports value of US$963 million. With cocoa production expected to be 690,000-700,000 tonnes against a forecast of 850,000 tonnes, the country can expect even less inflows from exports. The Iran nuclear deal paves way for Iranian oil to enter the international markets and therefore further lower the price of oil. With Ghana trying to switch from oil imports to local natural gas to power its plants, the lower oil prices will not benefit the country but it will affect its receipts from oil exports.
Other dangers are the volatile stock exchange and slowdown of growth in China which may affect global demand. The expectations of a raise in interest rates in the USA is being closely monitoredas an increase will see investors flocking to USA to escape the volatile investment in developing economies such as Ghana.
Finally, the upcoming election in 2016 is going to be a big test of the government’s commitment to fiscal discipline. All attention will soon be turned to the supplementary budget set to be presented to parliament for clues of the turn that fiscal policy will take. The elections will also have to be peacefully conducted. The nation can ill afford to scare investors, and the reports of violence in the Talensi by-election may give investors a few shivers about Ghana’s reputed democratic stability.