Prezentacja The Macroeconomic situation and Monetary

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The Macroeconomic situation
and Monetary Policy in Ghana
Johnson P. Asiama (Dr.)
Outline
Introduction
Monetary Policy
Current Macroeconomic Context
The Banking Sector
New Foreign Exchange Measures
Conclusion
2
I. Introduction
BOG - critical role in creating conditions that encourage and
sustain economic growth and development.
Its mandate - maintain stability in the general level of prices to
ensure efficient operations of the banking and credit systems
to support general economic growth.
Among its core functions:
the maintenance of price and financial stability, ensuring a safe and
efficient payment system, and ensuring a sound and stable financial
sector, among others.
The pursuance of these core activities impacts substantially on
the environment for private investment which is ultimately the
driver of sustained economic growth and poverty reduction.
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2. MONETARY POLICY FRAMEWORK
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2. Monetary Policy Framework…
Current IT framework designed to engineer a switch to
low inflation and exchange rate stability, with increased
coordination with the fiscal.
Fiscal policy set to deliver sound public finances anchored
on domestic debt reduction to deal with the problem of
fiscal dominance, and also crowd-in private sector.
Focus of monetary policy within the macroeconomic
framework is to achieve price stability, operationalized
through the adoption of an inflation targeting (IT) regime
in 2002, whose formal announcement was made in 2007.
slide 5
The BOG Act, 2002, (Act 612) sets the tone for IT in Ghana:
“The primary objective of the Bank is to maintain stability in
the general level of prices” (Section 3, subsection 1).
“Without prejudice to the above, the Bank shall support the
general economic policy of the Government and promote
economic growth and effective and efficient operation of
banking and credit systems in the country, independent of
instructions from the Government or any other
authority” (Section 3, subsection 2).
Thus granting the Bank operational independence.
slide 6
The Act tackles the issue of fiscal dominance through:
Placing a limit on government’s borrowing in any fiscal year
(Section 30, sub-section 2) and
Provides for the establishment of a Monetary Policy
Committee (MPC) (Section 27)
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2. Monetary Policy Framework
Membership:
…
Typical MPC Session
7 members; 5 internal,
2 external members
Section 27(3)
Chaired by the
Governor
Members independent
in the decision process
Currently, decisions
are by consensus
MPC sets policy
interest rates (the Bank
of Ghana Policy rate)
slide 8
Petroleum and utility price adjustments, fiscal policy and depreciating cedi
continue to be the major inflationary drivers over the forecast horizon.
If there are no major administrative price changes, annual inflation is expected to
return to the target band by 2015:H1
3. CURRENT MACROECONOMIC
CONTEXT
Inflation (March 2014) – 14.5%
Monetary Policy Rate (April 2014) – 18.0%
91-day Treasury Bill (April 2014) – 19.62%
Exchange Rate Depreciation (March 2014) – 17.6%
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3. Current Macroeconomic Context
Conditions broadly challenging in 2013 and 2014Q1,
with continued volatility in the prices of Ghana’s major
export commodities – cocoa and gold.
US tapering and capital flow reversals not significantly impacted.
Impact rather felt through increased commodity price volatility.
Trade balance showed a marginal improvement over the
level a year ago.
This was as a result of a low turnout in both import and export
trade during 2013:
whilst imports remained below last year’s level, exports also failed to grow
as a result of falling commodity prices on the international market.
CAB however remained about the same as last year at
12.1% on account of a marginal improvement in trade
balance which compensated for reduced current
transfers
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Provisional outturn for broad fiscal performance in
2013 suggests an overall budget deficit estimated at
10.8 percent of GDP against a budget target of 9.0
percent, following a deficit of 11.8 percent in 2012.
The fiscal slippage was underpinned by shortfalls in
revenue and grants, higher spending on wages and
salaries as well as interest costs.
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Growth in real GDP is estimated to fall short of target
for 2013 although the pace still remains relatively
strong.
Early indications was a pickup in economic activity
which could support sturdy growth into 2014.
Also, the continued improvements in the energy
sector as well as envisaged increases in oil
production and the onset of gas production could
support the growth momentum into 2014.
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Inflation breached the upper target band in 2013
amidst heightened inflation expectations, as
headline inflation ended 2013 at 13.5%, outside
target band.
This was mainly on account of the removal of subsidies on petroleum
and increased tariffs on utilities.
There were also demand pressures emanating from budget overruns,
and exchange rate pressures.
However, fiscal measures announced in the 2014
budget, etc. could mitigate some of the pressures,
and headline inflation could still track back to target
band of 9.5±2% by early 2015, granted no new
shocks emerge.
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The Cedi - slower depreciation of 14.6% in 2013 in the
interbank market (16.3 % in the forex bureau market)
against the US Dollar compared to 17.5% in 2012.
However, the Cedi depreciated 17.6% against the USD for 2014Q1 compared with 1.1
percent in the same period in 2013.
Major vulnerabilities from imbalances in the supply
and demand conditions on the market , which continue
to exert pressure.
Gross reserves recorded a build-up of US$283.2 million over the stock position at the end
of December 2012, sufficient for 3.1 months of import cover. Reserves as at March 28, 2014
was US$4.7 billion, compared with US$5.6 billion at the end of 2013 ( 2.6 months of import
cover).
There is increased effort therefore to rebuild in 2014,
even though a number of risks such as commodity
prices, reversal of portfolio flows, as well as pressures
in the foreign exchange market remain.
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4. THE BANKING SECTOR
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Overview
The Financial System in Ghana
Banking
Industry
Capital
Market
Pensions
Insurance
Industry
National
Pensions
Regulatory
Authority
National
Insurance
Commission
Regulators
Bank
Of
Ghana
Security
& Exchange
Commission
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Ghana’s Banking System
Bank of Ghana
55 Non-Bank Financial
Institutions (NBFIs)
Banking Institutions
27 Universal
Banks
• Microfinance Companies
• Forex Bureaux
• Credit Unions
• Savings & Loans Companies
•Leasing Companies
• Finance Houses
•Investment
• Discount House
140 Rural
Banks
Apex Bank
ARB Apex Bank, provides some
Central Banking Services for
Rural/Community Banks
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4. The Banking Sector
The financial sector in Ghana (dominated by the banking sector)
has undergone rapid growth and major structural transformation
over the last decade or more.
This has brought new opportunities and risks.
BoG has implemented reforms to strengthen the regulatory and
supervisory framework and financial infrastructures to enhance its
resilience to shocks and its contribution to economic growth.
Minimum capital is 120million for universal banks; 7 million for Savings and Loans;
300,000 for Rurual Banks and Tier 3 MFIs ; and 500,000 for Tier 2 MFIs
The nonbank sector however continues to face challenges
including limited access to financial services, lack of long term
finance, and high intermediation costs.
Currently, there are 27 universal banks out of which 15 are
foreign owned – 6 out of which are from Nigeria. There are over
700 branches spread across the country. There are also 140
Rural/Community banks and 55 NBFIs.
In aggregate, the banking system remains liquid, profitable, and 19
highly capitalized.
4. The Banking Sector
As at end 2013, the banking industry was strong in terms of
asset growth, solvency, liquidity and profitability. Total assets
went up to GH 36.2 billion, from GH 25.1 billion in 2012. The
growth in assets was mainly funded by deposits which grew by
19.2 percent year on year to GH 23.3 billion at the end of 2013.
Capital adequacy (CAR) levels for the industry was above the
regulatory requirement and the extent of competition in the
industry remained high.
The largest 5 banks controlling less than 50% of total industry
assets.
Profit in the industry also continued to increase as more funds
were deployed into interest earning assets, and industry NPL
ratio remained above 10%, but declining.
As at the end of 2013, domestic banks controlled the highest
number of branches, while employment in the banking sector
increased by 8% to 15,992 in 2013 as against 14,753 in 2012.
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4. Banking Facilities
Residents and non-residents can open and operate
local currency and forex accounts.
Free transferability abroad of dividends, expatriate
personnel emoluments, imports, etc. upon
furnishing banks with relevant documentation.
Residents can access credit from non-residents
Non-residents can buy and trade in 3-year tenor
and above, Govt bonds through Primary Dealers
Non-residents can also issue IPOs, and trade in
equities on the GSE. Funds are transferable
through the banking system
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6. Investment Potentials
Potential for new labour-intensive sectors;
e.g. such as manufacturing and agro-processing to tackle the employment challenge and
provide economic opportunities to rural areas.
Services sector;
currently the highest growth sector, but still holds a lot of potential especially in the
financial sub-sector, given the large unbanked informal sector.
Housing sector;
mainly primary with no securitization, such as securitized mortgages. Mortgage lending
currently administered by two mortgage institutions – Home Finance Company, and
Ghana Home Loans, and maybe three (3) other banks. The size of the mortgage market is
less than 1 percent of GDP
With the new oil sector;
financing remains a challenge, given that oil business demands huge capital. Without
syndication, domestic banks are unable to finance rig operations, and hence financing
opportunities exist in this sector also.
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4. Investment Potentials
Equities listed on the Ghana Stock Exchange (GSE)
returned about 79 per cent at the end of 2013,
making the exchange the second best performing
stock market in Africa and one of the best globally.
The achievement meant that investors in stocks on
the market returned an average of 79 per cent on
their investments, which was far better than what
they would have earned should they have locked
their money in any other investment.
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5. NEW FOREIGN EXCHANGE MEASURES
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5. New Forex Notices
On 4th February, 2014 the Bank of Ghana issued a set of
revised rules on the operation of foreign exchange and
foreign currency accounts, repatriation of export proceeds
and additional operating procedures for forex bureaux.
Aim to streamline operations of foreign exchange and
foreign currency accounts and bring about clarity and
transparency in their operations as well as ensure
compliance with Bank of Ghana rules on the pricing,
advertising, receipts and payments for goods and services
in foreign currency in Ghana and the collection and
repatriation of export proceeds to Ghana.
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5. New Forex Notices
The rules are not intended to stifle business or
thwart the efforts of our hard working business
people.
The rules are aimed at sanitizing the foreign
exchange markets and helping to ensure the
stability of the Cedi which in the long run would
be good for business and the country as a
whole.
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5. Forex Bureaux
Computerize operations using certified softwares approved by
BoG by 30/4/2014
Issue electronic receipts for all transactions in the prescribed
format. Manual receipts will cease after 30/4/2014
Keep electronic records of all purchases and sales. Records
shall include name of customer, date of trasaction, amount
purchased or sold, and proof of identity e.g. Passport, voter’s
ID, National ID and Driver’s license.
Submit monthly returns electronically to BoG within 5 working
days after the end of the month. No manual returns after April
30, 2014
Forex Bureaux shall not sell or buy more than US$10,000 or
its equivalent per transactions
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5. Repatriation of Export Proceeds
To streamline the collection and repatriation of export proceeds
to Ghana. In accordance with the Foreign Exchange Act 2006
(Act 723) and its Operational Guidelines, all exporters are to
collect and repatriate in full the proceeds of their exports to
their local banks within 60 days of shipment.
Upon receipt of export proceeds, the bank shall within 5
working days, convert the proceeds into Cedis based on the
average Interbank rate with a spread not exceeding 200 pips.
Exporters with retention accounts to continue to operate these
accounts in line with retention agreements. Retention proceeds
sold to the banks to be converted into Cedis using the
Interbank rate with a spread not exceeding 200 pips.
Offshore foreign exchange deals by resident companies,
including exporters, are strictly prohibited.
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5. Revised Rules on FEA and FCA
No cheques or cheque books to be issued on FEA and
FCA.
Cash withdrawals over the counter from FEA to FCA only
permitted for travel and not to exceed $10,000 or its
equivalent in convertible currency, per person, per travel.
Authorised dealers shall not sell foreign exchange for the
credit of FEA or FCA of their customers.
Transfers from one foreign currency denominated account
to another are not permitted.
All transfers outside Ghana from FEA and FCA shall be
supported by relevant documentation.
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5. Margin Account for Import Bills
Forex purchased for settlement of import bills shall be
credited to a margin account which shall be operated
and managed by the bank on behalf of the importer for
a period not exceeding 30 days, but renewable…
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5. Foreign Currency Loans
Banks are not to grant foreign currency denominated
loans or foreign currency linked facility to a customer
who is not a foreign exchange earner.
All undrawn foreign currency denominated facilities shall
be converted into local currency with the coming into
effect of the Notice.
However, existing fully drawn foreign currency
denominated facilities and loans to non-foreign
exchange earners shall run until expiry.
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5. Clarifications to Notices
1. Transfers of forex remains permissible for transactions
such as:
Investment income, tech. and mgt transfer entitlements, expatriate
emoluments, and other incentive packages and overseas
commitments under provisions in various legislation and
legislative instruments such as the Forex Act 2006 (Act 723),
Minerals and Mining Act, 2006 (Act 703), the Ghana Investment
Promotion Centre Act, 2013 (Act 865), the Ghana Free Zone Act,
1995 (Act 504), the Technology Transfer Regulations (LI 1547),
the Free Zone Regulations (LI 1618), etc. Governing FDIs in
Ghana; and.
Other outward payments for imports of goods and services.
Banks are however to ensure such transfers are backed by
relevant documentation
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2.
Balances in FCA and FEA will continue to be held in foreign currency,
and not coverted into Cedis. Except for travel, withdrawals out of these
accounts over the counter are to be paid in Cedis.
3.
External transfers of up to $10,000 per annum, without documentation
from FEA and FCA are still permitted.
4.
Balances held in FEA and FCA continue to remain available for all
legitimate external transactions.
5.
Documentation required for transfers from the FCA is the regular forms
used at the banks, that indicate purpose.
6.
Transfers from FEA and FCA to Cedi accounts are permitted
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7.
Transfers from FEA to FCA are prohibited. Similarly,
transfers from an FEA or FCA to a third party’s FEA or FCA
within the same bank or another bank are also not permitted.
However, for the same account holder, transfers from one
FCA to another FCA or FEA within the same bank or another
bank are allowed.
8.
Forex bureaux may deposit and withdraw foreign
exchange from their FEA.
9. Importers are allowed to undertake imports through direct
transfer from their FEA of up to $25,000 per transaction
without the initial documentation. ........
10. Servicing of existing foreign currency denominated loans to
residents by resident banks to be made in Cedis converted at
the interbank rate.
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11. Balances held in Margin Accounts for payment of import
bills, debt servicing etc. to be for an initial 30 day period
and renewable.
12. Offshore foreign exchange deals by resident and nonresident companies including exporters and non-resident
banks are strictly prohibited.
13. Companies registered under the Free Zone Act, 1995
(Act 504) are to comply with provisions under the relevant
legislative instruments governing their operations…
ALL OTHER PROVISIONS REMAIN VALID AND UNCHANGED!
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6. CONCLUSION
Economic challenges are short-term!
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6. Conclusion
Ghana is blessed with a stable, multi-party democratic
environment that has been established since 1992.
This has been further boosted by recent elections that have seen
power transferred peacefully, albeit with legal contentions in
some cases.
There is emphasis on preserving macroeconomic stability in
spite of exogenous shocks that continue to confront the economy,
and Ghana is committed to the philosophy and practice of market
liberalization policies.
Infrastructure is relatively well developed, and facilities such as
telecommunications and electricity supply are now reliably
available. There is also a large pool of skilled, trainable and
stable labour force in line with the vision to create a knowledge
economy that is anchored on technology and its applications in
driving productivity growth.
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6. Conclusion
Ghana’s new investment regime contains a wide variety of tax
incentives and tax holidays, as well as other generous capital
allowances.
e.g. plant, machinery and buildings.
There are investment guarantees, and Ghana is a member of the
Multilateral Investment Guarantee Agency (MIGA), which
provides international insurance coverage for investors in
developing countries to reduce non-commercial risks.
Ghana has also entered into bilateral Investment Promotion and
Protection Agreements with a number of countries to give further
protection to nationals wishing to invest in Ghana.
38
THANK YOU
39

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