The Bank of Ghana plans to scale up the country’s gross international reserves to four months cover from the current 3.2 months of imports recorded in the third quarter on account of inflows from the sovereign bond issue.
The reserves have surged to US$5.8 billion, representing 3.2 months of imports as of August 2013 from a stock position of US$5.3 billion or three months of import cover at the end of December 2012.
The Chairman of the Monetary Policy Committee (MPG) and Governor of the Bank of Ghana, Dr Henry Kofi Wampah, said at a news conference in Accra that a higher than three months of import cover would have been desirable.
“We would have preferred an optimal threshold of four months of import cover, which would have been the best,” he said.
A minimum three months of import cover is a key requirement for the adoption of a single currency by member countries of the West African Monetary Zone (WAMZ).
But countries in the WAMZ have so far failed to meet all the four primary convergence criteria necessary for the adoption and implementation of a common currency.
The other criteria include attaining a single-digit inflation, a budget deficit of not more than four per cent of a country’s GDP, a Central Bank deficit-financing of not more than 10 per cent of the previous year’s tax revenue and a minimum of three months of import cover.
The surge in Ghana’s reserves is seen by many as scaling a major hurdle and a step towards meeting the key requirements of the convergence criteria.
According to Dr Wampah, the balance of payment for the first month of 2013 improved as it recorded a lower deficit of US$677.8 million, compared with a deficit of nearly US$2 billion in the corresponding period of last year. This was largely due to increased net inflows into the financial account and a slight improvement in the deficit on the current account.
The current account balance at the end of the first half of 2013 improved to a deficit of US$2.3 billion, from a deficit of US$2.5 billion recorded in the corresponding period of 2012.
That, he said, was as a result of a slowdown in non-oil imports and an improvement in net outflows from the services, income and transfers account.
Ghana’s public debt stock has increased from GHC 35.1 billion in December 2012 to GHC 43.9 billion, representing 49.5 per cent of GDP as of the end of August 2013.
The domestic debt component amounted to GHC24 billion, compared to GHC18.5 billion in December 2012, while the external debt stood at US$10.2 billion, up from US$8.8 billion in December 2012.
The increase in the external debt was mainly due to the sovereign bond issue.
The MPC of the Bank of Ghana maintained its main lending rate at 16 per cent in a bid to balance growth and inflation.
The governor said although inflation had declined in August, upside risks remained.
He cited the adjustment in petroleum prices and transport fares in September and the possibility of an adjustment in utility tariffs in the fourth quarter as the sources of major risk to the economy.
The risks to the economy, he said, included budgetary cut backs in domestic financed capital expenditure and spending on goods and services in favour of recurrent expenditures might as wages and salaries.
He added that softening consumer sentiments may also pose a downside riskto the growth outlook.
“Uncertainty in commodity prices also poses risks to inflation. These risks could, however, be moderated by an improved harvest, relative stability in the foreign exchange market supported by the syndicated cocoa loan and subdued global inflation,” Dr Wampah said.
“The Committee noted that although the inflation forecast has improved at this MPC round, the central path remains slightly above the upper limit of the target band. Barring any shocks, inflation could move back to the target range by the first half of 2014,” he said.
The latest inflation numbers from the Ghana Statistical Service shows that after six months of increases in headline inflation, which pushed the inflation rate to 11.8 per cent in July, inflation fell marginally to 11.5 per cent at the end of August.
This downturn was driven mainly by favourable developments in non-food prices after persistent increases since the beginning of the year, an indication that the pass-through effects of earlier petroleum price adjustments may be ending.
However, food prices surprised on the upside, probably awaiting the. harvest season to kick-in. All the bank’s measures of core inflation indicate some easing in underlying inflation.
But the Bank of Ghana Governor said the MPC had observed that economic activities had picked up, evidenced by positive developments in the Consumer Index of Economic Activity (CIEA) and the credit stance of deposit money banks (DMBs), as well as increased oil production.
“On the balance of risks, the Committee held the view that risks in the outlook for inflation and growth are balanced and, therefore, decided to keep the policy rate unchanged at 16 per cent,” the Governor said.
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