Business News of Saturday, 4 May 2013
An analysis of the fiscal overrun in 2012 by Databank Research show that interest rate will likely remain high in the short-term due largely to the GH¢8b government deficit financing needs outlined in the 2013.
A report by the financial services research group, since domestic savings may not be enough to absorb the financing needs of government in 2013, it expects that money market yields will remain above 15 per cent throughout the year, and probably above 20 per cent in the second quarter.
According to the report, unless government issues medium-term securities to foreign participation, the trend may be worsened by the inflation outlook in 2013; as the new revised inflation basket combined with energy and utility price hikes as well as public sector wage challenges could entrench inflation in double digits.
The report argued that, shifting the attention of investors to medium term notes is critical in lowering interest rates for Ghana – and less harmful for the economy in the short-term. The yield on the 91-day and 182-day treasury bills could decline marginally, but at the expense of medium term borrowing.
Overall, investor interest in the country is expected to remain strong, as Ghana remains a stable democracy and GDP growth is expected to average 7-8 per cent on hydrocarbon discoveries. Ghana’s fiscal overrun in 2012 has led to renewed concerns about the country’s budgetary weaknesses and the sustainability of its public finance.
In particular, the 2012 excesses have helped to entrench the pattern of a “4-year political economy cycle” of fiscal indiscipline which is not healthy for the market – especially in anchoring medium term macroeconomic risk expectations to the downside.
According to Databank Research, the country needs some fiscal reforms that will overhaul the budgetary process and re-align expenditure more favorably to the productive sectors of the economy.
The report calls for urgent reforms in the fiscal space in order to attract long term capital at lower interest rates. “There is certainly the need for government to streamline its expenditure even if revenue enhancement is anticipated”, the report said.
Ghana’s average GDP growth over the past five years was eight per cent, which is significantly higher than the sub-Saharan average of five per cent. It is likely that GDP growth for Ghana will remain upbeat on improved oil production, as well as continuous strong growth in the service sector.
The 7.9 per cent GDP growth outturn in 2012 is however lower than the budgetary target of 9.4 per cent, mainly due to the continuing sluggish performance of the agriculture sector.
In the last quarter of 2012, oil production improved to above 100, 000 bpd, but this was not supported by investments in the industry to develop new wells or noticeable expansion plans.
The Databank report however expects that the dynamics will change going forward on new hydro carbon discoveries and government gas infrastructure plans.
But there is likely to be challenges in Ghana’s manufacturing industry, which is bedeviled by lack of innovation and high cost of production.
The challenge remains that for the country to be competitive, labor laws must allow for easy retrenchment and performance systems to be aligned to productivity.