Several ongoing initiatives being pursued simultaneously by the Government of Ghana suggest that the troubles created for the economy by the reversal of portfolio investors inflows into our capital and financial account, which we have enjoyed over the past 12 or so years, are even worse than we thought. Yes, we have been acutely aware that the cedi’s recent depreciation is primarily the result of net outflows from Ghana’s capital account; considering that the country has enjoyed a continuous trade surplus since the last quarter of 2016, that conclusion is an obvious one.
However, two facts point to the sheer depth of the problem. One is that government is increasingly falling short of its targets for investment in its domestic debt securities, which shows that not only are erstwhile investors pulling out, but new ones are insufficient to plug the resultant gap. The other is that government needs forex so badly, that it is negotiating a US$750 million bridging loan, to use ahead of Eurobond issuance proceeds which it could get its hands on within the next few months.
A third indicator of the situation is that government is willing to pay above current market rates to investors in a three-year cedi denominated bond issuance – through tap reopening -which is due to mature in a little over two months. The gambit obviously is to offer forex wielding foreign investors, who are only allowed to invest in Government of Ghana domestic debt securities of two years or more tenor, the chance to invest in securities that will mature in two months.
It is instructive that Finance Minister Ken Ofori Atta promised an imminent rebound of the cedi before flying out of the country to negotiate Ghana’s next Eurobond issuance. The plan apparently is to immediately raise forex on debt terms to fill the gaps through which the cedi is falling.
We do not disagree with this, for the simple reason that there is no immediate alternative open to government; and any delays in stemming the cedi’s fall would open the doors to currency speculators to take positions against the national currency which would greatly worsen its circumstances.
However, Ghana needs to look beyond this short-term solution to a more permanent alternative to the current strategy, employed by every successive administration since the waning years of the Kufuor administration, of relying on foreign investors to provide forex through their subscription to medium- and long-term cedi denominated debt securities which are classified as domestic debt despite generating forex debt servicing and principal repayment obligations.
By borrowing more to meet prior debt obligations we are in actual fact, fighting fire with fire. Indeed, one uncharitable financial analyst describes Ghana’s strategy of relying on rollovers of our forex debt repayment obligations as a state run pyram scheme. Indeed, to the extent that it relies on increasing amounts of new investor inflows to meet maturing repayment obligationsm, that analyst is right.
Our current travails should show us that the requisite increasing inflows of portfolio investment in forex may not always be on the cards. It therefore behooves us to look at more sustainable sources of forex, from increased exports or at least increased direct, rather than portfolio investment, if the current travails are not to be repeated time and again in the future.