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E-Levy To Create Further Headwinds On Domestic Demand – Fitch Solutions

April 15, 2022
Stephen M.Cby Stephen M.C
in Economy, Sub Top Stories1
0
E-Levy To Create Further Headwinds On Domestic Demand - Fitch Solutions

Fitch Solutions has projected weak private consumption in the coming quarters, largely due to the expected implementation of the 1.5% Electronic Transfer Levy (E-levy) which will weigh heavily on domestic demand.

Fitch Solutions disclosed in its latest Sub Saharan Africa update that it expects business sentiment in Ghana to remain fragile in the coming months due to uncertainties within the global economy.

“We are already experiencing the impact of high prices on the private sector, amid elevated prices of input and concerns over supply chains. We expect business sentiments to remain fragile in the coming quarters. Moreover, we expect the introduction of the 1.5% E-Levy tax to create further headwinds on domestic demands with a direct effect on mobile money, which is actively used by 40% of Ghanaians age 15 and older”.

Fitch Solutions

Decline in Ghana’s Purchasing Manager’s Index

According to the research arm of the ratings agency, Fitch, Ghana’s Purchasing Manager’s Index – which determines the direction of economic trends in the manufacturing and service sectors – declined for the first time in seven months due to the rising prices of some goods and services.

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Analyst with the Sub-Saharan Africa Country Risk Team at Fitch Solutions, Ben Weaver, said the high prices of goods are impacting on consumption and the private sector. Mr. Weaver said “Against this background, we expect private consumption growth to decelerate in 2022”.

Despite this, foreign investments are expected to rise including new investments in gold production by GoldFields and AngloGold Ashanti.

“Rising foreign investment will also prevent a sharp slowdown in the economy. We further expect strong growth in fixed investments at 5% in 2022 which was above the 5-year pre-pandemic average of 2.7%. While fixed investment will accelerate as projects delayed by the COVID-19 pan­­demic resume and higher commodity prices boost foreign interest in the country’s abundant natural resources, it said this will not be sufficient to offset weakness in other components”.

Fitch Solutions

Elevated global price pressures

The elevated global price pressures have persisted, driven by sharp increases in food and crude oil prices, and supply chain disruptions. The Russian-Ukraine war has exacerbated these price pressures, and pushed energy and commodity prices to record high levels. As a result, headline inflation across several Advanced and Emerging Market economies has moved above targets, prompting monetary policy responses to help prevent inflation from becoming embedded.

The Russia-Ukraine war is likely to impact negatively on Ghana’s external sector, particularly in the area of some key construction and agricultural commodities. Earlier, the Bank of Ghana warned that the combination of tighter global financing conditions, sharp pressures on the exchange rate, and elevated inflation pose some policy challenges.

Meanwhile, prices of commodities continue to rise in the country with headline inflation rising sharply to 19.4% in March 2022, the highest since August 2009. Both headline and core inflation are significantly above the upper limit of medium-term target band.

1x 1 1
Dr. Ernest Addison – Governor of the Bank of Ghana

According to figures from the Ghana Statistical Service, food inflation recorded a rate of 22.4% in March 2022, compared to 17.4% in February 2022. Non-food inflation however, recorded a rate of 17.0% in March 2022, from 14.5% recorded in February 2022. Transport, including fuel, recorded the highest inflation rate of 27.6%, followed by Housing with an inflation rate of 21.4%.

Bank of Ghana had already cautioned that the uncertainty surrounding price developments and its impact on economic activity is weighing down business and consumer confidence.

“The risks in the outlook for inflation are on the upside and include petroleum price adjustments and transportation costs, and exchange rate depreciation”, the Central Bank stated. Meanwhile, BoG’s latest forecast still depicts an elevated inflation profile in the near term, with inflation falling within the medium-term target band within a year.

READ ALSO: The War Against The Killer E-Levy Is Alive And Formidable- Ablakwa

Tags: Bank of GhanaCOVID-19Domestic Demande-levyFitch SolutionsGhana News
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