BOG MPC MEETING NOVEMBER 2020 – 3

 

97th-MPC-Press-Release-23rd-November-2020-2

Summary-of-Economic-Financial-Data-November-2020-2

BOG MPC MEETING NOVEMBER 2020 – 3 IS THE THIRD PART OF MY ARTICLE SERIES ON THE NOVEMBER 2020 MEETING OF THE MONETARY POLICY COMMITTEE OF THE BANK OF GHANA. IT CONCENTRATES ON THE FOLLOWIG ISSUES:

— COMMODITY PRICES;

— EXTERNAL SECTOR DEVELOPMENTS; AND

— GOVERNMENT FISCAL OPERATIONS.

AS USUAL, YOU CAN DOWNLOAD THE NECESSARY ARTICLES IN PDF FORMAT FROM THE TOP OF THIS ARTICLE.

  1. COMMODITY PRICES

COMMODITY PRICES WERE MIXED IN THE PERIOD UNDER REVIEW.

THE PRICE FOR COCOA WENT DOWN YEAR-TO-YEAR, BUT WENT UP COMPARED WITH LAST MONTH. THIS IS IN ACCORDANCE WITH COMMODITY PRICES IN GENERAL. PRINCIPALLY, WE CAN EXPECT THAT IN THE COMING MONTHS COCOA PRICES WILL INCREASE AGAIN GRADUALLY.  THIS IS BECAUSE DEMAND FOR COMMODITIES WILL INCREASE AS VACCINATIONS WILL LIMIT THE PANDEMIC.

THE PRICE FOR OIL IS STUBBORNLY LOW. HERE, THE REASON IS NOT ONLY THE PANDEMIC, BUT ALSO THE SWIFT TOWARDS NON-FOSSILE ENERGIES LIKE SOLAR OR WIND. THAT WE CAN SEE IN SEVERAL OIL COMPANIES GETTING AWAY FROM OIL EXPLORATION. INSTEAD, THEY POUR MONEY INTO RESEARCH OF SUSTAINABLE ENERGY. THEREFORE, WE CAN EXPECT A SLIGHT INCREASE IN THE OIL PRICE IN THE MONTHS TO COME. ALBEIT, THE PRICE WILL NOT REACH PEAK LEVELS IN THE FORESEEABLE FUTURE.

UNLIKE THE OTHER TWO, PRICE FOR GOLD IS STILL HIGH. BUT, IN THE LAST THREE MONTHS, THERE IS A DECREASE OF THE PRICE FOR GOLD. THAT IS BECAUSE THE ROLE OF GOLD AS A SAFE HAVEN IS DIMINISHING. INVESTORS GO INCREASINGLY INTO THE RISKIER STOCK MARKET. FOR EXAMPLE, THE US STOCK MARKETS HAVE REACHED HISTORICAL HEIGHTS IN THE LAST WEEKS. THEREFORE, WE CAN EXPEXT MORE DROPS OF THE GOLD PRICE IN THE MONTHS TO COME.

2. EXTERNAL SECTOR DEVELOPMENTS

TOTAL EXPORTS ROSE, AS THEY WERE DOING IN THE LAST MONTHS. THE INCREASE OCCURRED THROUGHOUT THE THREE MAJOR EXPORT COMMODITIES. THIS I GENERALLY POSITIVE, BUT THE TIME IS RIPE TO ADD VALUE TO THESE COMMODITIES. THE ISSUE IS THAT WE EXPORT THE COMMODITIES TO WHERE THEY ARE PROCESSED. THEN THESE PROCESSING COUNTRIES SELL THE GOODS BACK TO US. THANKFULLY, THE CURRENT GOVERNMENT FOCUSSES JUST ON VALUE ADDITION THROUGH VARIOUS PROGRAMMMES.

IMPORTS HAVE ALSO RISEN, LED BY NON-OIL IMPORTS. ALL IMPORTS HAVE REACHED THE HIGHEST LEVEL OF THE YEAR.

THESE DEVELOPMENTS LED TO THE HIGHEST TRADE BALANCE WITHIN THIS YEAR. THIS ACCOUNTS FOR THE AMOUNT IN US-DOLLARS AS WELL AS THE PERCENTAGE OF GROSS DOMESTIC PRODUCT [GDP]. WE CAN ASSUME THAT THE INDUSTRIALISATION PROGRAMME AND AfCFRA WILL BRING A FURTHER EXPANSION OF THE TRADE BALANCE..LOOKING AT THE BALANCE OF PAYMENT, THE CURRENT ACCOUNT DEFICIT WENT DOWN SLIGHTLY YEAR-TO-YEAR. ON THE OTHER HAND, THERE WAS AN EXTREME DECREASE IN THE CAPITAL AND FINANCIAL ACCOUNT YEAR-TO-YEAR.

THIS LED TO AN OVERALL DEFICIT IN THE BALANCE OF PAYMENT. NEVERTHEESS, WE CAN SURELY ASSUME THAT REVERSE ACTION WILL TAKE PLACE. THIS WILL HAPPEN AS SOON AS THE GLOBAL ECONOMIC SITUATION WILL IMPROVE,

3. GOVERNMENT FISCAL OPERATIONS

ALTHOUGH THE SITUATION HAS SLIGHTLY IMPROVED, FISCAL OPERATIONS ARE STILL THE PROBLEM CHILD OF THE GHANAIAN ECONOMY.

TOTAL  REVENUE HAS RISEN, BUT SO HAS EXPENDITURE. OF COURSE, THAT HAS PARTLY SOMETHING TO DO WITH THE PANDEMIC. A POSITIVE ASPECT IS THAT THE NEGATIVE PRIMARY BALANCE DECREASED SLIGHTLY. THAT GIVES HOPE THAT WHEN THE IMPLICATIONS OF THE PANDEMIC GO DOWN, THE PRIMARY BALANCE WILL ALSO REVERSE.

THE PUBLIC DEBT ROSE TO 71 PERCENT OF GDP, AND THAT IS THE COMCERN OF SOME PEOPLE. FURTHERMORE, WE CAN EXPECT THIS PUBLIC DEBT TO INCREASE TO ABOUT 76 PERCENT UNTIL THE END OF THE YEAR. PEOPLE MAINLY IN THE OPPOSITION PARTY WARN OF THIS HEIGHT OF PUBLIC DEBT. I CONSIDER THAT A LITTLE BIT OF PROPAGANDA, CAUSED BY THE UPCOMING ELECTIONS.

I WROTE IN SEVERAL ARTICLES THAT OF COURSE, THE DEBT/GDP RATIO IS HIGH. BUT THE CORONA VIRUS HAS FORCED ALL COUNTRIES TO SPEND MORE THAN USUAL. OF THE SEVEN RICHEST COUNTRIES IN THE WORLD, GERMANY HAS THE LOWEST RATIO WITH 75 PERCENT. THE USA AND JAPAN HAVE A RATIO OF MORE THAN 100 PERCENT. THEY SURELY BELONG TO THE CATEGORY OF “HIRC” [HIGHLY INDEBTED RICH COUNTRIES]. I KNOW THAT WE SHOULD NOT COMPARE OURSELVES WITH THE USA OR JAPAN. BUT IT SERVES AS AN EXAMPLE THAT WE ARE NOT THE ONLY COUNTRY WITH HIGH DEBTS.

APART FROM THAT, IT DEPENDS ON WHAT THE GOVERBNENT USES THE DEBTS. AN INVESTMENT IN INFRASTRUCTURE SURELY JUSTIFIES DEBTS. THIS IS BECAUSE AT THE LONG RUN, THE GDP WILL INCREASE THROUGH THAT.

ANOTHER POSITIVE SIGN IS THAT DOMESTIC DEBTS ROSE WHILE FOREIGN DEBTS WENT DOWN SLIGHTLY. THE IMPACT OF FOREIGN DEBTS IS ALWAYS MORE SEVERE THAN THAT OF DOMESTIC ONES.

ALL IN ALL, BOG MPC MEETING NOVEMBER 2020 – 3 ALSO SHOWS THAT THERE ARE P OSITIVE SIGNS FOR THE DEVELOPMENT OF THE ECONOMY IN GHANA.

THE FOURTH AND LAST PART OF THE ARTICLE SERIES DEALS WITH THE FOLLOWING ISSUES: MONETARY INDICATORS, BANKING SECTOR INDICATORS, STOCK MARKET PERFORMANCE, AND PAYMENT SYSTEM DATA.

STAY TUNED..

 

 

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