Finance Minister, Ken Ofori-Atta, has once again, lamented that the impasse in Parliament is having an adverse effect on budget execution of the government this year.
Hon. Ofori-Atta said this is one of the domestic challenges the country is currently battling and which is creating uncertainty among investors and limiting the country’s access to the international capital market.
“…On the domestic front, the challenges include the impasse in Parliament which is adversely affecting government business such as the passage of some revenue bills including the E-Levy bill. This is creating uncertainty which has been highlighted as a key risk by the Ratings Agencies and affected our credit spreads, limiting our access to the International Capital Markets”.Ken Ofori-Atta
Despite the impasse in Parliament, Hon. Ofori-Atta assured Ghanaians that the government will impress upon the law making body to fast-track the passage of the E-Levy Bill to help raise revenues and also to regain investor confidence which is gradually waning by the day.
Credit rating downgrades
The Finance Minister indicated that since the COVID-19 pandemic struck, more than 60% of African Sovereigns have suffered downgrades across the region. Ghana also witnessed a downgrade from Fitch on 21st January, 2022 to ‘B-‘ with a Negative Outlook whilst Moody’s downgraded Ghana to ‘CAA1’ with a Stable Outlook On 4th February, 2022. Even though S&P affirmed Ghana’ rating at ‘B- ‘ with a Stable Outlook on 7th February, 2022, this had minimal impacts on the way investors view the Sovereign’s debt.
These downgrades, Hon. Ofori-Atta said, “have had implications for market access, exchange rate depreciation, capital flight and increased cost of financing”.
Aside the downgrade, the Finance Minister said recent developments in the global economy, especially the Russia-Ukraine crisis, are having a toll on exchange rate depreciation and average price levels in the domestic economy.
“The adverse global developments are impacting severely on exchange rate depreciation and domestic inflation as investors take refuge in safer assets, by stocking up on the dollar, which is considered the safest currency to hold. The dollar has in recent weeks gained its highest level since COVID-19 two years ago. The Cedi has not been spared. Cumulatively, our local currency has depreciated by 15.6% against the US dollar, and 13.4% and 13.3% respectively against the Pound Sterling and Euro, in the year to 23rd March 2022”.Ken Ofori-Atta
Mr. Ofori-Atta said, it is understandable that this is causing a lot of anxiety among traders and consumers alike. However, “we also need to recognize that, in spite of it all, the cedi has held under these extreme challenges better than it did between 2014 and 2015. This is because the fundamentals are stronger”, he said.
Ofor-Atta lauds BoG’s Monetary Policy Measures
On Monday, March 21, 2022, the Bank of Ghana announced measures to address exchange rate depreciation and to reduce inflation, including a hike in the policy rate by 250 basis points to 17%. Commenting on the monetary policy decisions by the Central Bank, Mr. Ofori-Atta said “we believe in the propriety of the measures they outlined on Monday”.
Speaking on the recent volatilities in the prices of goods and services in the country, the Finance Minister said the rising international price of crude oil and the exchange rate depreciation are also affecting the ex-pump prices of fuel domestically as it feeds into high transportation fares, and hence inflation.
“It remains the case, however, that one of the biggest drivers of price increases in goods and services in Ghana, is a fuel price hike. Inflation has surged to 15.7% at the end of February 2022. Food inflation increased from 12.8% in December 2021 to 17.4% in February 2022, while non-food inflation rose from 12.5% to 14.5% over the same period”.Ken Ofori-Atta
The Minister emphasized that the recent global and domestic developments are affecting the effective implementation of the Budget. As such, he said “Urgent and decisive actions are, therefore, required to address the challenges and ensure the achievements of the objectives and targets of the 2022 Budget, including unleashing the entrepreneurial verve of the Ghanaian youth”.
He hinted that the government is in the process of revising the 2022 fiscal framework to reflect current developments with the view to go to Parliament to seek approval for the revisions during the Mid-Year Review in July. He however, assured that Government will pursue additional measures to ensure the achievement of the fiscal deficit target of 7.4% of GDP this year.