FEW weeks into the new year, the Ghana Cedi is already showing weakening signs against the dollar and other trading currencies, much to the distress of the business community in the country.
For many businesses in Ghana, one thing that is on top of their agenda beyond the worsening power crisis is a stable Ghana cedi as it enables them to plan well, however, last year, the local currency recorded one of its worst depreciation since its re-denomination in 2007.
So having had enough power outages, high taxes and depreciation of the local currency in 2014, the last thing businesses would want to contend with this year is a deterioration of the same conditions.
Meanwhile, the Africa research wing of the Standard Chartered Bank has predicted a GH¢4.20 rate of depreciation by the end of this year, further heightening fears from industry of how volatile the cedi currently is.
The prediction contained in a report authored by the bank's head of Africa research, Razia Khan gave the outlook for eight economies in Africa, including Ghana, Nigeria and South Africa.
Razia Khan maintained however that the GH¢4.20 could be revised if Ghana is able to secure a programme with the International Monetary Fund (IMF), stressing that “an IMF programme will be key to maintaining investor confidence in the economy going forward."
In the absence of an IMF deal, Ghana may have difficulty meeting its external financing requirements in 2015. A deal with the IMF is key to maintaining investor confidence and attracting new investment in local currency bonds.
Ghana turned to the Bretton Woods institution in August last year to help the country out of economic challenges. The move, government admitted was to help work out strategies to restore credibility and confidence in the economy.
Government has been missing its revenue targets from cocoa, gold and oil over a period now, following changes in the prices of those commodities on the world market. The drop in the prices of these commodities has been named as one of the main reasons leading for the economic challenges.
Government’s revenue estimates prior to the slump in oil prices was pegged at GH¢4.2 billion or 3.1 per cent of GDP for 2015 according to figures from the finance ministry, however, this will change as Finance Minister, Seth Terpker has admitted.
Per the latest developments on the world stage, this year is unlikely to provide any respite or comfort zone for managers of the economy, even in spite of a bailout package from the IMF.
The falling crude oil price presents a mixed effect on the country’s trade balance with negative implications for Ghana’s current account and reserves.
“With the continuous decline in oil prices since September 2014, the estimated Petroleum benchmark Revenue price of 99.376 per barrel for 2015 may not be achieved, and this can have negative implications for the Budget execution,” Mr Terpker stated in Accra last Friday.
Global oil prices have slumped by a hefty 60 per cent since June last year. A barrel of crude oil is currently going for about $45 a barrel.
It is therefore not surprising that preparations are underway to have government’s oil revenue projections for 2015 reviewed.
Going forward, to avoid an economic catastrophe, the government may be required to cut down on certain expenditures even as attempts are made at fiscal consolidation.
There may be some fiscal savings from the positive side of the oil slump as oil imports drop, however government could be asked not to spend that money but save it and use it to settle debts because the interest on the country’s debt is bound to go up since government is likely to borrow more this year.
Ghana’s debt stock as at September last year was GH¢69.70 billion (USD 21.73billion), implying an increase in debt repayment commitments.
Interest on debt for this year is projected at GH¢9.6billion but could go as far as GH¢11 billion with additional borrowing.
A flash back into last year reveals government’s inability to meet the budgetary requirements of all the Ministries. In other words, every Ministry failed to receive all the amounts budgeted for. There are still huge arrears in the District Assemblies Common Fund (DACF), not to talk about other statutory funds that were starved of payments.
Thus, if there is any fiscal savings, it should not go to re-current expenditure even though that will spell hardships for Ghanaians, it should go into the settlement of the above-mentioned arrears.
This obviously presents a gloomy picture to the private sector as it beholds yet another tight rope.
The reality of serious economic crisis, ready to spark another bout of currency turbulence, with its attendant scathing effects on consumer price indicators has emboldened the Private Enterprises Federation (PEF) to demand government's speedy response to avert a free fall of the cedi.
"The cedi is not in a good position so far as business is concerned because when you have devaluation everyday, the value of your business is always going down and the appropriate fiscal and monetary interventions should be taken by both government and the central bank to forestall a free fall," said Chief Executive of PEF, Nana Osei Bonsu.
It is however interesting that some experts have described as needless and premature, concerns expressed by industry over the cedi's early signals.
These experts disagree with Razia Khan in her projections and have pointed out that recent happenings on the world economic stage place Ghana in a more favourable position.
According to Dr Raziel Obeng-Okon, of the Ghana Institute of Management and Public Administration (GIMPA), the cedi's depreciation this year may not be significant because the decline in crude oil prices should lead to an improvement in Ghana’s trade balance.
He points out that the provisional trade balance for the period January to September of last year, showed a narrower deficit of US$681.3 million, from US$3.8 billion at the end of 2013.
The improvement, he explained, was on account of less imports compared to exports, with imports declining by 18 per cent whilst exports declined by 2.8 per cent.
"Speculation which played a significant role in the depreciation of the currency last year has also reduced drastically with the boost from the inflows of the Sovereign Bond and COCOBOD syndicated loan. Bank of Ghana has also improved its policy mix to restore confidence," he explains further.
"I do not expect the average depreciation to go beyond 25 per cent or GH¢4.00 to USD1.00 by the end of the year," he states.
Dr Obeng-Okon advises government to manage its fiscal position through tight expenditure control mechanisms while improving its tax collection efforts especially from the informal sector as well as improving its non-tax revenues.
“Government must fight corruption and block all the loopholes within the public sector; it should totally remove subsidies from essential services and restructure the public sector to enhance productivity,” he added.
Dr Eric Osei Assibey, Senior Economist at the University of Ghana, Legon is of the view that prospects look brighter for the country if “ there is going to be transfer of the oil windfall to the Ghanaian economy.”
According to him, if fuel prices will come down, then the business environment will be friendlier, as inflation also begins to reduce.
He however demands that government is more proactive and able to anticipate the different scenarios, making use of all available information “to be able to come up with a better prediction of how the currency will fare this year."
“If we realise that the proceeds from oil and exports will not come, government must immediately resort to raising money from the international financial market to make up for the shortfall,” he submits.
Given the backdrop of current happenings, there is the need for government to roll out clear solutions to arrest the worsening economic challenges.
Investor confidence in the economy remains questionable in spite of the politically serene environment.
If government is successful in dealing with the current economic difficulties, investor confidence is likely to be restored and Ghana will record a boost in productivity. This will positively impact on the general business climate in the country.
Source: The Finder
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