Investors edgy about economy’s prospects

Investors are cautious about the prospects of the economy as yields on short-term Treasury bills continue to plummet whereas those on the recent five-year bond issued last week rose from 21 to 24 percent as compared with a similar issue in March.

Yields on the 91-day instrument fell to 23.7 percent at last week's auction, which is the lowest since March 28th, 2014; while that of the 182-day instrument fell to 24.8 percent, the lowest since July 4th this year.

The general performance of the 91-day instrument shows a decline for five straight weeks since October 30, while the 182-day has fallen for six straight weeks since October 23.

Analysts explain that stability in the exchange rate over the last two months could be responsible for the decline in short-term Treasury yields. They further suggested that as the cedi halts its losses against the dollar, investors' appetite for cedi assets improves -- which then reduces yields.

The cedi in the first half of this year depreciated sharply against the dollar by 26.2 percent but reversed the dismal performance after the central bank announced measures to boost forex supply, reaching about 1.1 percent year-to-date depreciation in July 17. The cedi now trades at about GH?3.79, which represents about 15.7 percent year-to-date depreciation.

Meanwhile, investors’ behaviour toward the long-term indicates a bit of concern and uncertainty. This is because the recent five-year bond sold at what was thought to be a high rate of 24 percent, compared with 21 percent for a similar issue in March this year.

One analyst who asked not to be named said: “I sense that investors have mixed feeling about prospects for the economy. Whereas improved fiscal control under the International Monetary Fund programme is helping bring back confidence, the doubts being expressed about government's ability to sustain the trend in 2016 have made some investors cautious about the outlook”.

During the second review of Ghana’s three-year Extended Credit Facility (ECF) with the IMF, Joël Toujas-Bernaté who led the team said so far implementation of the programme has been satisfactory, with all end-August 2015 performance criteria met.

The authorities, he said, have also made progress in implementing fiscal structural reforms; albeit at a slower pace than expected in some areas. The mission welcomes the steps taken by government in addressing payroll irregularities and advancing public financial management reform.

“Looking ahead, given the high level of public debt and financing constraints, the planned fiscal adjustment under the programme will be strengthened in 2016. The budget will also face additional spending needs from the (one-off) costs related to next year’s elections and a nominal wage bill increase now projected to be slightly higher than envisaged under the programme, while earmarking revenues for statutory funds continues to reduce budgetary flexibility,” Mr. Toujas-Bernaté said.