Projections in the external environment could impact the domestic economy in the second half of the year, as trends in commodity prices continue to affect external sector performance, Dr Henry Kofi Akpenamawu Wampah, Governor of the Bank of Ghana, has intimated.
However, Dr Wampah said on the balance of risks to inflation and economic growth, the Monetary Policy Committee decided to keep the policy rate unchanged at 16 per cent.
He was addressing the media in Accra on Wednesday, after the 57th meeting of the Monetary Policy Committee of the Bank of Ghana.
According to Dr Wampah, an update of the Bank's Composite Index of Economic Activity (CIEA) in July 2013 suggested increased momentum in economic activity, with the real CIEA improving to 350.1, from 326.9 in July 2012, representing a year-on-year growth of 7.1 per cent.
Driving this pace of activity, he said, were industrial electricity consumption, exports, manufacturing sales, DMBs credit to the private sector, sales of cement and domestic VAT, adding that the positive growth recorded in these variables was partially offset by contractions in port activity, SSNIT contributions and imports.
On Government Fiscal Operations, Dr Wampah said Preliminary fiscal data for the first seven months of the year indicated that both revenue and expenditure remained below their respective targets, with the shortfall in revenue much higher than the reduction in expenditure. "Total revenue and grants was GH¢10.4 billion, lower than the target of GH¢12.5 billion mainly as a result of shortfalls in domestic revenue collections and low disbursement of grants. Of this outturn, domestic revenue totalled GH¢9.8 billion, below the target of GH¢11.6 billion. Total tax revenue amounted to GH¢7.7 billion, lower than the target of GH¢9.1 billion. Grant disbursements were GH¢542 million, falling short of its target by 41.7 percent. Non-tax revenues amounting to GH¢2.1 billion for the period also missed the target by 12.4 per cent," he stated.
Expatiating further, Dr Wampah said total expenditure including clearance of arrears and outstanding commitments amounted to GH¢16.0 billion, lower than the budget target of GH¢17.5 billion while the compensation of employees exceeded its target of GH¢5.1 billion and amounted to GH¢5.5 billion and interest payments totaling GH¢2.6 billion, breaching its target of GH¢1.8 billion.
The above developments, he said, resulted in a fiscal deficit (cash basis) equivalent to 6.3 per cent of GDP against a target of 5.6 per cent.
He said the deficit was financed mainly from domestic sources, resulting in a Net Domestic Financing (NDF) of GH¢4.4 billion, higher than the budget target of GH¢3.6 billion while foreign financing of the budget amounted to GH¢1.3 billion, marginally lower than the GH¢1.5 billion target, with financing from Bank of Ghana amounting to GH¢1.0 billion, equivalent to 4.9 per cent of projected revenue.
Dr Wampah said the stock of public debt increased to GH¢43.9 billion (49.5% of GDP) at end of August 2013, from GH¢35.1 billion in December 2012, of which the domestic component amounted to GH¢24 billion, compared to GH¢18.5 billion in December 2012 with external debt standing at US$10.2 billion, up from US$8.8 billion in December 2012. He attributed the increase in the external debt to the sovereign bond issue.
On monetary and banking sector developments, Dr Wampah said growth in monetary aggregates moderated further in July 2013 with Broad Money Supply (M2+) growing by 4.4 per cent in July 2013, compared with 29.6 per cent in the same period last year.
He said the sector continued to be driven by declines in the annual growth of foreign currency deposits to -0.2 per cent in July 2013 compared to 34.4 per cent in the same period in 2012.
Dr Wampah said the August 2013 Bank of Ghana survey of credit conditions again showed a net easing of credit conditions and that with the exception of long term credit, which saw some tightening, the credit stance for all other loan types including credit to SMEs, large enterprises, short-term and mortgage loans eased during the period.
He said the annual growth of private sector credit moderated to 28.1 per cent in nominal terms at the end of July 2013, from 41.3 per cent in July 2012 while the annual growth of real private sector credit was 15 per cent in July 2013, down from 29 per cent in July 2012.
He said, driven mainly by advances, which accounted for 48.5 per cent of the total, the banking industry remained well-capitalized, liquid and profitable, with total assets― funded by deposits which recorded an annual growth of 15.7 per cent to GH¢20.3 billion at the end of July 2013―increasing to GH¢31.6 billion as at the end of July 2013, compared with GH¢24.3 billion in July 2012.
On Non-Performing Loans (NPLs), he said the ratio within the banking industry was 12.9 per cent in July 2013, down from 13.4 per cent in July 2012, while the ratio excluding the loss category also fell to 5.3 percent from 6.4 percent in the same period, with interest rates on the money market recording slight declines.
Dr Wampah said between December 2012 and August 2013, the 91-day Treasury bill rate declined to 22.8 from 23.1 per cent, while the 182-day Treasury bill rate fell to 22.3 from 23 per cent while the 1-year note reduced to 21.9 from 22.9 per cent, with the 2-year note declining to 22 from 23 per cent, the 3-year bond rate falling to 19.24 from 21 per cent and the yield curve lengthening with the introduction of the 7-year bond which was issued at 17.5 per cent.
Furthermore, he said, the weighted average interbank rate declined to 17.1 percent in August 2013, from 17.5 per cent in December 2012.
Speaking on external Sector Developments, Dr Wampah said, due largely to increased net inflows into the financial account, and a slight improvement in the deficit on the current account, the balance of payments improved for the first half of the year 2013 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.
He said as a result of a slowdown in non-oil imports and an improvement in net outflows from the services, income and transfers, 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.
On the other hand, he said, largely driven by large net inflows of short term capital that over-compensated for net outflows in direct and portfolio investments, the capital and financial accounts recorded a surplus of US$1.5 billion, compared with a surplus of US$491.1 million in the corresponding period of 2012.
Dr Wampah said for the first eight months of the year, the value of merchandise exports were estimated at US$9.8 billion, improving by 4.1 percent over the outturn for the same period last year.
He said as a result of a decline in international prices of Ghana's major export commodities, earnings from gold fell by 12.6 per cent to US$3.4 billion, while exports of cocoa beans also declined by 21.4 per cent to US$1.4 billion.
He said due to increased production, oil exports, on the other hand, increased by 46.9 per cent to US$2.8 billion while earnings from non-traditional exports, including cocoa products, went up by 22.2 per cent to US$2.2 billion.
Dr Wampah said the value of imports also declined in the first eight months of the year, to US$11.6 billion from US$11.9 billion in 2012, attributing the decline to a slowdown in both oil and non-oil imports. For example, he said, oil imports went down by US$60.9 million to US$2.3 billion while non-oil imports also declined by 2.4 per cent to US$9.3 billion within the period, with the trade balance for the period improving, therefore, to a deficit of US$1.8 billion from a deficit of US$2.5 billion in 2012.
Turning to the depreciation of the cedi, he said in the first eight months of 2013, the Ghana cedi cumulatively depreciated at a slower rate of 3.9 percent against the US dollar, compared with a depreciation of 18.4 percent during the same period in 2012 and that in trade weighted terms, the real effective rate appreciated by 3.2 percent during the period.
Dr Wampah disclosed that private inward transfers received through the banking system from January to July 2013 declined to US$9.7 billion from US$10.5 billion for the same period in 2012 and that of the total transfers, US$1 billion accrued to individuals, representing a decline of 1.5 percent over the outturn in the same period of 2012.
He said Ghana's Gross International Reserves increased to US$5.8 billion (3.2 months of imports) in August 2013 from a stock position of US$5.3 billion (3 months of import cover) at the end of December 2012.
According to Dr Wampah, global economic conditions remained mixed as recovery in advanced economies continued to be countered by a slowdown in emerging markets and that these, together with trends in commodity prices continued to pose significant risks to the external outlook with direct implications for the domestic economy.
He said the implementation of the budget for the first seven months of the year had revealed that fiscal pressures still persisted, arising mainly from significant shortfalls in domestic revenue collections and the delay in the removal of utility subsidies. On the outlook for inflation, he said the MPC noted that even though inflation had declined in August, upside risks remained in view of further adjustments in petroleum prices and transport fares in September as well as the possibility of adjustments in utility tariffs in the fourth quarter.
Furthermore, he said, the uncertainty in commodity prices also posed risks to inflation while on the growth outlook, economic activity had picked up, evidenced by positive developments in the CIEA and the credit stance of DMBs as well as increased oil production, noting, however, that the downside risks included budgetary cutbacks in domestic financed capital expenditures and spending on goods and services in favour of recurrent expenditures such as wages and salaries.
In addition, Dr Wampah said, softening consumer sentiments might also pose a downside risk to the growth outlook.
Source: ISD (G.D. Zaney)