Tuesday, 23 November 2021

2022 Budget: Financial market reacts negatively to doubtful projections

Adnan Adams Mohammed A financial analyst has alarmed that, Fixed Income Market has reacted negatively to the projected macroeconomic indicators presented in the 2022 budget statement. They indicated that, the projections are incredibly unrealistic as compared to the projections of the Breton Woods institutions. A statement issued by the analyst narrated that, he was out of town when the budget was presented last week to Parliament, but he quickly tasked his colleagues who are Sovereign and Fixed Income Researchers in Europe to assist him with the market investors reaction upon the reading of the Ghanaian government budget since the country heavily depends on Fixed Income Market for bond roll-out. He noted, the results shocked him. "I was shocked!! The report received contained negative reaction from the market. This is as a result of credibility gap in the budget", Dr. Jerry Monfant retorted in his post-budget statement. "The Finance Minister presented different financial projections in the budget which contradicts financial information relay to the investors by the IMF. This caused uneasy calm as bond yield fall up to 6 points at the short end and 3-4 points at long end, on the 17th November when the budget was table in Parliament", he alarmed. Read full statement below: GHANA IN TROUBLE AS SOVEREIGN FIXED INCOME MARKETS DEEMED 2022 BUDGET STATEMENTS TO BE DUBIOUS From DR. JERRY MONFANT's DESK On the 17th of November 2021, the Finance Minister presented 2022 budget to the Ghanaian Parliament. I was out of town, but I quickly tasked my colleagues who are Sovereign and Fixed Income Researchers in Europe to assist me with the market investors reaction upon the reading of the Ghanaian government budget since the country heavily depends on Fixed Income Market for bond roll-out. This was also key to me, because I am billed to speak at the annual conference of the Fiancial and Investment Analysts in Ghana in the coming days. I was shocked!! The report received contained negative reaction from the market. This is as a result of credibility gap in the budget. The Finance Minister presented different financial projections in the budget which contradicts financial information relay to the investors by the IMF. This caused uneasy calm as bond yield fall up to 6 points at the short end and 3-4 points at long end, on the 17th November when the budget was table in Parliament. The case in point was that; the overall fiscal deficit is seen as narrowing from 9.4% of GDP in 2021 to 6.4% of GDP in 2022 per the budget presented to Parliament. This was seen as a strong and front-loaded reduction which relies on unrealistic revenue projections from the government. Another shocking scenario is where the 2022 budget project the overall deficit ( which includes financial and energy sector restructuring costs) to narrow from -12.1% of GDP to -7.4% of GDP in 2022. This was absurdity!! It takes a magic to be able to significantly reduced such deficit to -4.7 percentage points within a year! Any good economists can detect inaccuracies and untruthful in such projections. Another shocking scenario is the projection of revenue growth of 43 % for year 2022 through tax compliance and administration. The question we debated among ourselves was, which type of economic theory could jump revenue up to almost half the previous years budget? While I am writing, this information is public within the International Capital Markets, and Ghana's credibility is as stake! However, we note that, under either measure, the government's deficit projections for 2022 is very different from what the IMF made available to the Capital Markets! The government position was too optimistic than those presented by IMF, and this raises very serious credibility gaps. In 2022, the government projected overall fiscal balance including restructuring energy sector debt cost to -7.4 % of GDP, while IMF recorded -10.5 % for the same year. In 2023, the government projected fiscal deficit of -5.5 % of GDP while IMF projects -9.5% of GDP. In 2024 government projected fiscal deficit -4.5 % of GDP, and IMF recorded -9.3% of GDP. Such a budget has failed to convince investors that envisaged fiscal path is achievable. Question about debt sustainability will remain, putting bond yield under pressure, threatening markets access and ultimately increasing the chances of financial crisis! The legislature should redirect their efforts towards the budget statement credibility which is becoming a serious dent on our sovereign credibility and imminent financial crisis rather than reducing their argument on momo tax!! If the entire document is not credible, why waste your time on taxes captured in it! Stay safe, don't be accomplices. Good morning šŸ™

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