BoG upbeat about cedi’s fortunes

Governor of the Central Bank Henry Kofi Wampah has said he expects the cedi to stabilise by the end of July after the full pass-through of the seasonality in demand for foreign exchange.

The currency has slumped by more than 4 percent this year as import demand accelerated and the Bank of Ghana (BoG's) reserves dwindled by US$200 million to US$5.2 billion between January-April.

“The cedi has suffered shocks from both demand and seasonality. There is an increase in imports around this time,” said Dr. Wampah.

Another phenomenon that has also taken its toll on the currency is the repatriation of dividends by companies to overseas shareholders.

“There is also repatriation of dividends around this time that we didn’t see before. This was not substantial in the past, but now it is happening and it appears it will be persisting once we have more foreign investors in the economy,” he said.

Dr. Wampah was speaking at the launch of the 2013 Ghana Banking Survey by PricewaterhouseCoopers (PwC) in Accra. The survey was titled “Harnessing the SME Potential”.

The Governor said there’s keen interest in Ghana’s economy among offshore investors, and that the Central Bank expects inflows from the upcoming Eurobond and Cocobod’s syndicated loan to bolster the currency’s strength in the second half of the year.

“The economy is viable in the short- to medium-term. External investors are still interested in the economy. We are expecting US$1.2billion dollars in the last quarter from cocoa.”

The BoG’s three-year fixed-rate bond sold on May 30 to raise GH¢400 million, was significantly oversubscribed, signalling strong interest in the economy, according to Wampah. “We were looking for GH¢400 million, but we had an offer of GH¢800 million.”

The funds are expected to be used to roll-over maturing debts and support implementation of the fiscal budget.

The upcoming Eurobond, the second since 2007, is likely to attract a lower interest rate compared to the first, Dr. Wampah said on May 14. The 10-year 2007 bond sold at an 8.5 percent coupon.

A lower yield is expected because of the prevailing low interest rates in international debt markets, Wampah said, adding that the timing is perfect for Ghana despite challenges on the fiscal front.

Government is aiming to scale-back excessive spending in 2012 that led to a blown-out deficit of 12 percent of GDP. Its target is to narrow the gap to 9 percent of GDP this year and 5-6 percent in the medium-term.

Lower-than-expected tax collections in the first four months of the year threaten this year’s fiscal goals, said Finance Minister Seth Terkper last month. He disclosed that Government will enact additional taxes to improve revenues, and will streamline expenditure by taking steps such as ending costly utilities subsidies.

Fiscal pressures in the early part of 2013 compelled rating company, Fitch, to cut its outlook on Ghana’s debt from “B+ stable” to “B+ negative”. An improvement in the rating will require a clear commitment to fiscal consolidation, including control of public sector wage growth, Fitch said.