…following latest Eurobond issue and continued trade surplus
Ghana’s gross international reserves have reached an all time high following the successful issuance, in mid May 22, 2018 of US$2 billion in Eurobonds, the biggest issuance done by Ghana since it first entered the international capital markets in 2007. The latest sovereign debt issuance has taken Ghana’s gross foreign reserves to about US$9 billion, enough to cover at least five months of imports.
Although more than half of the new issuance is going into refinancing of existing debt, this does not change the total quantum of foreign exchange at the country’s disposal and thus it adds to the Bank of Ghana’s foreign exchange coffers which form the country’s gross foreign reserves.
Indeed, Ghana’s gross foreign exchange position has become so comfortable that the BoG has agreed that the incoming US$200 million from the International Monetary Fund, being disbursed as the latest tranche of balance of payments support under the nearly concluded three year Extended Credit Facility, will be used to finance part of the 2018 budget deficit instead. The IMF’s Executive Board, in September last year, approved the Government of Ghana’s request that its support be used in part for budgetary support, rather than wholly for balance of payments support. The use of the incoming IMF support to finance the 2018 budget thus closes the external deficit financing gap hitherto outstanding for this financial year.
Importantly, Ghana’s improved balance of payments position and record high gross international reserves, will give both the local and foreign financial and business communities the confidence requisite for forestalling any speculative trading by foreign exchange traders, who in the past have fueled the cedi’s depreciation by taking currency trading positions against the cedi, for profit.
Meanwhile, the economic fundamentals created by Ghana’s merchandise trade and current account positions are ensuring that non-speculative currency trading favours the cedi’s stability.
Ghana’s rare merchandise trade surplus has continued through the first quarter of 2018, thus bringing its run to six successive quarters. However, the trade surplus for the first four months of this year showed a marginal reduction in size compared with the corresponding period of 2017. Ghana’s trade surplus for the period covering January to April was US$1,139.1 million, down slightly from the US$1,164.0 million recorded during the first four months of last year.
Instructively, the trade surplus was achieved primarily through a near doubling of crude oil export revenues to US$1,465 million, up from US$845 million for the corresponding period of last year as production increases were accompanied by a 32% year on year increase in the realized price per barrel enjoyed by Ghana, to US$71.9 per barrel by April this year, compared with US$54.5 per barrel a year earlier. Indeed this enabled total export revenue to rise to US$5,5527.3 million during the first four months of 2018, up from US$5,106.5 million in 2017, even as export revenues from both gold and cocoa declined. Export revenues from gold fell from US$2,199.1 million to US$1,906.2 million despite a 5.6% year on year increase in realized price from US$1,264.4 per ounce to US$1,334.9 per ounce.
Cocoa revenues also fell significantly, from US$1,330.1 to US$1,158.0 as Ghana’s strategy of selling its output on the futures market rather than the spot market cost the economy. Over the one year period between April 2017 and April 2018, the spot market price climbed by 36.4% but future market prices went the other way, falling 28% from US$3054.0 per ton to US$2227.0 per ton.
Ghana’s total import bill rose during the first four months of 2018, from US$3,942.6 million in 2017 to US$4,388.2 million this year. While non-oil imports rose to US$3,508.2 million, up from US$3,182.1 million in the previous year, oil imports only cost US$880 million, up from US$760.5 million during the corresponding first four months of 2017.
The current account surplus for the first quarter of 2018 was US$225 million, or 0.5% of GDP, down from US$328 million for the corresponding period of last year.
The capital account deficit for the first quarter of 2018 also narrowed to US$516.0 million [1.0% of GDP] down from US$621.5 million [1.4% of GDP} incurred during the first quarter of 2017.