Current Account deficit to narrow in 2018 – Standard Bank


Economic analysts at the research desk of Standard Bank, the parent company of Stanbic Bank Ghana, have forecast an improved economic performance and narrowing of the current account deficit in 2018.

Year on year inflation is expected to be around 9.3% as strong base effects from food inflation continue, while the expected cut in electricity tariffs should also be supportive.

“We expect US$/GH¢ to trade within the forward curve for most of this year, rising only modestly to the 4.75 region by year end. Our modest depreciation bias is as a result of more supportive Balance of Payment dynamics with the current account deficit narrowing and as financial flows remain ample.

“The current account deficit will probably continue narrowing toward 3.3% of GDP this year from around 4.6% of GDP in 2017, partly as a result of a faster than expected fiscal consolidation path – but also due to rising export revenues from oil and gold mining,” the research report noted.

Speaking on the projections for Ghana’s economy, Ayomide Mejabi of Standard Bank Research noted that the BoP improvement should be supportive of the currency.

Beyond an improved Balance of Payment, oil production and the floating of bonds are projected to enhance the country’s financial inflows.

According to Mejabi: “Although the trade surplus will probably narrow this year, as imports rise in reaction to a more accommodative stance taken by the Bank of Ghana, it should remain in surplus. This is as oil production continues to rise at a steady pace. The scheduled shutdown of the Jubilee oil field for maintenance of the FPSO should do little to stand in the way of oil production reaching 150k bpd by the end of this year”.                                 He continued: “The financial account should also receive ample inflows this year; not only because portfolio inflows should continue steadily, but also due to a possible increase in Eurobond issuance”.

All this, Ayomide explains, is expected to continue strengthening the forex reserves, pushing them higher than the country’s current end of year projection of US$5.8billion (equivalent of 5.1-m of import cover).

He further noted that these indicators are enough to excite interest from investors. “At this time, we are not overly-concerned about the risk that a potential outflow of portfolio capital may pose on forex reserves, despite the fact that offshore holdings of Ghanaian bonds amount to just over US$5billion. This is because we suspect another round of monetary policy easing, in addition to reasonably strong fiscal consolidation and supportive Balance of Payment dynamics, should be enough to keep investors interested.” Mr. Mejabi said.

Commenting on Ghana’s economic outlook for the year, the Head of Global Markets at Stanbic Bank Ghana, Afua Bulley, said the macroeconomic stability achieved over the years coupled with the country’s strong Balance of Payment suggest that the year holds good prospects. “The prospects are looking good, and if managers of the economy are able to sustain the economic stabilisation programme through a return to strong fiscal consolidation, we are confident that the economy will rub shoulders with economies of Europe and the West,” Ms. Bulley said.

The projections are in line with the World Bank’s outlook for Ghana, which expects the country’s economy to be the best-performing on the African continent. Over the medium-term, economic growth is expected to accelerate to 8.5% in 2018 and then moderate at 6.2% in 2019 – as the budget and current account deficits narrow amid lower inflation and falling interest rates.

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