After Ghana’s biggest ever Eurobond issuance to date, of US$3.0 billion in March this year, pushed the country’s gross international reserves to a long term high of US$9,959.6 million by the end of that month, inevitable drawdowns have begun reducing Ghana’s external financial buffer. In April, government drew down US$611.9 million, leaving it with US$9,347.7 million by the end of the month. Instructively, this is the heaviest drawdown of foreign reserves in a single month by the incumbent government so far, significantly exceeding the US$439.8 million drawdown made in January, part of which went into an unsuccessful effort at that time to prop up the cedi’s withering exchange value.
However, despite the drawdown Ghana still had 4.7 months of import cover by the end of April, this being well above the minimum of 3.5 months import cover that is consistently targeted. Unconfirmed speculation is that a significant amount of the drawdown went into foreign exchange supply intervention on the local forex market after government had had to endure the cedi earning the dubious distinction, during the first two months of this year, of being the worst performing currency among the 140 worldwide tracked by Bloomberg, in part because the International Monetary Fund disallowed intervention during the last few months of its Extended Credit Facility programme which ended on April 2 this year.
Crucially, Ghana’s much improved external position – the direct result of the Eurobond issuance – has enabled the cedi regain its stability and actually recover most of the weight shed during the tumultuous first two months of the year.
Equally crucial has been Ghana’s return to a positive overall balance of payments position, at US$2,997.3 million (equivalent to 4.4 percent of GDP) by the end of March this year, in complete reverse of the US$613.5 million deficit recorded as at a year earlier, and which had persisted during every quarter subsequently.
The BoP surplus was the result of both an increasing merchandise trade surplus and a rising current account surplus too, accompanied by the conversion of the US$580.0 million deficit in Ghana’s capital and financial account as at March 2018, into a US$2,876.5 surplus by March 2019.
The trade surplus for the first four months of 2019 was US$1,285.2 million (1.9 percent of GDP) up from US$1,027.9 million during the corresponding period of 2018. This was achieved on the back of a sharp reduction in imports from US$4,415.4 million in 2018 to US$4,105.4 million during the corresponding first four months of this year. Reductions were achieved in both oil and non-oil imports.
Exports fell too, but more slowly, from US$5,443.3 million to US$5,390.6 million, brought about by marginal revenue falls for gold, cocoa and oil alike.
The current account balance improved from a surplus of US$226.8 million during the first three months of 2018 to US$294.5 million during the corresponding period of 2019.
The performance of Ghana’s external sector sets the ground for sustained cedi stability this year, even as government, armed with borrowed funds, can now embark on infrastructural development projects which had been sacrificed for the past two years on the altar of fiscal consolidation.