Ghana’s Creaky Oil Machine Clang

Ghana stocks continued in a double-digit slump ahead of December elections, where the ruling NDC party with its vast patronage network under President Mahama is again poised to beat the opposition NPP whose same candidate came close in the last contest. Both sides endorse the IMF program’s broad lines despite lapses, as more oil production due next year helps lift 4 percent current GDP growth and relieve widespread power shortages. The fiscal deficit is above target at 6 percent of GDP with lagging revenue collection, and the government is to generate a primary surplus and pare salary costs and non-concessional borrowing in the future. Central bank financing to the Treasury and state enterprises will also be limited, with the latter to float stock exchange stakes under consensus plans. Lower inflation, which may decline to single digits next year, should enable a sizeable cut in the over 20 percent benchmark interest rate. In external accounts commodity exports should pick up in 2017 on firmer oil, gold and cocoa prices, but post-election household demand could raise imports for a stubborn 6.5 percent of GDP current account gap. Sovereign bond issuance is not a priority for now, and the next effort may be output-linked as the Fund and private sector creditors consider a proposed term sheet for such operations in a working group organized by the Bank of England.

Kenyan shares are off modestly on the MSCI Index with August 2017 elections there pitting President Kenyatta against the yet to be chosen contender from the Cord alliance. Violence has ebbed after a wave of clashes between supporters and security forces, and changes in the poll board to guard against rigging. Observers fear a return to the tribal warfare of a decade ago, but public education efforts have focused on peaceful dialogue and transition as a new less ethnically-exclusive generation of political leaders enters the mainstream. Growth should stay in the 5.5-6 percent range although bad weather may hurt agriculture, with fiscal stimulus contributing to the 6 percent of GDP budget hole. The central bank cut rates 50 basis points to 10 percent in September on 6 percent inflation, but the new loan ceiling combined with vote uncertainty will cramp household lines, which have tapered to single-digit expansion. In external accounts reserves are up to $8 billion on foreign direct and portfolio inflows to offset current account weakness, and an IMF $1.5 billion backstop facility is available. Zambia in post-election mode intends to turn again to the Fund for an estimated multi-billion dollar arrangement to cope with the aftermath of copper price collapse and chronic electricity outage. Growth could improve to 4 percent next year, but the fiscal imbalance has worsened with arrears accumulation on an 8 percent of GDP deficit. With external debt already near $7 billion the Finance Minister has ruled out another Eurobond, as the domestic policy rate for borrowing remains above 15 percent on a single-digit inflation target. Currency depreciation has stabilized as the Fund negotiations proceed and other bilateral and multilateral aid providers reiterate their engagement after a tense poll dispute period where the barely losing candidate, a wealthy business executive, tested the commercial and procedural machinery.

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