A recent research by the Barclays Bank says Ghana’s economy is looking increasingly vulnerable, as the currency sell-off continues this year.
The 198-page document, titled ‘Testing the Boundaries’, noted that the country’s economic growth may be dampened further by the increasing cost of living amid rising inflation and tighter monetary policy if not checked.
It also pointed out that Government has not implemented any policies to impress the markets that it was in control of the prevailing economic situation in the country.
“Thus, a clear strategy to address macroeconomic imbalances is still lacking. Meanwhile, rising inflation suggests further monetary policy tightening is likely.”
The research also expressed worry about the sustainability of Ghana’s growing debt, which stood at 55 percent of GDP at the end of 2013, and has raced towards the 60 percent mark currently.
“Ghana’s credit metrics show little sign of improvement as the country’s fiscal and external imbalances increasingly fuel concerns about debt sustainability,” the analysis commented.
“Ghana’s intent to seek additional non-concessional market financing in international markets may also weigh on investor appetite in secondary markets.”
More worryingly, the Barclays document pointed out that investors had earned less from trading in Ghanaian instruments than the sub-Saharan average.
Low investor confidence
It also expressed concern over the international investor exposure in Ghana local markets,
Barclays was of the view that a significant turnaround in policy would be required for sentiment to turn more positive again.
“We see better value in other high-yielding SSA sovereigns, particularly Zambia.”
Commenting on Ghana cedi’s performance, it averred: “We maintain a bearish view on the cedi (GHS). Depreciation pressures have persisted into 2014, with the cedi weakening a further 7 percent after depreciating 20 percent in 2013.”
Furthermore, it described the imposition of tighter exchange controls by the Bank of Ghana as having no meaningful effect.
“Heightened US dollar demand means that recent regulatory changes have had limited effect on easing pressures on the currency.
“We believe weak fundamentals will continue to weigh on the currency despite tighter monetary policy.
It continued: “On balance, we project the cedi to weaken further to about 2.90/USD by year-end.”
Yields on bonds
Touching on yields on bond, it said, “We continue to expect yields to peak above 25% in the months ahead, while the country remains susceptible to a large foreign sell-off in local bonds.”
The Barclays research projected that inflation might move above 15 percent in the near term, well outside the Bank of Ghana’s year-end target of 9.5 percent and its band of plus or minus 2 percentage points.