Financial account inflows to continue to cover widening current account deficit
Fitch Solutions, the research arm of Fitch Ratings, says it expects increased inflows to Ghana’s Capital and Financial Account to continue to cover the country’s widening Current Account deficit.
According to Fitch Solutions, increased financial account inflows as a result of increased investment in gold mining, and an uptick in portfolio inflows, will continue to cover the widening of the current account deficit in the coming quarters, ensuring Ghana’s external position remains stable in the years ahead.
Fitch Solutions has forecasted that Ghana’s current account deficit will widen, albeit modestly, from an estimated 2.6% of GDP in 2021 to 2.9% in 2022 as rising vaccination rates boost household confidence and demand for imports, narrowing the country’s goods trade surplus.
The current account deficit, it further noted, will be partially offset by an uptick in remittances, increasing the secondary income account surplus, while stronger tourism will see the country’s services trade deficit narrow.
“Indeed, our forecast implies that while the country’s current account deficit will expand in 2022, it will remain small compared to Ghana’s five (-3.4% of GDP) and 10 year (-5.8%) pre-pandemic averages,” it added.
According to the Bank of Ghana’s Monetary Policy Report for January 2022, Ghana’s current account deficit widened by $400m reaching $2.5 billion at end-2021 from the end-2020 figure of $2.1 billion.
Read: Ghana: Oil production to remain below pre-pandemic levels in 2022, says Fitch Solutions
According to the BoG, higher investment outflows arising from increased interest payments and dividend repatriation resulted in the widened current account deficit.
“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 last year,” it stated.
The BoG in the report asserts that it expects a further deterioration in the country’s current account deficit [the 2.9% current account deficit for 2022 as noted by Fitch Solutions] driven by lower trade surplus and higher outflows in the investment and services account.
“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,” the BoG averred.
Inflows to the Capital and Financial Accounts for the review period, the Central Bank further noted were more than enough to finance the country’s current account deficit.
With an accumulated amount of $3.3 billion in the Capital and Financial Accounts from foreign direct investments, Eurobond proceeds and IMF-SDR allocations, financing of the country’s current account deficit will have resulted in a balance of payments surplus of $510 million – compared with the surplus of the $377.5 million recorded in 2020.
