[ 2014-09-19 ]

Eurobond, IMF crucial despite cedi relief
Dr. Henry Kofi Wampah, Governor of the Bank of
Ghana has noted that proceeds from the recent
auctioning of the country's third Eurobond, cocoa
syndicated loan, as well as ongoing government-IMF
talks, remain crucial to prospects for the
economy's well-being despite relative stability in
the local currency over recent weeks.

According to figures from the forex market, the
cedi over the past week gained about 6% against
the US dollar.

“The latest numbers suggest some stability in
the foreign exchange market as the earlier policy
measures -- including the cumulative 300 basis
points increase in the monetary policy rate, the
200 basis points increase in the cash reserve
ratio as well as the narrowing of the net open
positions of banks --work through the system.

“In addition, the expected inflows from the
Eurobond and the cocoa syndicated loan will
provide liquidity on the foreign exchange market.
Also, the government's fiscal consolidation
efforts are expected to be strengthened under the
IMF programme, which will also provide additional
balance of payments support,” Dr. Wampah told
the media after the 61st Monetary Policy Committee
(MPC) meeting in Accra.

But the central bank says regardless of the
new-found cedi stability, the imminent arrival of
the US$1billion Eurobond and the US$1.7billion
cocoa syndicated loan to provide additional
liquidity on the foreign exchange market remains
crucial.

The local currency has for the first eight months
of the year depreciated by 29.8 percent against
the dollar on the interbank market, compared to
3.9 percent in the same period last year.

Attempts to contain the overall budget deficit
within the 2014 budget target appear elusive as
fiscal performance for the January-July period
points to a budget deficit estimated at 5.3
percent of GDP against a target of 5.1.

Ongoing talks between government and the IMF are
expected to strengthen government's fiscal
consolidation efforts, and Dr. Wampah believes
that an IMF programme will also provide additional
support for balance of payments, which is in
deficit.

The overall balance of payments recorded a deficit
of US$1.5billion compared to a deficit of
US$677million in the same period last year. The
current account deficit narrowed to US$2billion
from US$2.3billion in the same period of 2013.

This, according to the BoG Governor, was the
result of improvement in the trade deficit and net
private transfers. The capital and financial
accounts registered lower net inflows of
US$479million compared with US$1.5billion recorded
same period last year.

There was also a dip in the gross international
reserves from US$billion, equivalent to 3.1 months
of imports cover, to US$4.2billion -- 2.4 months
of imports cover.

Inflationary pressures
Notwithstanding immediate benefits the Eurobond,
Cocoa Syndicated Loan and the IMF stimuli present
to the economy, the MPC expects inflation -- which
reached a four-year high of 15.9 percent last
month -- to peak in the near-term.

“The latest forecast shows that inflation is
likely to stay slightly above the upper band of
the revised target of 13±2 percent by end 2014.
However, inflation is expected to move within that
band in the second half of 2015 barring any
adverse shocks,” Dr. Wampah said.

'Mixed sentiments'
A BoG survey of consumer and business confidence
reflected mixed sentiments. Whereas the confidence
index improved marginally during the August
survey, as the index moved to 77.5 from 76.1 in
May 2014, the business confidence index on the
other hand dipped from 82.8 in March to 78.6 in
June.

Reasons cited for the decrease in index include:
low prospects for improved capital outlay, sales
and revenues, negative sentiments on industrial
growth and heightened inflation expectations.

Nevertheless, credit to the private sector
remained strong. Credit to the sector grew by 46.2
percent in July 2014, compared to 28.1 percent in
the same period last year. Real credit growth was
26.8 percent compared to 14.6 percent a year ago.

“The central bank's Composite Index of Economic
Activity (CIEA) showed strong growth on the back
of real private sector credit growth, with modest
improvement in consumer confidence.”

The MPC, which maintained its policy rate at 19
percent, said the growth outlook is generally
positive based on expected higher cocoa and oil
output. In addition, the gas production that is
expected to come on-stream from the latter part of
the year will help address some of the challenges
in the energy sector.

Source - B&FT

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