Economic Outlook Analysis: The Ghana Economy August Outlook

Introduction

The Central Bank will resume its liquidity program of injecting 20 million dollars daily or weekly as needed by the marketplace. This will help the cedi further appreciate against the dollar. Some economists are also arguing that the cedi's appreciation should be handled carefully otherwise if the cedi becomes too strong, it might discourage exporters from sending their goods outside. This development can affect the country's foreign exchange earnings adversely.

Outlook (Positives)

1. Economic Recovery Mode: The recession seems to have bottomed out, and it has now resumed what can be classified as the very early stages of a full recovery. Hence the increase in economic activity and all related expansionary activities should continue through the month of August.
2. Seasonal and Other Scheduled Inflows: Expectations of the seasonal foreign exchange flows in the last quarter of the year will provide additional support to the currency. The mere anticipation of this positive economic event should serve as a psychological booster that should help improve both consumer and business sentiments in August.
   Also, scheduled anticipated inflows of more than US$4 billion from the Eurobond issue, syndicated cocoa financing as well as other programmed inflows in the second half of the year will provide a strong buffer and help sustain stability in the foreign exchange markets as well.
3. Potentially Increased Commerce: According to the Bank, the Cedi's appreciation is good in so far as this appreciation leads importers/traders to return to the market to pay off their import bills, the country should see some uptick in commerce in August.
4. Improved Purchasing Power and Real Incomes: The Central Bank is of the view that if the currency's appreciation heads off inflation through its impact on petroleum prices, both consumers and businesses should see some uptick in the service sector as consumer's purchasing power increases.
5. Medium and Long-Term Policies: Nevertheless, developments supportive of stability over the medium and long-term can be seen. Among them:
   1. The introduction of electricity and water price tariffs to reflect costs.
   2. Continued spending restraint.

   Increased Donor Support: Increased international Donor support for infrastructure related projects. A good example is the $700 million guarantee by the World Bank. The guarantees are expected to mobilize roughly $7.9 billion in new private investment for offshore natural gas, representing the biggest foreign direct investment in Ghana's history.

   Amended Petroleum Revenue Management Bill: Also, an amendment to the petroleum revenue management bill has been passed aiming to direct funds to the Ghana Infrastructure Fund (alongside savings for the Heritage and Stabilization funds).

   Further Stabilization of the Appreciating Cedi: The Cedis' surge and appreciation against the US Dollar should continue even if mildly. Based on comments from Central Bank officials in the last couple of weeks since the beginning of the currency's surge, it is clear that they do not wish to cause a volatile appreciation against the dollar. Hence we should expect to see a very measured but persistent currency appreciation through August.

   Sustainability of the Central Banks Currency Appreciation Efforts: The sustainability of the BOG's current liquidity risk management program will likely have the following three components:

   1. Daily funding management: Stand ready to inject liquidity based on daily or weekly market demands to support the Cedi.
   2. Monitoring: Continuous monitoring of marketplace factors and actors for Liquidity Crunch Early Warning signs.
   3. Stress testing and contingency funding: The central bank will be ready to inject necessary liquidity whether $20 million per day or even more based on daily market liquidity demands.

   Increasing Investor Confidence: The outlook is supported by burgeoning confidence in the economic plans outlined by the government and its donor partners including the IMF.

   Reduced Fuel Prices: Oil Marketing Companies (OMCs) yesterday reduced prices of petroleum products in conformity with the de-regulation of petroleum products, which took effect from June 16. The reduction was attributed to the marginal appreciation of the local currency to the dollar and fall in world crude oil price during the third de-regulated pricing regime for the period of July 16 to July 31.

   Outlook (Negatives)

   1. Load Shedding: Unfortunately load shedding is still the order of the day in Ghana and continues to remain a productivity drain on the economy.
   2. Inflation: The constrained economy is still grappling with a double-digit inflation. I expect to see a very marginal improvement in July inflation numbers for both Producer and Consumer Price Inflation.
   3. Other infrastructural Challenges: Additional infrastructure bottlenecks such as poor roads, drainage issues, illuminate the ongoing economic growth constraints.
   4. Bird Flu Outbreak: The government is also grappling with a bird flu outbreak.
   5. Commodity Price Volatility: The global market prices of the government's two major foreign currency earners, Gold and Oil are still facing downward pressures. All things being equal, this scenario should remain unchanged in August.
   6. Doctors Strikes: The GMA announced a general strike demanding additional salary increases.

   Conclusion
   It seems that Ghana's much talked about “Homegrown Solutions” are finally beginning to yield the expected economic results. The current administration has shown that they are serious about reducing the budget deficit and most importantly, reducing the public sector wage bill. The wage bill was almost 70% of government's total tax revenues in 2012, but this high ratio has been reduced to 52.1 % in 2014, and it is estimated to be reduced further to 46.1% by the close of 2015. This should help sustain the countries positive economic recovery outlook throughout the month of August.

   About the author:
   Anang Tawiah is a New York City based Business Economics and Technology Analyst. He continues to guide many Fortune 500 brands and government as a Business and Technology Consultant. You can read more of his analysis or reach him for further professional consultations and guidance at:

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   // Business economics blog: anangtawiah.wordpress.com

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