Despite the current balance of payment deficit, Fitch Solutions, a renowned rating agency, has projected that Ghana’s balance of payments will shift into a surplus for the years 2023 and 2024.
Fitch Solutions, nonetheless, said a reversal is anticipated in the capital and financial account for 2023, driven by anticipated disbursements of $600 million each from the International Monetary Fund under the Extended Credit Facility.
Fitch Solutions, therefore, predicts a bolstering of the overall balance of payments in 2024. This positive outlook stems from improved investor sentiment attributed to Ghana’s strides in external debt restructuring. This is predicted to amplify capital inflows, largely offsetting the minor current-account deficit projected for 2024.
This comes after a substantial deficit of $4.6 billion in 2022, marking the first full-year capital and financial account shortfall in two decades. The deficit was attributed to escalating investor apprehensions about debt dynamics and tightening monetary conditions in developed markets.
In assessing the situation, the Bank of Ghana’s Summary of Economic and Financial Stability Report for July 2023 highlighted that Ghana’s Balance of Payment registered a deficit of $107.8 million at the close of June 2023, amounting to roughly 0.1% of GDP. This marked a substantial reduction compared to the $2.49 billion deficit recorded in the same period the previous year.
The Capital and Financial Account Balance exhibited a deficit of $897.3 million in June 2023, attributed to a net outflow in portfolio investments. Concurrently, the current account balance for April 2023 stood at $849.2 million, approximately 1.1% of GDP.
Despite these positive trends, Fitch Solutions underscored the significance of lingering risks to Ghana’s external position.
However, the firm cautioned that if negotiations between Ghana and external creditors hit a snag, it could erode investor confidence and potentially trigger capital flight. This scenario could exert intensified pressure on foreign exchange reserves and the cedi, consequently prolonging higher inflation.
It noted that the ripple effects of prolonged inflation would extend to adverse implications for economic growth and social stability.
A week ago, the International Monetary Fund substantiated the Bank of Ghana’s insistence that the GH₵60.8 billion loss it made in 2022 as well as the ₵55.1 billion negative equity recorded, were a direct result of its participation in the Domestic Debt Exchange Programme.
The Bank of Ghana explained, through a frequently-asked-questions (FAQs) post on its website recently that a huge chunk (₵53.1 billion) of the ₵60.8 billion loss it posted in 2022, per its audited accounts, was a direct result of three items that were badly affected by the government’s Domestic Debt Exchange Programme (DDEP).
The DDEP, together with an external debt restructuring programme, was critical for securing the US$3-billion extended credit facility from the International Monetary Fund to salvage Ghana’s tottering economy.
Explaining the factors that drove the loss, the central bank said, “The main reason for this huge loss is the impairment of the holding of marketable government stocks and non-marketable instruments of government” which were both being held in its books. This stock of government instruments has been built over the years”, the bank noted. In addition, the central bank said its “exposure to [Ghana Cocoa Board] COCOBOD, which has been built over the years, was also impaired by the DDEP”.
“The holdings of government instruments and COCOBOD exposures were all part of the perimeter of the debt exchange”, BoG indicated, adding, “Whereas all other stakeholders that participated in the Domestic Debt Exchange Programme (DDEP) did not have principal haircuts, but rather had new instruments with new tenors and coupon structure, the BoG served as the loss absorber to the entire debt exchange programme, a key requirement that allowed the Government of Ghana to meet the threshold for the approval of the IMF programme”.