Ghana’s currency retreated on Monday after government data showed the West African nation is overshooting key budget targets as it approaches elections in December.
The government spent 58 percent of its full-year budget for state-worker pay in the first six months of 2016, exceeding annual allocations for local government and rural development employees, according to budget documents, raising questions about the country’s commitment to rein in the fiscal deficit as agreed with the International Monetary Fund.
“It’s really not good news for the currency, it’s not good news for the inflation outlook and it’s not good news for fiscal consolidation,” Courage Kingsley Martey, economist at Databank Group Ltd. in Accra, said by phone. When macro-economic stability is perceived “as quite fragile and we’re seeing these overruns, then there appears to be more like a heightened risk,” he said.
The cedi weakened 0.2 percent to 3.975 per dollar by 12:09 p.m. in the capital, Accra, reversing a gain of as much as 0.3 percent. The currency has depreciated 6.2 percent this year.
Ghana, which holds presidential and parliamentary elections in December, paid out 6.2 billion cedis ($1.57 billion) in wages by the end of June from an annual budget of 10.7 billion cedis, the ministry of finance said in a report posted on its website. The country used up 75 percent of the amount set aside for the military, almost two-thirds of annual pay for health workers and more than six times the 2016 allocation for local government and rural development, according to the half-year budget execution report.
The world’s second-largest cocoa producer is seeking to reduce its budget deficit to 5.3 percent of gross domestic product this year from 6.3 percent in 2015, the ministry of finance said in the report. Ghana agreed to an almost $1 billion program with the International Monetary Fund in April last year to help rein in the deficit and halt weakness in the local currency.
While Ghana made progress in achieving stability since entering into the IMF program, the country needs to enforce expenditure control measures to contain its wage bill, the Washington-based lender said in a report on Sept. 29. Ghana’s economy grew at the slowest pace in two years in the second quarter as mining and oil production slumped, the national statistical service said Sept. 28.
Deputy Minister of Finance Casiel Ato Forson was not immediately able to comment when contacted on his mobile phone on Monday.