Kwasi Kpodo Accra

Ghana was paying over the odds for its domestic debt but foreign investors were not fleeing the market even though the government had missed a string of fiscal targets, central bank governor Henry Kofi Wampah said yesterday.

The country has seen sustained gross domestic product (GDP) growth above 8 percent for five years, making it a star African economy. But some investors are rethinking their approach to the country because of macroeconomic instability.

In particular, authorities are wrestling to control a budget deficit that stood at 10.8 percent last year and to close a balance of payments gap, as well as stem rising inflation and a slide in the cedi, which has lost 14.6 percent against the dollar this year.

As a result, the government has delayed plans to issue a eurobond this year, though it is going ahead with a non-deal roadshow in Washington.

At the same time, the yield on Ghana’s benchmark 91-day bill rose to a three-year high of 23.9862 percent at its auction on Friday from 23.6876 percent at the previous sale.

“Yes, we are having to pay a little high for our bonds but the good news is that foreign investors are not repatriating their investments,” Wampah told a Reuters Africa Summit. “Our observation is that some of them are coming back to buy the bonds – in our secondary market, of course – because they find the yield attractive.”

Wampah said the government could still meet its target of bringing down the budget deficit to 8.5 percent this year.

But the biggest concern for the economy is that fiscal instability will blunt GDP growth. In an acknowledgement of the problem, Wampah said growth was likely to slow to about 6 percent this year.

That figure is lower than the 8 percent target set by Finance Minister Seth Terkper in the annual budget in November last year but higher than the 4.8 percent projected by the International Monetary Fund. “We can achieve this year’s deficit target. Revenues for the first two months have started picking up in all the fields. Also, expenditure is a bit lower than projected for the period.”

The policy focus for deficit reduction remained on bringing down the public sector wage bill, he said. The government had already taken radical action by slashing subsidies on utilities and fuel from 1.3 billion cedis (R5bn) to 15 million cedis.

President John Mahama has reassured donors concerned about the missed fiscal targets. Wampah said he was confident donors would not withhold budget support as they had in 2013 to the tune of $700m (R7.4bn).

“The president gave them the assurance that Ghana will not exceed its spending. They are worried about the past two years and us not meeting the targets and they wanted assurances.” – Reuters