Ghana’s Overflowing Spending Spigots

Ghanaian bonds and stocks reeled from massive flooding which resulted in deaths from a facility explosion in Accra along with property and infrastructure damage, as the cleanup may imperil the 7.5 percent of GDP fiscal deficit aim under the IMF program and the World Bank stepped in with a guarantee to go through with a $1 billion Eurobond plan. New revenue has mainly come from central bank profits, and spending restraint from additional arrears accumulation. Public sector salaries and fuel subsidies are due to be cut in the coming months, and the government has returned to commercial bank T-bill issuance for financing although foreign investors continue to stay away. Inflation, stoked by a 30 percent currency drop worst in the world after Venezuela, is above 15 percent and the benchmark interest rate was hoisted in May to 22 percent. The heavy rains will also hurt the cocoa harvest as a key export and collateral for an annual syndicated loan. Cote d’Ivoire as the number one producer is in the final stages of its own Fund arrangement as it heads into December elections, where President Outtara is favored to win another term despite feeble health. It again hosted the African Development Bank annual meeting amid sparse big convention venues, which should support another year of 7-plus percent GDP growth from the post-conflict base. Former President Gbago has yet to go on trial for alleged war crimes, and the International Court was further undermined with the recent escape of accused Sudanese leader Bashir from an arrest warrant during the World Economic Forum in South Africa. The headline notoriety came on the heels of anti-immigrant attacks and rising inflation due to electricity tariff increases to boost state power company viability. The central bank is expected to raise rates marginally as the 6 percent upper band could be breached and rand softness continues. At the event the ANC’s populist wing advocated stricter currency controls especially on the public pension fund which has extended allocation abroad.

Nearby in Zambia, which also hopes to repeat a Eurobond, the Finance Minister estimated the budget deficit at 10 percent of GDP, double the initial projection, on lower copper earnings and power shortages. Growth should come in around 5 percent as the uneven mining regime and 30 percent corporate tax deter FDI. Mining is 30 percent off the 2011 peak and the current account gap will rise moderately in advance of new elections. Kenya is also on a spending binge which has hit the currency and capital markets, with new railroad and security outlays bringing the deficit/output ratio almost to double digits. The new central bank governor lifted rates 150 basis points with inflation above the 5 percent medium-term target, and also quintupled bank capital requirements to spur consolidation. Tourism earnings are down 25 percent, but a $700 million IMF precautionary facility reinforces close to $7 billion in reserves. The stock exchange was relieved after a 5 percent capital gains tax was cancelled but replaced with a general transaction levy which will spread the pain. In the north incursions by al-Shabab include the slaughter of school children, and President Kenyatta shook up the interior ministry as he vowed to staunch the terrorist flow.

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