BOG: Economic activity "quite robust"

Accra, Aug. 27, GNA - The Monetary Policy Committee (MPC) on Monday gave the thumbs-up to the performance of the economy describing it as "quite robust" and decided to maintain the prime rate, the rate at which the Central Bank lends money to commercial banks, at 12.5 per cent. "Consumer confidence and expectations are generally positive about macroeconomic conditions and prospects," the Governor of the Central Bank, Dr. Paul Acquah, said at a press conference in Accra after the MPC's meeting that reviewed the performance of the economy up to July. Dr. Acquah said budgetary operations had been providing strong stimulus to domestic demand while banks were using their strong financial position to shift their lending portfolios in favour of private sector lending funded by a surge in deposits in the banking system.

He said inflation, based on the Consumer Price Index, which was 10.1 per cent in July, down from 10.7 per cent in June, appeared to be consolidating around the path towards a single digit target of seven to nine per cent set for the year.

Dr. Acquah said the risk to the outlook remained "uncertain", about oil prices and the potential burden of the balance of payments and domestic cost price movements.

In addition, there was the possible impact on international commodity markets of the current turbulence in the financial markets due to the sub-prime mortgage crises.

Dr. Acquah noted that the current energy crises and interruptions were weighing down business confidence and expectations in the short term, while exerting cost pressures on the energy sensitive sectors, such as manufacturing.

Consequently, he said, "the supplementary budget announced in July allocated considerable resources to address the long term energy deficit and its financing, which will need to be managed to contain fiscal pressures on the market".

He said financial data listing companies for the period ended June 30, 2007 showed significant growth in turnover and net profits, and reduction in operating expenses relative to the preceding year's results.

The Governor also described the economic performance as generally broad-based, cutting across companies in agriculture, food and beverages and distribution sectors of the economy, except for manufacturing where cost of operations turned out higher.

Over the 12-month period to June 2007, deposit money bank's credit to the private sector and public institutions increased by 1,016.9 million Ghana Cedis, representing 51.3 per cent compared to the 33.4 per cent of 496.3 million Ghana cedis recorded for 2006.

The private sector accounted for 792.9 million Ghana cedis of the total credit flow in the period, compared to the 457.8 million Ghana cedis recorded for the same period in 2006. He put total private sector credit outstanding at the end of June 2007 at 2,458.6 Ghana cedis, 17.9 per cent of GDP.

He said provisional banking data on the execution of the 2007 budget showed that total revenue and grants for the first half of the year was 2,024.6 million Ghana cedis, some 48 per cent of annual target, compared with 1,508.6 million Ghana cedis recorded for the same period in 2006.

Domestic revenue growth was also robust at 36.4 per cent, showing a good buoyancy of the tax system and its administration. Revenue and grants at the end of July increased to 2,394.2 million Ghana cedis, compared with 1,748.3 million cedis for 2006.

Provisional data on external sector indicated that total merchandise exports for the six-month period to June 2007 amounted to an estimated 2,070.8 million dollars, representing a 10.6 per cent increase over the level for the same period in 2006.

Dr. Acquah noted that cocoa beans and gold increased by 17.4 percent and 29.8 percent to 739.06 million dollars and 797.51million dollars respectively, compared with and increase of 12.4 percent and 35.5 percent recorded in the first half of 2006.

Non-traditional exports on the other hand declined by 17.9 percent from 526.48 million dollars to 432.42 million dollars, mostly reflecting the cessation of the operations of Valco, compared to the half year results for 2006.

Total merchandise imports through the end of the second quarter of 2007 amounted to 3,738.7 million dollars, 18.1 percent higher than recorded in the same period of 2006.

Oil imports for the six-month period amounted to 915.07 million dollars or 10.5 percent above the 827.97 million dollars recorded a year earlier, with the increase reflecting in the volume of imports. "Capital and intermediate goods together accounted for 76.1 percent of total imports at the end of June 2007, compared with 76.2 percent recorded over the same period in 2006," he added.

The trade and current account deficit of 1.67 billion dollars and 832.36 million dollars respectively, compared with a trade deficit of 1.29 billion dollars and a current account surplus of 73.7 million dollars recorded for the same period in 2006.

These, Dr Acquah said, culminated in an overall balance of payments deficit of 124.31 million dollars compared with a surplus of 272.21 million dollars, including 387 million dollars initial disbursement under the Multilateral Debt Relief Initiative (MDRI) over the same period in 2006.

He said the gross international reserves (GIR) position of the Bank of Ghana increased steadily through to 2,138.35 dollars June 2007, and declined by 9.1 percent to 1.94 billion dollars at the end of July 2007, translating into 2.3 months cover of imports of goods and services. The bank indicated that foreign exchange market continued to gain in depth, with low volatility and relative exchange rate stability. Total foreign exchange transactions by banks and forex bureau amounted to 4.39 billion dollars for the six-month period to June 2007.

Dr Acquah put private inward remittances at 3.17 billion dollars as transfers received by NGOs, embassies, service providers and individuals through the banks and finance companies for the first six months of this year. This represented 15.7 percent increase over the 2.74 billion dollars for the corresponding period in 2006.

"Of the total transfers, 718.1 million dollars, that is 22.7 per cent, was accrued to individuals, with 786.2 million dollars, representing 28.7 per cent recorded for the same period in 2006."