Export revenues expected to fall

Export revenues will likely fall this year, Millison Narh, First Deputy Governor of the central bank, has said in a forecast that highlights the difficulty the economy faces from weak global commodity prices.

“This year in particular we expect an overall reduction in export revenues from the levels obtained last year,” said Mr. Narh at the launch of a central bank survey of foreign direct investment flows into Ghana’s economy between 2010 and 2011.

Export earnings have struggled to match the pace of last year, improving by just 4.1 percent year-on-year, to US$9.8billion, between January and August 2013. Gold exports, the biggest source of foreign exchange, plunged by 12.6 percent to US$3.4billion in the period, according to Bank of Ghana data, following a 20 percent slide in the price of the metal.

Revenue from the export of cocoa beans also fell by 21.4 percent to US$1.4billion. A rise in oil production however boosted earnings from the resource by 47 percent to US$2.8billion, preventing a fall in total earnings in the first eight months of the year.

In 2012, export revenues hit US$13.5billion, with gold, oil and cocoa accounting for 84 percent of the inflows.

Finance Minister Seth Terkper has warned that weak commodity prices pose a threat to the economy, compounding the government’s fiscal challenges which led to a credit rating downgrade by Fitch this month.

The government has already said it is not likely to cut the deficit to 9 percent of GDP as targetted this year, due to spending pressure from wages and interest payments as well as lower-than-expected tax collections. The budget gap could probably be 10 percent of GDP, the International Monetary Fund (IMF) has said.

“Certainly, the relatively weak gold prices will affect the trade balance,” Sampson Akligoh, head of research at Databank, told the B&FT. “Broadly, Ghana's current account deficit could slip to marginally above 12 percent this year, which is already reflecting in the rate of deprecation of the cedi.

The offset is that capital account inflows are quite strong, including interest in long-term government debt paper.”

In July, government launched a second international Eurobond to raise US$750million, the proceeds from which have cushioned the central bank’s reserves against adverse shocks from weak export earnings.

After the bond sale, foreign exchange reserves were boosted to US$5.8billion in August, from US$5.3billion in December. Cocobod’s international loan of US$1.2billion has also been providing support for the central bank’s reserve buffers.

Pressure on the reserves could however arise if imports, which dipped by 2.5 percent between January and August, grow rapidly on the back of increased seasonal demand in the last quarter of the year.