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Seth Terkper Hopes For Renewed Confidence   
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Finance Minister, Mr Seth Terkper
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Government is upbeat of renewed market confidence in the country’s economy as a result of discussions it has initiated with the International Monetary Fund (IMF) for a bail-out.

Finance Minister, Mr Seth Terkper, told the Graphic Business in a telephone interview that “the market will take our policies into consideration when we begin discussions with the IMF.”

“I believe the market and our partners will show more confidence in our economy,” he added.

The government is going to the international market again this month to raise US$1.5 billion through a bond. In 2007, the government raised US$750 million through the international market where it issued a 10-year sovereign bond at a yield of 8.5 per cent. The country came to market again in 2013, raising another US$1 billion with a 10-year tenure.

Concerns about fiscal discipline

The markets are concerned about the government’s ability to reduce its deficit, which is in double digits, to about 8.8 per cent by the close of the year. However, the move to take an IMF plan may restore the confidence of investors which may eventually impact the coupon price of the next Eurobond the government intends to source, coming at a time the international rating agency, Fitch, had cast doubts over Ghana’s end of year fiscal deficit forecast of 8.5 to 10.1 per cent.

Ghana ran a fiscal deficit equal to 10.1 per cent of gross domestic product in 2013, which the government promised to cut to 8.5 per cent this year but in a surprise move, it shifted its deficit forecast to 8.8 per cent in a supplementary budget.

A Chartered Economist, Dr John Gatsi, said concerns about fiscal policy would matter less if Ghana was still indebted mainly to donors to fund its growth.

Though Dr Gatsi has also cast doubts at the government’s ability to achieve the revised deficit target, he is confident that the government will use the debts to restructure the economy.

“I do not think that the government will be able to achieve the 8.8 per cent deficit target,” he said in an interview with the Graphic Business.

Rushing to the IMF

Analysts say the rush to the IMF is for an endorsement for the country's 'home grown' strategy. Ghana's strategy focuses on raising government revenue, improving public financial management and ending the energy crisis.

But it may not be easy to win public support for painful measures, including a freeze on public sector wages, as indicated by Mr Terkper during the presentation of the supplementary Budget to Parliament last month.

The country last went to the IMF for help in 2009, when it secured a $600m (£360m) three-year aid package.

Despite being a major exporter of gold, oil and cocoa, Ghana is struggling with large current account and budget deficits. According to the rating agency, an IMF bailout is not a foregone conclusion.

“A lasting reduction in exchange rate and funding pressures is unlikely until a programme is agreed and a credible deficit reduction strategy is implemented.”

For a decade, Ghana powered ahead as it started pumping oil, won debt forgiveness, achieved lower middle-income status and saw five years of economic growth above eight per cent that made it the envy of other African nations.

Now it has hit a roadblock and the government is set to discuss new policy options at annual meetings of the International Monetary Fund (IMF) and the World Bank in Washington this week.

T-Bills rates skyrocketing

Government funding costs have risen steeply and the 182-day Treasury bill yields have jumped above 25 per cent, from 19 per cent.

Interest costs now account for one-fifth of government expenditure. High yields have seen auctions of five and seven-year bonds cancelled.

A shortage of local currency liquidity has resulted in banks and non-bank financial institutions cutting holdings of government securities - one reason the Bank of Ghana funded US$1 billion (or 85%) of the budget deficit during the first five months of 2014.

This has complicated liquidity management and added to inflationary pressures and cedi weaknesses.

Economists say a radical shift in policy is required to get Ghana's economy back on track. Without it, they warn that bond yields will rise towards 25 per cent, inflation will inch higher and the cedi will continue to slide.
Source: Graphic Online

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