Ghana’s Unguaranteed Attitude Adjustment
Ghanaian shares and the currency were down over 20 percent as a $1 billion sovereign bond return was prepared with a $400 million World Bank guarantee, with inflation and the fiscal deficit clearly breaching the respective 10 percent and 7 percent of GDP targets under the $1 billion IMF program. Fitch Ratings affirmed its “B” mark as it predicted 3 percent growth and warned of overspending ahead of next year’s elections. Another issue could come later in 2015 with investors demanding 10 percent plus yield even with the multilateral backing. The central bank raised the benchmark rate at home to 25 percent in a monetary squeeze which has soured business and consumer sentiment along with half and full-day power cuts. Key commodity export prices have been flat, and public debt/output is now 70 percent as the EU and other donors have been invited back with departure from the previous middle-income track. The government has retained its billion dollar syndicated loan facility for the cocoa authority, but farming income continues to plummet with the local bag take at half the world price. A labor shortage also looms with family plots no longer maintained by children seeking jobs in major cities or abroad. Zambia’s currency has fallen over 30 percent following its debt sale and ratings downgrade, as Chinese and international copper mines suspended operations with the 20 percent decline in global value and erratic electricity. The metal accounts for 70 percent of export and 30 percent of budget revenue, as the deficit will likely exceed 10 percent of GDP this year according to S&P. Royalty treatment has swung between extremes since the Patriotic Front party gained power and another election will be held next year to permanently replace deceased former president Sata. Interim successor Lungu has ruled out IMF resort after earlier overtures and may impose exchange controls even though top economic officials are opposed. Drought has reduced hydro-power supplies to the national grid and also hurt agriculture and the state electricity company has indefinitely shelved borrowing plans.
Nigeria already has currency restrictions which resulted in expulsion from JP Morgan’s domestic bond index, although foreign investor positions have long been minimal. The central bank is trying to hold the formal line at 200 naira/dollar, as it also drained liquidity with its single treasury account campaign designed to consolidate all banking relationships and uncover fraud. The policy rate was kept at 13 percent at the latest meeting but reserve requirements were eased 5 percent to 25 percent. Governor Emefiele blasted the index removal as he cited daily foreign exchange trading around $400 million, but the sponsor had previously put officials on notice that the process was too cumbersome. President Buhari defended the naira protection as reserves fell to $30 billion, and repeated his campaign pledge of political and economic stability as leading cabinet members are due to be named. At the opposite scale of market size the island of Mauritius has declined double-digits on the MSCI frontier index due to its own and India’s foibles. A money-laundering scandal implicated the business elite and offshore financial services have floundered with uncertain tax direction from Delhi as it cannot guarantee a stop to retroactive audits.
