How COVID-19, political risk impacts investor sentiment in Ghana

The economic uncertainties driven by COVID-19 and the upcoming elections in Ghana have had a significant negative impact on market performance, with investors taking a cautious 'wait and see' approach. Courage Kingsley Martey, Senior Economist at Databank Group, discussed the political risk to Ghana's financial market in an interview with CNBC Africa. This election year has presented a unique challenge to investors, as they navigated not only the political landscape but also the disruptions caused by the global pandemic. The unprecedented combination of these factors created a double whammy of risks that affected investor sentiments and market dynamics. The swift interventions by the central bank to inject liquidity into the financial system helped mitigate some of the immediate challenges faced by the market. The financial sector's resilience can be attributed to pre-COVID financial reforms undertaken between 2017 and 2019. These reforms prepared the sector to withstand the shocks brought on by the pandemic and the election uncertainties. Despite the overall resilience of the financial market, certain sub-sectors faced pressure and challenges. In terms of the impact on different segments of the financial market, the equities market in Ghana has been on a losing streak since 2018, exacerbated by the effects of COVID-19 and the election year. The continuous losses in the stock market have led to capital erosion and decreased investor confidence. On the other hand, the fixed income market experienced moderate losses due to foreign investor outflows but managed to stabilize with domestic capital injections and central bank interventions to boost liquidity. Looking ahead, the recovery trajectory of the Ghanaian economy will depend on a combination of fiscal and monetary policy measures. The central bank's focus on maintaining liquidity and stable asset quality has helped contain non-performing loans and stabilize the financial market. On the fiscal front, the government's interventions to support livelihoods during the pandemic have led to an increase in public debt and fiscal deficit. As Ghana's debt-to-GDP ratio exceeds 70%, there is limited room for additional borrowing, necessitating a future focus on fiscal consolidation. Investors are currently wary and adopting a cautious approach, with many foreign investors remaining on the sidelines until after the elections to assess the policy direction and economic outlook of Ghana. The uncertainty surrounding the global economic recovery and the post-election landscape in Ghana are key factors driving investor sentiment and decision-making. Overall, the combination of COVID-19 and political risk continues to pose challenges for Ghana's financial market, requiring a delicate balance of policy measures and market strategies to navigate the complexities ahead.