BoG banks on cocoa, Eurobond dollars

The Bank of Ghana (BoG) says it expects inflows from the US$1.2billion cocoa loan and last week’s US$750million Eurobond to bolster its foreign exchange reserves in the second half of the year, which should help it tame volatility in the currency market.

Weak export earnings due to tumbling international commodity prices, lower inflows from private transfers, and seasonal growth in demand for foreign exchange cut the BoG’s reserves to US$4.9billion in the first six months of the year from US$5.3billion at the end of December 2012.

The cedi also depreciated by 3.4 percent against the US dollar in the same period, according to the BoG. The figure is however at variance with most market estimates, which put the slide at closer to 6 percent.

Addressing the press on Wednesday after the BoG’s monetary-policy committee (MPC) had voted to leave its benchmark lending rate unchanged at 16 percent, Governor Henry Wampah said falling commodity prices squeezed export income in the first half, with inflows declining by 0.8 percent on year-on-year basis.

“These developments in the external environment continued to impact on the domestic economy,” he said, adding that a 48 percent jump in oil output helped to moderate the effects.

“It is expected that proceeds from the cocoa loan syndication and the Eurobond issue, amounting to a total of almost US$2billion during the second-half of the year, will shore-up the international reserves and further calm pressures in the foreign exchange markets,” he said.

“There’s some seasonality to the manner in which we receive our export earnings, but we expect the reserves to improve in the second-half and to meet the target of three months import cover by the end of the year.” The current stock of reserves can pay for 2.7 months of imports.

Dr. Wampah also said the MPC now sees inflation, which remained at a three-year record of 11.4 percent in June, closing the year in the upper band of the Central Bank’s 7-11 percent target range.

“The upside risk [to inflation] includes potential pass-through effects of further petroleum price adjustments, possible adjustment of utility tariffs, and pressures arising from the impending public sector wage settlement. These could however be moderated by the tight monetary policy stance, the ongoing fiscal consolidation, and favourable seasonal factors arising from the oncoming harvest season.”

The International Monetary Fund (IMF), which expects Ghana’s budget deficit in 2013 to be a shade higher than the Finance Ministry’s forecast, at 10 percent of GDP, has urged the BoG to maintain a tight monetary stance until inflationary pressures subside and fiscal consolidation is firmly established.

Government’s half-year deficit of GH¢4 billion (4.5 percent of GDP) was within target, Dr. Wampah said, with both fiscal revenues and expenditures below projections. Tax collections of GH¢6.7billion were short of target by GH¢1billion, while grants from donors -- which totalled GH¢507.6million, were 42 percent less than expected.

The MPC “noted with concern” the lingering fiscal pressures arising from the huge wage bill and outstanding commitments, suggesting these could threaten the attainment of the fiscal deficit target set at 9 percent of GDP.

Government is yet to agree an increase in the base pay of public-sector workers who have been placed on the Single Spine Salary Structure. In April it reached a consensus with unions and employers to raise the national daily minimum wage by 17 percent, and often other levels of public sector pay adjustments have been benchmarked to the increase in the minimum wage.