We’re on safe grounds: Terpker assures, as economy faces real IMF test in Q1
The Finance Minister, Mr Seth Terkper, has told Graphic Business that last year's foreign exchange pressures were as a result of global trends which are not repeating themselves in 2016.
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Subsequently, he said, "We should not make the depreciation in 2015 appear as if it was a Ghana situation when in fact it was a global phenomenon. If you do a little research you will realise that countries such as South Africa, Angola and others also had similar challenges all because of the fall in commodity prices at the time. Fortunately, prices of cocoa and gold are stable and we do not expect the depreciation to continue."
Already, Mr Terkper said evidence from the central bank showed that the currency had seen less pressures during the festive season compared to previous years, a proof of the stability to be expected in the foreign exchange front.
"In that regard, we can see that the currency has seen its level. What we now need to manage is the traditional shocks," he said in reference to the instability in commodity prices and the impact on revenues.
Prices of gold and cocoa, the country's two major foreign exchange earners have been bearish throughout last year, with an ounce of gold falling from about US$1,200 in January, last year, to US$1,061 on January 4, this year.
That notwithstanding, the minister said the economy was now set for take-off after the power crisis had stabilised.
IMF deal
Beyond the developments in the currency and commodities markets, Ghana’s three-year extended credit facility (ECF) programme with the International Monetary Fund (IMF) will face its toughest test yet in the first quarter of this year, when the stability achieved in the latter part of 2015 squares off with the recurring cedi depreciation and the pass through effects of the ongoing decline in crude oil prices.
While the depreciation, which is virtually a first quarter ritual, will prompt price increments and lead to inflationary pressures, the declining crude oil prices will continue to subdue petroleum revenues, resulting in a general threat to the 2016 fiscal deficit target and the IMF programme objectives as a whole.
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As of January 4, a barrel of crude oil was selling at US$37.28, almost 30 per cent lower than the US$53.05 used to estimate petroleum revenues in this year's budget.
The impact of the foreign exchange pressures and the consistent oil price drop on the economy risk being complicated by the expected hike in prices of petroleum products this month which could conspire with the pass through effects of other first quarter challenges to raise inflationary pressures while prompting agitations among labour for increased compensations.
The combined effect of these happenings on the economy could lead to a derailment of or a shift in the successes chalked up so far, an economist told the paper in confidence.
"If the currency falls as it does in every first quarter, utility prices will go up again, there will be agitation for higher wages, inflation which will begin to go up and the government will be forced to respond. Now, how the government responds to these unforeseen shocks will be the key thing," the source said.
A shift in the stability achieved could worsen the plight of businesses and lead to higher costs of productions and lower consumer sentiments.
Terkper's position
With the ECF and the government's home-grown programme designed to allow for market forces to determine the fate of the economy in the event of challenges, the source said the government could complicate matters if it tried to intervene through subsidies similar to previous interventions in the past.
"In 2012 when we were under a similar IMF programme, remember the currency fell badly and it became necessary for utility and fuel prices to be increased but the government did not respond; it rather absorbed the costs through subsidies.
"At the end of the day, we saw what happened," the economist added.
In 2012, which was also an election year, the cedi lost about 20 per cent of its value to the US dollar and that partly stretched the year's deficit to 11.5 per cent from the 4.2 per cent recorded in 2011.
While admitting that the cedi depreciation poses a threat to the stability achieved so far.
Reviews
The country entered into the three-year ECF programme with the IMF in April, last year, to help stabilise the economy and restore macroeconomy conscience.
The programme targets were to complement the government's home-grown policies, whose results were marred by the slump in oil prices
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So far, the country has earned praises from the fund's review team after three successful reviews.
The next review is scheduled for April, this year, which will be based on actual data unlike the previous ones which were based on provisional data.–GB