E-levy implementation to boost foreign investor confidence – Fitch Solutions
Research firm, Fitch Solutions, has asserted that the implementation of the e-levy from May 1, will boost foreign investor confidence in the economy in the short term.
According to Analyst with the Sub-Saharan Africa Country Risk Team at Fitch Solutions, Ben Weaver, Ghana’s debt may rise because of the shortfall in the budget, a situation that will impact on the cedi.
‘’Borrowing cost will remain elevated for Ghana due to concerns from lenders surrounding the country’s fiscal position. While the passing of the e-levy somewhat improved investor sentiment and the yield on Ghanaian Euro bond shrank by 340 basis point to 14% in early April which was the lowest since the start of Russia’s invasion of Ukraine, this remains high. For example on the 8th of April the government secured a three year bond worth a total of GHS408million approximately $54million at an annual interest rate of 20.85%’’.
‘’To finance the budget shortfall we expect total debt will rise and reach a multi decade high of 83% of GDP in 2022, which is particularly high for the Sub Saharan African region and which we expect will continue to weigh on the cedi. Moreover high debt servicing payment will severely impact the roll out of public investment project over the medium term which in turn will weigh and prevent stronger economic growth’’, he added.
Fitch Solutions has also, indicated that private consumption will decrease this year due to the implementation of the e-levy with business sentiments remaining fragile.
According to its Sub-Saharan Africa update, 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.
“We are already experiencing the impact of high prices on the private sector amid elevated prices of input and concerns of 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”.
“Against this background, we expect private consumption growth to decelerate in 2022”, Mr. Weaver said.
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%”, Mr. Weaver noted.
“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 the weakness in other components”, he concluded.
