Interview: Abdul-Nashiru Issahaku
What are your expectations for GDP growth in Ghana over the coming year?
ISSAHAKU: Global uncertainties led to significant declines in the prices of the country’s main primary commodity exports: cocoa, gold and oil. This was exacerbated by protracted energy crises and sharp volatility in the domestic foreign exchange (forex) market. While global uncertainties largely remain on the back of Brexit, the worst of the energy crises seems to be over. Also, the policy prescriptions underpinning the IMF’s three-year extended credit facility (ECF) have helped rein in the fiscal imbalances, prop up investor confidence and ensure macroeconomic stability. Real growth for 2016 has been revised downwards from 5.4% to 4.1%, mainly on account of a shortfall in oil production due to challenges with the floating production storage and offloading (FPSO) vessel Kwame Nkrumah.
However, there are signs that point to a rebound in growth, with the first quarter of 2016 recording a year-on-year real growth of 4.9%, boosted by the improvement in energy supply. The FPSO’s restoration and the coming on-stream of production from the Tweneboa, Enyenra and Ntomme oil and gas fields in September 2016 and the Sankofa fields in 2017 should enable the economy to meet the growth projections that are expected to pick up to 7% and 8% in 2017 and 2018, respectively.
To what extent do you believe the cedi will come under further downward pressure?
ISSAHAKU: The sharp volatility experienced in the forex market was fuelled largely by the large fiscal and current account imbalances. However, since the launch of the home-grown policies supported by the ECF, fiscal consolidation has gained traction, with the deficit decelerating sharply from 10.4% at the end of 2014 to 6.3% at the end of 2015. The current account deficit has also narrowed from 9.5% at the end of 2014 to 7.5% at the end of 2015. In tandem with fiscal consolidation, the central bank has instituted measures including tightening the monetary policy and tweaking the forex surrender policy. The improved flows from the cocoa pre-finance loan and the recent eurobond issue should also help to build up significant reserves to at least four months of imports. With these, the calm in the forex market is expected to be sustained, and we do not expect the cedi to come under the pressure it experienced in 2014 and 2015.
How likely is it that the country will see a further reduction in high street lending rates?
ISSAHAKU: The high lending rates mirror the structural and macroeconomic challenges that confront the economy. To address this problem, a number of measures have been initiated by the central bank, including the introduction of a formula for determining banks’ base rates in collaboration with commercial banks. This, it was hoped, would introduce transparency and, ultimately, bring down lending rates. Sadly, significant setbacks on the macroeconomic front, occasioned by both external and domestic factors, reversed the potential gains inherent in the framework. With the gradual return to macroeconomic stability, efforts are now underway to revise the formula to reflect the cost structure of banks’ borrowing. There is now the possibility of interest rates retreating towards more favourable territory.
The debt management strategy designed by the fiscal authorities to lengthen the maturity profile of the public debt and finance the deficit with long-term external borrowing could result in lower money market interest rates and if the expected disinflation sets in, then the monetary policy stance could be eased. These developments could drag the high street lending rates along with it.
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