B&FT Editorial: Gross reserves trend positively

According to the Bank of Ghana’s summary of economic and financial data, there was a marginal increase in gross reserves for April – rising from US$5.1billion in March to US$5.2billion at end of the year’s fourth month.

Therefore, the nation’s gross reserves are expected to experience growth following approval and funding received from the International Monetary Fund (IMF) for a US$3billion Extended Credit Facility (ECF) arrangement.

The Bank of Ghana’s statement acknowledged this progress, noting that as of May 19 reserves had further risen to US$5.7billion – which is equivalent to 2.6 months of import cover.

Despite this improvement, the figure falls short of the IMF’s recommended threshold of three months’ cover.

Since beginning of the year, reserves have declined by nearly 17 percent – mainly due to central bank interventions in the foreign exchange (FX) market. These measures were implemented to slow down depreciation of the cedi amid a challenging fiscal and macroeconomic backdrop, aggravated by a growing scarcity of the US dollar.

Latest figures indicate that the nation’s trade balance remains favourable, with a notable improvement of 2.2 percent of gross domestic product (GDP) compared to the same period last year, when it stood at 1.6 percent of GDP.

This improvement can be attributed to a decrease in imports, which have declined by 14 percent year-to-date compared with the previous year.

Current accounts recorded a surplus of US$661million in the first quarter of 2023, compared with a deficit of US$554million during the same period of 2022.

A note by RMB Africa Research indicates that the funding received from the IMF, coupled with fiscal discipline and prudent monetary policies, could open doors for additional multilateral funding if the country continues adhering to strict fiscal prudence.

“Growth of the trade surplus, coupled with a reduction in capital and financial account outflows, could lead to a significant improvement in reserves,” the RMB stated.

Successful management of trade surpluses and reduced capital outflows are key elements for achieving significant improvements in the country’s reserves.

“If the trade surplus continues to grow, boosting the current account; and if the capital and financial account outflows taper this year, we can expect a meaningful improvement in reserves,”- RMB.

The US$3billion financing from the IMF, which accounts for only 20 percent of the estimated BoP needs, is not sufficient on its own.