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A look at the state of the Ghanaian economy
The Chairman of the Monetary Policy
Committee, Dr. Paul Acquah this week addressed the media on
the performance of the Ghanaian economy and Ghanadot’s
Masahudu Ankiilu Kunateh, a Financial and Economics
Journalist was there with this special report
Accra, July 22, Ghanadot -
The global economy is beginning to see signs of
stabilization and recovery with forecasts of slightly
higher growth following a period of turbulence which
characterized the first half of the year.
The anxiety of markets and Policymakers is giving way to
some kind of hope, greater confidence, and positive
expectations, and cautious optimism about global recovery
and restoration of financial stability.
For the first time since the beginning of the crisis, there
is consensus revision of global growth upwards to 2.5
percent in 2010 compared with an earlier forecast of 2.0
percent projected at the end of the first quarter. And
credit markets are beginning to function well, as the
extraordinary stimulus measures and interventions in the
financial system begin to take effect.
Domestically, the last six (6) months have seen a
considerable uncertainty following from the large
macroeconomic imbalances at the end of 2008, but also
associated with the global financial turmoil. These have
reflected in exchange rate expectations, inflation and
inflation expectations, and general macroeconomic
uncertainty.
A
comprehensive policy framework has been put together which
has been favourably considered and supported by resources of
both the World Bank and the IMF. The return to the IMF to
support the policy framework is part of the stabilization
process seen in most emerging and frontier developing
economies globally, following the global financial and
economic crisis. The underlying fiscal and monetary policies
have been designed to unwind the imbalances that
characterized the past 18 months, and further strengthen the
consolidation process to secure economic fundamentals
for better
sustenance of rapid growth with financial stability.
There are initial signs that the policy framework is
beginning to work. Initial data for the first half of the
year point to some degree of unwinding in both the fiscal
and external imbalances, some softening in general demand
pressures, and declining volatility in prices and exchange
rates.
Headline inflation which had increased from 18.1 percent in
December 2008 to 20.6 percent in April 2009, seemed to have
stabilized around 20 percent as it declined to 20.1 percent
in May. The latest release by the Ghana Statistical Service
(GSS) for June 2009 put the headline inflation at 20.7
percent following upward revisions in petroleum prices and
transportation fares (30 and 17 percent increases
respectively) in May 2009. Food inflation has dropped from
18.5 percent in March to 15.5 percent in June 2009. Non-food
inflation increased from 22.0 percent in March 2009 to 24.7
percent in June, in part due to the upward revision in
petroleum prices.
And the Bank’s measure of core inflation (defined to exclude
energy and utility) increased from 19.3 percent in March
2009 to 21.3 percent in June.
The June survey shows further softening of business and
consumer sentiments, along with mixed signals of inflation
and exchange rate expectations. This survey was conducted
after the 30 percent increase in petroleum prices and about
17 percent increase in transportation prices in May 2009.
Unlike the April survey, businesses and consumers are less
optimistic about the prospects of the economy, suggesting
that both businesses and consumers have already factored in
the slowdown in economic activity in forming expectations.
The Bank’s Composite Index of Economic Activity (CIEA) at
the end of May 2009 shows some slowdown in the pace of
economic activity. In year on year terms, the index grew by
10.8 percent, well below the trend growth rate of 22.7
percent, and compared with 33.7 and 23.5 percent recorded
for the same period in 2008 and 2007 respectively.
In real terms, the index declined by 2.2 percent compared
with the growth of 25.6 and 17.5 percents respectively for
2008 and 2007. This indicates that real GDP growth is moving
close to 6 percent from the peak of 7.3 percent in 2008.
The major sectors driving the slowdown in the index are
cement sales (an indicator of developments in construction)
which decreased by about 28.5 percent in year on year terms.
Tourist arrivals, domestic VAT (indication of consumption
levels) and to a smaller extent industrial consumption of
electricity which recorded a marginal decline during the
period.
Provisional estimates indicate that total merchandise
exports for the first half amounted to US$3,003.85 million
(an increase of 5.6 percent) compared with US$2,845.81
million for the same period 2008 (an increase of 32.8
percent).
• Exports of cocoa beans and products for the first half of
the year amounted to US$1,060.97 million (an annual growth
of 16.6 percent) compared with US$909.96 million for the
same period in 2008 (annual growth of 22.6 percent).
Cumulative cocoa purchases for the 2008/2009 main crop
season as at June 04, 2009 amounted to 634,256 tonnes
(against a forecast of 600,000 tonnes for the entire crop
season). This compares with 663,800 tonnes for the same
period in the 2007/2008 season.
• Gold export was US$1,213.85 million compared with
US$1,199.16 million over the corresponding period of2008, an
annual growth of 1.2 percent, reflecting mainly volume
growth as average price declined by 0.8 percent during the
period. For the period January to June 2009, total
repatriation from the gold mining companies amounted to
US$469.64 million, compared to US$370.85 million for the
same period last year.
• Diamond export was estimated at 157,132 carats (US$3.09
million) compared with 408,425 carats (US$29.50 million) for
the same period in 2008.
• Non-traditional exports for the first half of the year
amounted to US$610.65 million, compared with US$587.47
million for the same period in 2008, representing a growth
of 5.6 percent. Non-oil import slowed down significantly
during the first half of the year. Non-oil imports amounted
to US$3,422.74 million which represented a decline of 6.8
percent. This is in contrast with a growth of 39.8 percent
over the same period last year.
• There were relative declines in all the various categories
of imports relative to the levels recorded for the first six
months in 2008. Capital goods declined by about 11 percent
to US$717.13 million. There were similar declines in
consumption goods (5.5 percent to US$738.04 million), and
intermediate goods (3.6 percent to US$1,633.11 million).
However, the proportion of capital and intermediate goods in
total imports remained virtually unchanged at 68 percent
over the period.
• Oil import bill was estimated at US$449.61 million,
compared with US$1,326.49 million for the same period of
2008, a significant annual decline of 66.1 percent.
This decline is explained by the impact of a significant
change in the hydro/thermal mix in the generation of
electricity in favour of hydro, as well as some demand
contraction, and lower prices on the international market.
The total import bill for the first half of the year fell
sharply as a result of the compression in oil imports. Total
merchandised imports was US$3,872.35 million compared with
US$5,000.87 million for the same period in 2008, a decline
in year on year terms of 22.6 percent (compared with an
annual growth of 43.9 percent for same period in 2008).
As a result, the merchandise trade deficit narrowed to
US$868.69 million, compared with US$2,155.04 million for the
same period in 2008.
There were some mixed developments in prices of
Ghana’s major export commodities during the second quarter
of the year, with significant impact on the terms of trade.
The realized core terms of trade based on the developments
in the prices of the three principal commodities - cocoa,
gold, and oil - declined by 44.6 points to take the index to
58.4 at the end of June 2009 from 103 in March 2009, mainly
on the strength of a rebound in crude oil prices.
The average realized price of cocoa beans exports was
US$2,940.02 per tonne in June 2009 compared with US$2,662.42
per tonne recorded in March 2009, an increase of 10.4
percent.
Similarly, the average export price of gold increased by 3.6
percent to US$913.3 per ounce in the second quarter of 2009.
The average realized weekly price per barrel of the
benchmark Brent crude oil increased by 37.4 percent from
US$50.55 at the end of March 2009 to US$69.44 at the end of
June 2009. The price of crude oil was US$65.06 per barrel as
at July 20, 2009.
Private inward transfers – received by NGOs,
embassies,service providers, individuals etc. - through the
banks during the first half of 2009 amounted to
US$4.23billion, which represents 1.3 percent decline from
the level recorded for the same period last year, and were
however, 33.4 percent increase over the transfers through
banks during the same period in 2007.
• Of the total inward transfers during the period, US$728.29
million (or 17.2 percent) accrued to individuals, compared
with US$822.76 million (19.2 percent) for the same period in
2008.
Total purchases and sales in the foreign exchange market by
banks and forex bureaux during the first half of the year
amounted to US$2,683.02 million, compared with
US$3,138.45 million for the same period in 2008, a year on
year decline of about 14.5 percent.
Gross international reserves position at the end of June
2009 was US$1,705.22 million and represents 1.49 months
cover of imports of goods and services.
In the foreign exchange market there was a relative slowdown
in the depreciation of the cedi against the three core
currencies in the second quarter of the year. The cedi
depreciated by 6.2 percent against the dollar, 17.2 percent
against the Pound Sterling, and 11.5 percent against the
Euro in the second quarter, compared with depreciations of
11.5, 9.3, and 6.2 percents respectively at the end of March
2009.
Provisional data available at the end of May 2009 show
further slowdown in the growth of the key monetary
aggregates. Broad money (M2+) for the 12-month period to May
2009 grew by 33.6 percent, compared with 40.2 percent in
December 2008, and 36.1 percent for the same period last
year.
Foreign currency deposits grew by 72.1 percent in year on
year terms at the end of May 2009, compared with 83.0
percent in December 2008, and 33.2 percent for the same
period in 2008. Foreign currency deposits which was GH¢1,816.8
million (US$1,496.4 million) in December 2008 increased to
GH¢2,192.7 million (US$1,523.8 million) in May 2009,
compared with GH¢1,273.9 million (US$1,273.7 million) for
May 2008.
The current survey round of credit conditions by the
Bank of Ghana continue to show a general tightening of
credit to both households and enterprises in the second
quarter of the year, along with further declines in net
demand for credit by both households and enterprises. Non
price terms and conditions such as shortening of the
maturity of loans or credit lines, and the requirement of
additional loan covenants and collaterals were used in
tightening credit stance.
The net tightening was more pronounced for long term
facilities than the short term. In particular, the mortgage
subsector, commerce and finance, transport and storage as
well as services sectors witnessed significant reduction in
credit allocation during the second quarter.
Provisional estimates of DMBs credit to the private sector
and public institutions over the 12-month period to May 2009
increased by GH¢2,025.7 million (43.8 percent) compared with
GH¢1,699.9 million (58.0 percent) recorded for the same
period in 2008. The private sector accounted for GH¢1,649.8
million (81.4 per cent) of the credit flow.
This was GH¢1,440.6 million (84.7 percent) for the same
period in 2008.
• Real annual growth of credit to the private sector was
19.1 percent at the end of May 2009, a slowdown from 25.4
percent for December 2008 and 36.9 percent for May 2008.
Credit flow to enterprises accounted for 81.2 percent of
total credit flow to the private sector over the 12-month
period to May 2009, up from 79.2 percent at end of March
2009 and 71.5 percent for May 2008. The share of households
eased to 17.1 percent in May 2009 from 28.0 percent in May
2008. There was also a significant slowdown in the flow of
credit to households during the period from 89 percent a
year ago to 33 percent in May 2009.
Distribution of the annual credit flow showed some shifts
and reductions in certain key sectors. The share of the
services sector which accounted for 35.9 percent at the end
of December 2008, reduced to 24.8 percent in March 2009, and
further to 18.4 percent in May 2009. Similarly, the share of
commerce and finance reduced from 20.2 percent in March 2009
to 16.5 percent in May 2009; manufacturing from 10.4 percent
to 9.3 percent. On the other hand, electricity, gas and
water increased from 10.6 percent in March 2009 to 11.4
percent in May; and Agricultural from 5.1 percent in March
2009 to 6.6 percent in May. The remaining sectors recorded
varying levels of increases in the flow of credit to the
private sector ranging between 1.7 and 5.1 percent.
Deposit money banks (DMBs) rates broadly firmed-up in the
second quarter of 2009. Average base rate quotations of the
banks were revised upward by 160bps in the second quarter in
the range 25.75 percent – 32.0 percent compared with the
earlier 170 bps increase in the first quarter of last year.
Average lending rates were similarly revised upward by
150bps in the second quarter to 32.75 percent within the
range 25.75 – 40.0 percent.
The expansion of the total asset portfolio of the banking
system seen in the first quarter of the year continued into
the first two months of the second quarter.
Total assets of the banking industry for the twelve month
period to May 2009 grew by 36.0 percent to GH¢11,479.0
million, compared with a growth of 37.1 percent for the same
period in 2008. However, an increased proportion was in the
form of investment in Treasury bills. At the same time,
deposits growth which was 36.4 percent, compared with 40.7
percent for the same period in 2008, was the main source of
funds for expanding the asset portfolio of banks.
External borrowings by banks, as a source of funding remain
less than 5 percent of total bank funding requirements.
The banking industry’s total external credit lines
constituted less than 10 percent of total trade and no
significant disruption has been observed in these credit
arrangements.
A stress test of the solvency of the banking sector shows
that only a recall of significant proportion (in excess of
50 percent) of external borrowings will impact on the risk
adjusted capital of the banking industry. Capital adequacy
ratio for the industry was 14.5 percent, higher than the
prudential level of 10 percent for the industry.
There was a marginal deterioration in the quality of the
loan books of the banking industry. The Non-Performing
Loans (NPL) ratio increased from 8.8 at the end of May
2008 to 11.0 at the end of May 2009 but has since declined
to 9.8 percent in June 2009.
Preliminary banking data on the execution of the Government
budget for the first half of the year show some signs of
fiscal consolidation. We have seen robust revenue growth
alongside some rebalancing in expenditures compared with the
outturn for the same period in 2008.
• Total revenue and grants at the end of June 2009 amounted
to GH¢2,652.0 million (12.3 percent of GDP) compared with GH¢2,147.2
million (13.2 percent) for the corresponding period of 2008.
In year on year terms, total revenue and grants increased by
23.5 percent, compared with 5.6 percent recorded in 2008.
Grants for the period amounted to GH¢351.9 million (1.6
percent of GDP) compared with GH¢352.3 million (1.9 percent
of GDP) for the same period in 2008.
• Total expenditure (excluding foreign financed capital
expenditure) at the end of June was GH¢3,075.9 million
(14.2 percent of GDP) compared with GH¢2,707.8 million (16.6
percent of GDP) for the same period in 2008. This represents
a year on year growth of 13.6 percent compared with 20.8
percent for the same period in 2008.
The overall budget operations for the first half of the year
resulted in a deficit (narrow) of GH¢549.2 million (2.5
percent of GDP) compared with GH¢700.2 million (4.3 percent)
for the same period in 2008.
• The deficit of GH¢549.2 million, in addition to a foreign
loan repayment of GH¢84.9 million was financed from domestic
sources to the tune of GH¢634.2 million (3.0 percent of
GDP).
39. Disbursements of external budgetary support are phased
to take place in the second half of the year that would
result in increased pace of spending within the budgetary
envelops with increased contribution of external funding.
The stock of domestic debt (gross) which was GH¢4,800.2
million (27.2 percent of GDP) at the end of 2008, increased
to GH¢5,288.2 million (24.7 percent of GDP) at the end of
June 2009. External debt also increased from US$3,982.6
million (28.1 percent of GDP) at the end December 2008 to
US$4,207.0 million (28.9 percent of GDP), bringing total
public debt stock to US$7,798.3 million (53.6 percent of
GDP) at the end of June 2009 down from
US$7,918.1 million (54.6 percent of GDP) at the end of
December 2008. Market demand for Government securities
continue to show a shift towards shorter-dated instruments.
Average maturity of outstanding government securities which
had declined from 15.82 months at the end of December 2008
to
15.52 months in March, remained virtually unchanged at
15.5 months in June 2009. Similarly, the share of
short-dated instruments increased to 62.5 percent from 45.7
percent at the end of December 2008.
• The benchmark 91-day Treasury bill rate rose by 35bps in
the second quarter to 25.84 percent compared with an
increase of 83bps in the first quarter.
• The 182 day treasury rate similarly edged-up by
103bps in the second quarter to 28.82 percent compared with
an increase of 161bps in the first quarter.
• The 1-year-note rate was unchanged at 21.0 percent after
gaining 100bps in the first quarter. The 2-year fixed rate
note however remained at the end 2008 level of 21.0 percent.
• The interbank rate increased by 105bps in the second
quarter to 22.54 percent compared with an increase of 210bps
in the first quarter.
To summerise, the information available suggest that
economic activity measured by the Composite Index of
Economic Indicators is slowing down and GDP growth is moving
to significantly below trend. The uncertainties associated
with the possible fallout of the global financial crisis and
volatility in the domestic economic environment seems to be
dissipitating.
Consumer sentiments remain increasingly soft. The latest
surveys indicate that business confidence is at a low point
with half of respondents having revised downwards
expectations about economic prospects.
Demand growth is moderating from the rapid pace recorded a
year earlier and is underlined by significant tightening of
conditions in the credit markets, with moderation in the
growth of monetary aggregates.
Inflation and exchange rate expectations remain strong, but
price and exchange rate volatility has reduced somewhat
during the second quarter of the year.
The fiscal deficit is being reduced with robust revenue
growth and reduced budgetary outlays. This is keeping
potential aggregate government spending within established
resource envelop. However, funding the underlying borrowing
requirements would need to be better balanced with the
timely disbursement of budgetary and other external support
to ease interest rate pressures on the domestic money
market.
The trade deficit has narrowed in part due to a slowdown in
imports generalized across all import categories. A sharp
decline in the oil import bill has been a major factor.
Uncertainty remains about remittances and capital flows. And
the potential increases in oil prices remain a source of
major risk in the payments outlook.
But the external support both for the budget and balance of
payments coming from agreements with the IMF and the World
Bank constitute a major stabilization factor.
The risks in the outlook for disinflation and growth are
balanced and therefore the Monetary Policy Committee decided
to maintain the Prime Rate unchanged at 18.5 percent.
Ghanadot
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