Ghana’s Gross International Reserves are expected to see a decline this year as a result of a projected widening of the current account deficit and lower inflows into the country’s financial accounts.
According to the Bank of Ghana (BoG), its initial projections suggest that Ghana’s trade surplus will be lower this year and together with an expected higher outflow in the investment and services account, will weigh down on the current account deficit. This will then result in a drawdown in the country’s reserves this year.
“Initial projections under the baseline scenario suggest a drawdown in reserves in 2022 based on a projected widening in the current account deficit and lower inflows into the financial account. The expected deterioration in the current account will be driven by a lower trade surplus, and higher outflows in the investment and services account”.
Bank of Ghana
Last year, Ghana’s stock of Gross International Reserves increased to US$9.7 billion at the end of December 2021, equivalent to 4.4 months of import cover. This compares with the reserve level of US$8.6 billion, representing 4.0 months of import cover at the end of December 2020. This reserves provided some cover to the local currency, even though the cedi depreciated against the US Dollar by 4.1% year-to-date in December 2021 compared to 3.9% depreciation in the corresponding period in 2020.
BoG explained that the Ghana Cedi came under some pressure during the last quarter of 2021, driven by strong demand for forex from the corporate sector, offshore investors and seasonal demand for inventory stocking. However, these pressures were partly moderated by the Bank’s FX forward auctions and some inflows from mining and remittances.
Meanwhile, developments in the trade account, together with higher investment income outflows arising from increased interest payments, profits and dividend repatriation, resulted in a widened current account deficit of US$2.5 billion at the end of 2021, compared with US$2.1 billion recorded at the same time in 2020. Private individual transfers, however, remained stable with net inflows amounting to US$3.3 billion during the period.
Outlook for the Balance of payment Account
In its Outlook for the country’s Balance of payment for 2022, the Central Bank indicated that it expects a piercing shrinkage in net inflows in the financial account for West Africa’s second largest economy this year.
“This development is largely due to lack of market access because of expected tight and unfavourable external financing conditions and concerns about domestic macroeconomic conditions, including high debt levels and uncertainty about the fiscal situation”.
Bank of Ghana
A review of developments in the country’s Capital and Financial Accounts last year, revealed that there were significant inflows into the financial account, amounting to US$3.3 billion. Major sources of inflows were Foreign Direct Investment, Eurobond proceeds, and IMF’s SDR allocation. These inflows, according to the Bank of Ghana, were more than enough to finance the current account deficit.
Consequently, Ghana’s overall balance of payment at the end of 2021, recorded a surplus of US$510 million compared with a surplus of US$377.5 million recorded in 2020. This means the country’s balance of payment improved by 35% last year.
Developments in the Trade Balance last year
The trade account recorded a lower surplus of US$1.1 billion last year compared with a surplus of US$2.0 billion recorded for the corresponding period of 2020. The decline in the trade balance was due to a higher import outturn, driven mainly by increased demand for refined petroleum products imports during the year, according to BoG.
Consistent with a pick-up in economic activities, total imports rose by 3.0 percent year-on-year to US$13.6 billion in 2021. Both non-oil imports and oil imports rose during the year by 6 percent and 8.5 percent, respectively.
With regard to exports, earnings amounted to US$14.4 billion in 2021, up by 1.8 percent. The marginal growth in exports was, however, below the pre-pandemic growth of 5.9 percent. Improved receipts from cocoa and crude oil boosted exports performance notwithstanding the decline in gold receipts. Gold earnings declined sharply from US$6.8 billion in 2020 to US$5.1 billion in 2021 largely as a result of a 26.8 percent shortfall in output.
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