Cedi sinks low

Ghana’s Cedi is sinking to record lows and shares of state-run companies are falling on prospects that Ghana’s Supreme Court will cancel President John Dramani Mahama’s election win and put at risk an improving economy.

“If there’s going to be another election, what is going to happen to the fiscal situation?” Stuart Culverhouse, London-based Chief Economist at Exotix Ltd., said by phone on July 19.

“I don’t think people are going to be thinking about whether there’s going to be any unrest or volatility. People are more concerned about what that means for economic stability.” Yields on Ghana’s dollar-denominated bonds due in 2017 barely budged after scuffles among security forces and opposition protesters broke out following 54-year-old Mahama’s victory in December and the debt is outperforming emerging-market securities this year.

The Supreme Court is considering a challenge by opposition leader Nana Akufo-Addo, 69, who said the vote was marred by counting abnormalities. Testimony in the three-month trial ended on July 17 and lawyers submitted last arguments on July 30. The cedi fell to a record low on July 19 and is Africa’s worst performer against the dollar this month after Kenya’s shilling.

Three of the biggest decliners on the Ghana Stock Exchange Composite Index (GGSECI) this month have the government among their top two shareholders. The Finance Ministry forecasts Ghana’s budget deficit, which ballooned last year to about triple the level of the year before, will narrow in 2013 and the $41 billion economy will expand 8 percent from 7.9 percent growth in 2012.

Output shrank a quarterly 3.1 percent in the first three months of the year from a 2.1 percent expansion in the fourth quarter of 2012.

“Importers are buying dollars ahead of time and investors are also holding on to dollars as a precautionary measure,” he said. “It’s driving the cedi weaker.” The Deputy Finance Minister, Cassiel Ato Forson declined to comment on the effect of the court case on the currency in an interview on July 19.

Deficit Widened

As post-election protests broke out, yields on Ghana’s $750 million Eurobonds rose one basis point or 0.01 percentage point to 4.96 percent on Dec. 12, a day after Akufo-Addo told a rally of supporters he would dispute the results in court. Yields on the debt due October 2017 retreated 20 basis points yesterday to 5.68 percent by 5:20 p.m. in London. The yields have climbed 80 basis points this year, compared with a 113 basis-point increase in emerging-market bonds, JPMorgan Chase & Co. data show.

“The trial inspired confidence in Ghana’s democracy, but there are concerns about how the outcome of the trial will be handled,” said Kissy Agyeman-Togobo, Accra-based analyst with Songhai Advisory LLP.

“There are questions about how Ghana’s security will be managed after the court’s ruling.”