The
first disbursement of the International Monetary Fund (IMF) programme
is not a likely antidote to the ailing cedi, which has already taken a
16.1 percent fall since beginning of the year, analysts have cautioned
the central bank.
Earlier this week the Bank of
Ghana was reported to have received US$114.8million, being the first
tranche of the announced US$918million economic support programme from
the Washington-based lender.
While
government had insisted the first tranche should offer some much-needed
balance of payments support, economists at InvestCorp argue that the
inflows from the IMF, which average US$306million, are “limited compared
to the financing gap of about US$2billion in the 2015 budget, and an
expected current account deficit of about US$3-4billion in 2016”.
Just
like InvestCorp, most analysts view the cedi’s weakness as a product of
macroeconomic instability underlined by high fiscal and current account
deficits, which necessitated the country seeking a bailout from the
Bretton Woods organisation.
The
Accra-based investment advisory firm warned that the local currency is
further threatened by government’s debt financing strategy -- which has
seen the increasing use of US dollar-denominated debt as a refinancing
strategy.
In its March 2015 research and
analytics, the firm raised “concerns over Ghana’s public debt mix and
the increasing use of US dollar-denominated debt as a refinancing
strategy -- which is likely to worsen the outlook for Ghana’s debt
sustainability and currency risk over the medium-term”.
The
local currency’s 16.1 percent slump as at April 15 compares to 19.5
percent depreciation within the same period last year, by which time the
central bank had introduced a raft of measures to stem the rapid
decline.
The central bank is yet to
publicly announce measures it is pursuing to tame the cedi, and has not
responded to queries made by the B&FT on its approach to calming the
troubled cedi which has begun to stoke inflation.
Inflation
now stands at 16.6 percent in March from 16.5 percent the previous
month, and is beginning to add to the central bank’s troubles. The
marginal increase in inflation pushes it further adrift of government’s
end-year inflation target of 11.5 percent.
The
Fund’s Extended Credit Facility (ECF) worth US$918million granted to
Ghana will support a reform programme aimed at boosting growth and help
cut poverty by restoring macroeconomic stability through tighter fiscal
discipline, strengthened public finances, and slowing inflation.
According
to the IMF, lower inflation and interest rates -- combined with a more
stable exchange rate, will help support private sector activity. It is
also expected that an increase in oil exports and lower oil imports, on
the back of domestic gas production, will spur the current account and
support reserves over the medium-term.
Ghana’s
economic growth rate topped 9 percent in 2011, but three difficult
years followed that were characterised by slowing activity, accelerating
inflation, rising debt levels and financial vulnerabilities.
The
country’s economic prospects were put at risk by the emergence of large
fiscal and external imbalances, as well as electricity shortages.
Growth
decelerated markedly in 2014 to an estimated 4.2 percent, driven by a
sharp contraction in the industrial and service sectors. This was
largely due to the negative impact of currency depreciation on input
costs, declining domestic demand, and increasing power outages.
Inflationary
pressures rose on the back of a large depreciation of the cedi and
financing the fiscal deficit by the Bank of Ghana. Despite several hikes
in policy interest rates in 2014 -- which brought them to 21 percent --
headline inflation reached 17 percent at end-2014, well above the 8 +/-
2 percent official target range.
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