Ghana’s current account most at risk due to US Fed tapering – Fitch

Ghana’s current account is most likely at risk if the country should borrow from the international market due to the US Fed tapering, according to Fitch Ratings.

Similarly, South Africa is also not immune from this risk, said the rating agency December 2, 2013.

The US Fed tapering was announced  in May this year when Federal Reserve Chairman Ben Bernanke stated in testimony before Congress that  the  Fed may taper – or reduce – the size of the bond-buying programme known as quantitative easing (QE). The programme, which is designed to stimulate the economy, has served the secondary purpose of supporting financial market performance in recent years.

Bernanke’s surprising pronouncement led to substantial turmoil in financial markets where international borrowings are done.

Fitch stated that countries like Ghana and South Africa, which run large current account and budget deficits and have become increasingly dependent on foreign inflows to fund both the budget and the current account will be “most at risk”.

Ghana’s current account deficit widened to $4.5 billion in the first nine months of 2013 from the $4.1 billion recorded in the corresponding period of 2012, according to the Bank of Ghana explaining that “This was as a result of a deterioration in the services, income and transfers account, which was moderated by an improvement in the trade balance.”

According to Fitch, the sharp deterioration in government finances and weak commitment to fiscal consolidation prompted Ghana’s downgrade to B Stable.

“In Ghana during 2013 the authorities continued to overrun on wages, interest costs and arrears, leading Fitch to forecast that the government would fail to meet the 9% of GDP fiscal deficit target,” the agency said in a report examining the economic growth of sub-Saharan Africa for 2014.

Fitch Ratings says that it expects average GDP growth for the region to rise above 5% in 2014, despite more subdued emerging market growth and less favourable commodity prices.

By Ekow Quandzie