“The short term risks are quite elevated in the country. If you just take a snapshot view, the country is running double-digit twin deficits [and] inflation’s around 15 per cent. The currency depreciated by 23 per cent last year [and] it’s depreciated by about 15 per cent to date,” Ronak Gopaldas, country and sovereign risk analyst at Rand Merchant Bank, told CNBC Africa.
“Forex reserves are quite low, so at the moment, the risk profile [in the short term] is definitely elevated.”
The postponement of issuing the bond also follows the announcement that Ghana has also delayed issuing its third Eurobond.
“The government is starting to understand the economic challenges. We recently had the National Economic Forum a couple of weeks ago, where [there was] consensus around what the key economic issues were affecting the economy,” Gopaldas explained.
“There needs to be fiscal consolidation, because that’s at the heart of the problem, and that’s playing out in terms of the currency weakness, because of the structural imbalances that the economy has.”
While the National Economic Forum was a strong start to addressing Ghana’s core issues, according to Gopaldas, the next three to six months are nonetheless going to be significantly crucial in implementing some structural reforms.
“On the fiscal side, there are a number of issues. The deficit in 2012 was 12.1 per cent, last year it was 10.8 per cent, so there needs to be major reform on that front. In terms of the policy options, will the government go at it alone? Will it seek some kind of assistance from the International Monetary Fund, either through technical assistance or a bailout? That’s a question people are asking,” said Gopaldas.
In addition to the strain of the deficit, the Ghana cedi has been the worst-performing African currency this year.
In February, the Bank of Ghana issued a directive that attempted to de-dollarise the economy through a new ethics law, as well as raising interest rates by 200 basis points to curb the depreciation. The currency and economy are yet to see significant improvement from both moves.
“Again, it comes back to not relying on monetary policy to do the heavy lifting, but instead consolidating fiscally in order to address the structural imbalances,” Gopaldas added.