Finance Minister deliberately hiding heightened vulnerabilities, cedi's worsening depreciation - Isaac Adongo

The Member of Parliament for the Bolgatanga Central Constituency, Mr Isaac Adongo, has accused the Minister of Finance, Mr Ken Ofori-Atta, of deliberately omitting the cedi's performance in the 2020 Budget, which he presented to Parliament on November 13.

Addressing NDC supporters at the charged forum meant to examine the budget, the MP said Mr Ofori-Atta also omitted the country’s external sector developments in the 2020 Budget, describing the omission as a testament of the minister's lack of confidence in the performance of the national currency and the external sector in in general in the period under review. Pointing to the table of content of the 2020 budget statement, the MP, who is also a member of the Finance Committee of Parliament, said pages 24 and 25 pointed to the country’s external and monetary sector performance and their impact on international reserves and the depreciation of the local currency, the cedi.

However, he said when one follows up to the actual pages, what one sees there has nothing to do with the cedi.

“Despite titling the discussion on page 25 as External Sector Development with a sub heading ‘Exchange Rate Developments,’ the entire section from paragraph 92 to 116 did not discuss anything on Ghana’s external developments and exchange rate developments."

"Rather, it was dedicated to energy sector issues such as excess capacity in the energy sector, status of ECG, gas, and the unholy PDS and other such matters,” he said at the forum which was chaired by Mr Seth Terkper, a former Finance Minister.

“For the avoidance of doubt, let me state that Ghana’s external sector, like any other country’s external sector, is not the energy sector.

"It deals with matters of external trade, our services with other countries and flows of capital and financial resources to and from other countries such as proceeds from bonds and repatriation of capital flows such as dividends, interest earned on investments by foreigners and reversals of financial portfolios by non-resident investors.

“The external sector measures the levels of gross and net international reserves, levels of reserve cover for imports with particular reference to gross and net international reserves and most importantly for external investors and bond holders, the level of Net International reserves cover for short-term net private capital flows,” he explained.

Major concern to businesses

He said developments in the flows and build-up of foreign currency buffers and the performance of the local currency against other trading currencies were of major concern to businessmen, investors and development partners as far as this sector is concerned, and was therefore surprising to see it missing in the budget.

Before providing data on the status of the cedi and Ghana's external sector developments, Mr Adongo said "Since the minister deliberately refused to report on the external sector, I decided to review the summary of economic and financial data of the Bank of Ghana to see how we have performed."

“The data is very worrying and shows heightening vulnerability and accelerated depreciation of the cedi,” he said.

Portfolio reversals

Mr Adongo said the data showed that the country continued to experience withdrawal of foreign investors from the purchase of Government of Ghana domestic bonds. This worrying trend, he said started in 2018.

He said about US$2 billion of bonds held by foreigners were redeemed and the money repatriated out of the country in 2018 alone.

He noted that this resulted in BoG intervening in the market by injecting about US$2.6 billion of net international reserves to enable foreign investors repatriate their investments to contain the pressure on the cedi.

“The Government of Ghana also drew down about US$1 billion of its forex buffers meant to meet maturing debt obligations to provide liquidity in the market to support the cedi. “The combined injection of about US$3 billion by BoG and the Ministry of Finance could not curtail the accelerated depreciation of the cedi and it worsened from 4.8 percent in 2017 to 8.35 percent by end of 2018 as the cedi crossed the dreaded GH¢5 to the US$1 mark,” he stated.

The cedi, which depreciated by 9.22 percent by the end of September 2019, is now trading at a new high of about GH¢5.3 to to US$1.