Fitch forecasts $3.3bn surge in foreign reserves in 3 years

Rating agency Fitch projects a robust surge in Ghana’s foreign reserves, a development poised to fortify the nation’s economic outlook and bolster its currency.

Fitch anticipates that by 2025, the Bank of Ghana’s foreign reserves will swell from $4.4 billion in 2022 to a substantial $7.7 billion. This expansion in reserves is underpinned by expected current account surpluses and forthcoming disbursements from international financial institutions.

The noteworthy outcome of this anticipated growth in reserves is a substantial extension of import cover to three months. In practical terms, this implies that Ghana is slated to possess adequate foreign exchange reserves to cover the costs of imports for a span of three months, underscoring the country’s enhanced economic resilience.

Fitch further foresees a current account surplus of 1.1% of Ghana’s Gross Domestic Product (GDP) in 2023, a marked contrast to the 2.1% deficit recorded in 2022. This shift is ascribed to non-payment of interest on specific external debt obligations pending restructuring, as well as a decline in merchandise imports.

Notably, the agency’s prognosis extends into the future, with continued current account surpluses expected in both 2024 and 2025. However, Fitch acknowledges that these forecasts are contingent upon developments pertaining to the country’s external debt restructuring programme, which could introduce new variables into the equation.

In terms of currency dynamics, the burgeoning foreign reserves are predicted to underpin the cedi’s value against the US dollar, a trend likely to be closely observed by market participants and investors.

Meanwhile, Fitch deems another round of local-currency debt exchange as improbable in the immediate future. The agency highlights that previous debt exchanges have led to a significant debt service reduction, amounting to ¢52 billion in 2023. This represents approximately 6% of the estimated 2023 GDP or 39% of the estimated 2023 revenue and grants, a substantial fiscal adjustment.

To date, Ghana’s gross international reserves (GIR), excluding encumbered assets and the Petroleum Fund, stood at $2.08 billion in August 2023, offering import cover for one month. The data underscores a progressive increase in reserves over the months, culminating in an August figure that marks a notable upswing compared to the start of the year.

Source:norvanreports