Cocoa export to boost trade balance

Researchers at Standard Bank, parent company of Stanbic Bank Ghana, have forecast economic growth to remain robust this year largely underpinned by increased cocoa export revenues and a peak in oil production.

In its April edition of the African Local Markets Monthly report, the Standard Bank predicts an economic growth of 7.0 percent year-over-year in 2018.

“After strong economic growth in 2017, reaching 8.5 per cent year-over-year, we expect growth to remain robust at around 7.0 percent year-over-year in 2018,” the report noted.

The overall PMI reached 55.2 in March from 54.9 in February and 53.5 in March2017 as survey respondents suggested that output levels were rising as consumer confidence and consequently new orders rose.

The oil sector will continue to underpin growth as authorities estimate that production is set to reach a peak of 290,000 bpd in 2018.

The report further indicated that the Ghanaian economy is expected to remain strong due to increased cocoa export revenues.

“Ghana’s trade balance should receive a boost from increased cocoa export revenues. Since the beginning of the year, cocoa prices have risen by over 40 percent to around $2,700/metric ton as demand-supply dynamics appear to have adjusted to the lower price environment which was prevalent in 2017. Given that imports declined last year, leading to the trade deficit swinging into a surplus, and our expectation of only a moderate rebound this year, the trade balance should remain in surplus and allow further contraction of the current account deficit,” the report said.

Commenting on the report, Head of Global Markets at Stanbic Bank Ghana, Afua Bulley, said the rise in global cocoa prices will have an impact on the country’s treasury.

“The recent rise in cocoa prices will have a reasonably positive impact on the fiscus. Unlike in Cote d’Ivoire where the cocoa board reduced prices it paid to farmers, Ghana refrained from reducing prices, thus placing some pressure on the country’s fiscal accounts. The 40 percent surge in cocoa prices since the beginning of the year should certainly reduce the implied subsidy and alleviate fears of impending fiscal strain,” Ms Bulley indicated.

“We also expect financial reserves to remain buoyant, especially after planned Eurobond issuances that may amount to up to $2.5 billion later in the year. As a result, we now expect reserves to reach around $6.8 billion by year end,” Ms Bulley added.

The African Local Markets Monthly also predicted prolonged disinflation and the proposed reduction in electricity tariffs by some 12% is likely to push the Bank of Ghana to cut its policy rate by another 300 bps in the course of the year.

The report said, “After delivering a 200 bps cut at the March MPC meeting, we expect the BoG to cut the policy rate by another 300 bps through the course of the year.”

According to the report, these developments provide a basis for further easing of the monetary policy stance by the Central Bank, although this is likely to be restrained by uncertainty within the banking sector as a result of the new minimum capital requirement.