Investor’s expectation of high economic growth, in the first year of the new administration, experienced a dent this week on announcement of hidden budget overrun for year end 2016. The deficit, which amounts to approximately 7 billion Cedi ($1.6 billion), is believed to have been hidden from the general public and supervising IMF team. This pushes the inherited budget deficit to 10% as against the projected 7% figure for year-end 2016.
The discovery can have numerous impacts on the economy and financial markets as a whole for year 2017. First, investor confidence will be shaky as we await measures on how the issue will be resolved. This can lead to a low foreign participation in our money markets, which currently stands at 40% of total market size. Also, with credibility of prior economic data in doubt, the perceived risk for the country is expected to rise leading to high cost of borrowing and increased pressure on the Cedi, currently, one month cedi forward contracts are trading for 4.452 whiles the yield on the 2023 Eurobond trades increased to 8.48% on Thursday 2nd February 2017.
We expect sustained pressure on the Cedi to continue through half year of 2017, as deficit is brought under control
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