The country's gross international reserves (GIRs) have slumped to a record low of US$4.7 billion, translating into 2.6 months of import cover, the Governor of the Bank of Ghana (BoG), Dr Henry Kofi Wampah, has said.
The reserves were US$5.6 billion (3.1 months of import cover), in December 2013 and US$5.3 billion the same time in 2012 (three months of import cover) but slumped to the current state as a result of constant withdrawals to fund the widening current account deficit.
The situation was compounded by the steady decline in donor support, concessionary loans and export earnings, among others, the Governor said at the National Economic Forum, which ended at Akosombo on May 14.
The current GIR levels are among the lowest of its kind to have been recorded by the country and that has forced the central bank to look elsewhere for some foreign exchange in a bid to shore up its reserves and contain the impact of the depletion on the economy. That move includes an anxious wait on the this year's syndication of funds by the Ghana Cocoa Board (COCOBOD) to fund cocoa purchases from farmers.
The loan was US$1.2 billion in the previous cocoa season and is now projected to rise to some US$1.8 billion this season; an amount the BoG Governor said would help stabilise the reserve levels of the country and arrest its pass-on effects on the economy.
Impact of dwindling reserves
A continuous decline in the GIRs of the country paints a gloomy picture about the economy to the investing public as well as puts pressure on other fiscals, including inflation, foreign exchange and the sovereign outlook of the country in the eyes of international rating agencies.
A Chartered Economist and Lecturer at the University of Cape Coast, Mr John Gatsi, said in an interview that the current situation "dovetails into exchange rate pressures and that provides space difficulties in the economy. It also gives you an indication to look at your fiscal situation, your trade policies and the main state of the economy and what you should do in order to deal with the dwindling reserves," Mr Gatsi, who was a rapporteur at the forum, told the GRAPHIC BUSINESS after the event.
Causes of slump
The country's current account has, for some time now, been in the negative, mainly as a result of heightened importation of goods compared to a moderate rise in export earnings.
The current account refers to the part of the balance of payments that records a country's exports and imports of goods and services and transfer payments and its depletion of late has been compounded by rapid expansion in the economy.
Although a current account deficit is not entirely bad for an economy, the sources of funding that deficit are key as it has some implications on the country's GIRs.
In the case of Ghana, the deficit has been funded mainly by withdrawals from the country's gross reserves; something the Central Bank Governor admitted was not the best.
"In 2012 and 2013 to date, we've had to finance our deficits from that account through withdrawals from the reserves. We have had to withdraw about US$1 billion in each of those years to finance the deficit. So, we are talking of US$2 billion in those years being withdrawn from our reverses and that definitely had some effects on the levels," Mr Wampah said.
Cocoa loan, others to the rescue
Although Dr Wampah admitted the implications of the current reserve levels on the economy, he said the prospects were bright.
He mentioned the projected rise in oil production and a corresponding increase in foreign exchange earnings; the coming on stream of gas from the gas plant currently under construction in the Western Region and this year's syndication of funds by COCOBOD.
"The prospects that we see, especially in the short term, is the gas coming online, oil production increasing so that we can get some more revenues from that and the syndication of the cocoa loan. We understand it will rise to US$1.6 or US$1.8 billion and if that comes in, it will help improve liquidity in the system and also support the reserves," Dr Wampah said.
A successful syndication of the US$1.8 billion by COCOBOD, hopefully in September, this year, could help raise the reserve levels to some US$6.5 billion, translating into some 3.4 months of import cover as against the current 2.6 months of cover.
Once the reserves improve, foreign exchange liquidity in the system would also improve and that could ease pressure on the cedi and its effects on inflation and other fiscals.
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