Ghana’s balance of payment to return to surplus in 2023, 2024 – Fitch Solutions

Ghana’s balance of payments is projected to shift into a surplus for the years 2023 and 2024, as indicated by Fitch Solutions.

This comes after a substantial deficit of $4.6 billion in 2022, marking the first full-year capital and financial account shortfall in two decades. The deficit was attributed to escalating investor apprehensions about debt dynamics and tightening monetary conditions in developed markets.

Nonetheless, a reversal is anticipated in the capital and financial account for 2023, driven by anticipated disbursements of $600 million each from the International Monetary Fund under the Extended Credit Facility.

Fitch Solutions, based in the UK, predicts a bolstering of the overall balance of payments in 2024.

This positive outlook stems from improved investor sentiment attributed to Ghana’s strides in external debt restructuring.

This is predicted to amplify capital inflows, largely offsetting the minor current-account deficit projected for 2024.

In assessing the situation, the Bank of Ghana’s Summary of Economic and Financial Stability Report for July 2023 highlighted that Ghana’s Balance of Payment registered a deficit of $107.8 million at the close of June 2023, amounting to roughly 0.1% of GDP.

This marked a substantial reduction compared to the $2.49 billion deficit recorded in the same period the previous year.

The Capital and Financial Account Balance exhibited a deficit of $897.3 million in June 2023, attributed to a net outflow in portfolio investments.

Concurrently, the current account balance for April 2023 stood at $849.2 million, approximately 1.1% of GDP.

Despite these positive trends, Fitch Solutions underscores the significance of lingering risks to Ghana’s external position.

The firm cautioned that if negotiations between Ghana and external creditors hit a snag, it could erode investor confidence and potentially trigger capital flight.

This scenario could exert intensified pressure on foreign exchange reserves and the cedi, consequently prolonging higher inflation.

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The ripple effects of prolonged inflation would extend to adverse implications for economic growth and social stability.

Aweek ago, the International Monetary Fund substantiated the Bank of Ghana’s insistence that the ₵60.8 billion loss it made in 2022 as well as the ₵55.1 billion negative equity recorded, were a direct result of its participation in the Domestic Debt Exchange Programme.

The Bank of Ghana explained, through a frequently-asked-questions (FAQs) post on its website recently that a huge chunk (₵53.1 billion) of the ₵60.8 billion loss it posted in 2022, per its audited accounts, was a direct result of three items that were badly affected by the government’s Domestic Debt Exchange Programme (DDEP).

The DDEP, together with an external debt restructuring programme, was critical for securing the US$3-billion extended credit facility from the International Monetary Fund to salvage Ghana’s tottering economy.

Explaining the factors that drove the loss, the central bank said: “The main reason for this huge loss is the impairment of the holding of marketable government stocks and non-marketable instruments of government” which were both being held in its books.

“This stock of government instruments has been built over the years”, the bank noted.

In addition, the central bank said its “exposure to [Ghana Cocoa Board] COCOBOD, which has been built over the years, was also impaired” by the DDEP.

“The holdings of government instruments and COCOBOD exposures were all part of the perimeter of the debt exchange”, BoG indicated, adding: “Whereas all other stakeholders that participated in the Domestic Debt Exchange Programme (DDEP) did not have principal haircuts, but rather had new instruments with new tenors and coupon structure, the BoG served as the loss absorber to the entire debt exchange programme, a key requirement that allowed the Government of Ghana to meet the threshold for the approval of the IMF programme”.

“As a result, the BoG had to take on a 50 per cent principal haircut on the total principal (which stood at ₵64.5 billion at the time of the exchange)”, the bank pointed out. “Consequently, BoG had new instruments with extended tenor and significantly reduced coupon”, it added.

The central bank revealed that applying the full requirements of IFRS 9, meant that “from the principal alone, a 50 per cent haircut on the non-marketables amounted to a loss of ₵32.3 billion”.

It said the “impairment from exposure to COCOBOD also amounted to ₵4.7 billion”. “These three DDEP items (i.e. marketable, non-marketable and COCOBOD) accounted for ₵53.1 billion out of the total loss of ₵60.8 billion for 2022”, BoG computed.

“In addition to these three items, price and exchange rate valuation effects accounted for ₵5.2 billion of the total loss, whereas interest expense on cost of monetary policy operation accounted for ₵3.3 billion”.

Concurring with the BoG’s explanation, the IMF said the Ghanaian authorities’ domestic debt exchange programme was “a key element of their plan to restore macroeconomic stability and public debt sustainability”.

It said the BoG is participating in the DDEP “to share some of the burden the DDEP places on government debt holders, along with banks, other financial institutions, pension funds and individuals”.

The IMF added: “The loss the BoG incurred in the process has contributed to reducing its net equity to a negative value. Importantly, however, this does not prevent the BoG from fulfilling its policy mandates and ensuring inflation gradually returns toward its 8-per cent target”.

“Indeed”, the IMF noted, “central bank income is expected to be sufficient to cover monetary policy operational costs”.

It said the “BoG’s net equity is expected to improve significantly over time and eventually return to positive territory”.

Source: classfmonline.com