Wednesday, August 29, 2007

Energy Crisis Weighed Down on Business Confidence and Expectations

Although the Bank of Ghana's Business and Consumer Confidence indicators generally showed positive assessment of Ghana's macroeconomic conditions and prospects, there are signs that the intensity and duration of the energy situation had weighed down on business confidence and expectations, during the second quarter of 2007.

Further more, while Bank of Ghana's Composite Index of Economic Activity (CIEA) at the end of the second quarter of 2007 showed an increase of 7.0 points (2.4 percent) over the March 2007 level, the year-on-year index recorded a 17.1 percent increase, which is lower than the trend growth of 21.1 percent.

The composite indices according to the Governor of Bank of Ghana, Dr. Paul Acquah, was made up of increasing pace of activity during the second quarter including cement sales, domestic VAT collections, employment, and commercial bank credit.

"There were slowdowns in port activities, exports and imports, and electricity consumption from the first quarter," he reiterated.

According to the Governor, who is also the chairman of the Monetary Policy Committee (MPC), the manufacturing sector was hit the hardest during the energy crisis, as costs of production were high.

Dr. Paul Acquah made these known to the public at a press conference in Accra yesterday where he announced that, the prime rate was unchanged at 12.5%.

The prime rate, which is the rate at which commercial banks borrow money from the Central Bank, was pegged at 12.5% since the beginning of the year. Some financial analysts had predicted a downward adjustment in line with the declining inflation expectation.

The MPC of the BoG came to this conclusion after a three-day deliberation on the economy.

In its final statement, the MPC stressed that economic activity in Ghana remains quite robust and consumer confidence and expectations are generally positive about macroeconomic conditions and prospects.

It further said budgetary operations have been providing strong stimulus to domestic demand, whiles banks are using their strong financial positions to shift their lending portfolios in favour of private sector lending, funded by a surge in deposits in the banking system.

The committee, expects inflation expectations be contained and consolidated around the path towards a single digit target of 7-9 percent set for the year.

The Governor of the Central Bank, who is also the chairman of the MPC, said the outlook for the economy remains uncertain about oil prices and the potential burden on the balance of payments and domestic cost price movements.

"And there is the possible impact on international commodity markets of the current turbulence in the financial markets due to sub-prime mortgage crises," he said.

He stated that the energy crises and interruptions of energy supply weighed down business confidence and expectations in the short term and is exerting cost pressures on the energy sensitive sectors.

With regards to developments in public finances, the governor said provisional banking data on the execution of the 2007 budget showed that total revenue and grants for the first half of 2007 amounted to GH¢2,024.6 million (some 48.1 percent of annual target), compared to GH¢1,508.6 million (48.5 percent of annual target) recorded for the same period in 2006. This shows a growth of 34.2 percent over the outturn for the same period in 2006. Domestic revenue growth was robust at 36.4 percent, showing a good buoyancy of the tax system and its administration.

The domestic component of the total receipts amounted to GH¢1,593.4 million (42.4 percent of the annual target) and represented 36.4 percent it amounted to GH¢1,593.4 million (42.3 percent of the target) and represented 36.4 percent increase over the amount recorded for the first half of 2006. As at the end of July, total revenue and grants had increased to GH¢2,394.2 million (56.8 percent of annual target) compared to GH¢1,748.3 million (56.2 percent of 2006 target). Total payments for the first half of 2007 amounted to an estimated GH¢2,330.2 million (46.5 percent of budgetary appropriations for the year) compared to GH¢1,546.8 million (49.3 percent) for 2006. At the end of July 2007, total payments had increased to GH¢2,697.8 million (53.8 percent of programmed expenditures) compared to GH¢1,818.4 million (57.9 percent) for 2006. "These developments resulted in a deficit of GH¢344.8 million at the end of June; compared to GH¢71.1 million for the same periods in 2006. The deficit was financed to the tune of GH¢378.2 million through domestic borrowing mainly on the auction market," the Governor stated.

allAfrica.com: Ghana: Energy Crisis Weighed Down on Business Confidence and Expectations - Governor (Page 1 of 1)

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