Bank of Ghana Governor Ernest Addison has said developments in global capital markets, combined with internal challenges that resulted in the rating downgrade of Ghana’s economy, have played out to exacerbate price and exchange rate pressures in the domestic economy.
The Ghana cedi, he noted, came “under severe pressure in the first quarter of 2022 as offshore investors exited positions in domestic securities at a time when domestic demand for forex had increased”.
Speaking at the 6th CEO Summit in Accra on Monday, 30 May 2022, Dr Addison said: “The FX pressures, coupled with tight forex liquidity due to absence from the international capital markets, contributed to the significant currency depreciation”.
Cumulatively, he said the Ghana cedi depreciated by 15.8 per cent against the US dollar in the year to 18th May 2022, compared with an appreciation of 0.5 per cent in the same period of 2021.
“To ease off increased volatility in the foreign exchange (FX) market, the Bank extended the forward auctions to include the Bulk Oil Distributing Companies”.
“This formed part of the measures taken by the Bank to address the FX liquidity constraints within the local petroleum sector and aid price discovery, especially for the general pricing window within the downstream sector”, he noted.
Also, Dr Addison said recent price developments indicate elevated pressures from both domestic and external sources.
These include the global energy and food price shock, and its consequential upward adjustments on domestic ex-pump petroleum prices and transportation costs, domestic food prices, as well as the passthrough effects of the recent exchange rate depreciation.
Headline inflation, he added, “has increased sharply from 13.9 per cent in January 2022 to 23.6 per cent in April 2022, driven by both food and non-food prices”.
“The Bank of Ghana’s inflation target is 8+/- 2 %. The current inflation of 23.6 per cent is about three times the central target of the Central Bank, and has significantly complicated the conduct of monetary policy, making those of us in charge very uncomfortable”.
“But I am sure that our discomfort cannot be compared to the feeling of the ordinary man in the street who is confronted with these rapid changes in prices on a day to day basis. I think we have all begun to appreciate the importance of stability in sustaining livelihoods and standards of living”.
The developments in the global economy, Dr Addison mentioned, “have impacted Ghana strongly as it is occurring at the same time that the country is not able to access capital markets to raise money due to the rating downgrade, as it has done for the past few years”.
“This has elevated Ghana’s external vulnerabilities and translated into the balance of payments pressures, although, the trade surplus improved somewhat, due to higher crude oil export earnings. However, the significant net portfolio reversals and weak inflows into the capital and financial account resulted in a widened balance of payments outturn and loss of reserves in the first quarter of 2022”.
“The prevailing tight global financing conditions, and further policy rate hikes in advanced economies continue to make the external financing conditions unfavourable, posing real risks to the external outlook”.
“The developments have also impacted Government finances and created financing challenges for the budget. The issuance of bonds and securities have not been met with significant uptakes by the market. In response, the Government announced a series of expenditure cuts of up to nearly 30 percent to deal with the situation. It is expected that the US$2 billion dollar syndicated facility will provide some relief to both the budget and the balance of payments”.