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Dollar availability in Ghana’s economy to be constrained next year

5 years ago
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Fitch Solutions, research arm of credit rating agency, Fitch Ratings, has said it expects the availability of dollars in Ghana’s economy to be constrained coming next year.

The research arm’s projection follows the widening current account deficit of the nation which is expected to increase to 3.8 per cent of Gross Domestic Product (GDP) in 2021.

“Ghana’s exports are expected to recover strongly in 2021 on the back of higher international oil prices, recovering cocoa exports and continued strength in gold shipments. However, imports will also rebound due to rising household consumption and business investment,” said Fitch.

“As a result, we forecast only a modest narrowing of the current account deficit to 3.8% of GDP in 2021,” Fitch added.

The projected current account deficit is larger than the 2.7 per cent of GDP projected by the International Monetary Fund (IMF) for next year.

According to Fitch Solutions, the persistence current account deficit will contribute to a constraint of the green back in the economy and drive down further the moderate depreciation of the cedi against the dollar.

“This persistent deficit will constrain the availability of dollars in the economy and ultimately drive further, albeit more moderate cedi depreciation,” Fitch added.

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Pace Of Cedi Depreciation To Moderate

Ghana – Exchange Rate, GHS/USD

f = Fitch Solutions forecast. Source: IMF, Fitch Solutions

It also added that, multilateral assistance to fund Ghana’s trade deficit will become more constrained once the global Covid-19 pandemic recedes and will also become increasingly conditional on the rebalancing of Ghana’s current account.

Fitch says it expects managers of the Ghanaian economy to rely on cedi depreciation to curb the country’s current account deficit.

But the widening current account deficit is expected to not significantly impact Ghana’s economy with the country recording a positive trade surplus of $1.3 billion for the period between January and October this year with exports anticipated to further increase.

Meanwhile, the Bank of Ghana has also said it’s going to build up it’s foreign reserves by some $300 milion dollars more to meet the high demand for the dollar in the first quarter of 2021.

Also, government is looking to raise between $3 billion and $5 billion in its Eurobond issuance next year.

These are all expected to help ease the depreciation of the cedi and allow the BoG hold more dollars next year.

Source: norvanreports
Tags: cedi depreciationFitch SolutionsGDPIMF
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