The Bank of Ghana (BoG) is confident in its ability to cushion the economy against external shocks, thanks to a strong reserve build-up in the first half of the year.
The positive development also places the bank in better stead to provide stability in the foreign exchange market.
According to Governor, Dr Ernest Addison, the bank’s reserve position has improved significantly, aided by a favourable external payments position and a current account surplus.
The bank’s gross international reserves increased by US$947 million to US$6.87 billion at the end of June 2024, equivalent to 3.1 months of import cover. Net international reserves also rose by US$1.31 billion to US$4.50 billion.
Dr Addison attributed the strong reserve build-up to the Domestic Gold Purchase Programme, which has helped accumulate reserves faster than anticipated under the International Monetary Fund (IMF)-supported programme.
Economic outlook
The bank noted that global economic activity surprised on the upside in the first quarter of 2024, with the IMF growth estimates for advanced economies showing stable growth.
However, persistence in services inflation tied to wage growth could lead to central banks keeping rates higher for longer, weighing on growth prospects.
Domestic economy
Ghana’s GDP growth outturn for the first quarter of 2024 was stronger than expected, with economic activity remaining resilient despite a tight policy stance.
High-frequency indicators suggest stronger growth outcomes, although consumer and business confidence sentiments softened due to exchange rate depreciation and high food prices.
The bank expects a reversal of these sentiments as the exchange rate stabilises and macroeconomic stability takes hold, supporting economic activity.
Fiscal front
On the fiscal front, the bank said fiscal policy implementation so far has been on track and aligned with the IMF programme.
However, it said staying on the course of the fiscal consolidation path for the rest of the year should lock in stability in the overall macroeconomic conditions.
Banking sector performance
Regarding banking sector performance, the bank said in the first half of the year, developments within the sector pointed to continued recovery from the impact of the Domestic Debt Exchange Programme.
Total banking sector assets grew by 33.3% to GH¢323.1 billion at end-June 2024, relative to 21.2% growth at end-June 2023. Profitability, liquidity and efficiency indicators also improved over the period.
The Capital Adequacy Ratio (CAR) adjusted for reliefs remained unchanged at 14.3%, between June 2023 and June 2024. Without reliefs, the CAR was reported at 10.6% in June 2024, higher than the 7.4% recorded in June 2023.
Despite improvements in the banking sector’s performance, the central bank was quick to indicate that elevated credit risk posed a threat to the sector’s recovery process.
The industry’s NPL ratio was 24.1% in June 2024, up from 18.7% in June 2023.
However, the bank was optimistic that the consistent rebound in profits, adherence to recapitalisation plans, and enforcement of strict credit underwriting standards would help ensure that banks remained on the path to full recovery and resilience.
On domestic price developments, the bank pointed to some uncertainty regarding the inflation path for the year, given recent exchange rate pressures, upward adjustment in utility tariffs and increases in ex-pump fuel prices.
These developments, it maintained, have resulted in a slightly elevated inflation profile for the year, adding that “Even though inflation is expected to remain within the target year band, the risks are tilted slightly on the upside.
This will require maintaining the strong monetary policy stance supported by strong fiscal consolidation efforts including remaining vigilant to ensure that the end year inflation objectives are achieved.
Key statistics
Gross International Reserves: US$6.87 billion (end-June 2024)- Net International Reserves: US$4.50 billion (end-June 2024)-
Current Account Surplus: Significantly improved, aided by strong gold exports, robust remittances, and debt suspension.