Ghana’s central bank left its key interest rate unchanged at 14.5% on Friday and said it had concluded a $1 billion repo facility with the U.S. Federal Reserve to improve the country’s foreign exchange liquidity.
The bank said it expected Ghana’s economy to grow despite the new coronavirus, with preliminary estimates showing economic growth in 2020 was likely to be 2% to 2.5%. Forecasts had been for gross domestic product to grow 6.8% in 2020.
Ghana’s budget deficit widened in the first quarter compared with 2019, to 3.4% of GDP compared with a target of 1.04%, mostly due to a shortfall in revenues, Ernest Addison, the governor of the Bank of Ghana, said at a news conference.
Addison said now expected a downturn in economic growth, while the COVID-19 pandemic had put additional strain on the budget.
The shortfall in oil and other tax revenues due to plunging crude prices had left the country with a large financing gap, he said.
“Current market conditions in the wake of the pandemic would not allow the financing of the gap from the domestic capital markets without significantly increasing interest rates,” Addison said.
The bank had triggered an emergency financing provision allowing it to increase purchases of government securities, he said, and it had purchased 5.5 billion cedis ($958 million) of the government’s COVID-19 relief bond.
He said the bank stood ready to continue the assets purchase programme of up to 10 billion cedis.
“To further boost foreign exchange liquidity, the Bank of Ghana has concluded a $1 billion repurchase agreement, repo facility, with the U.S. Federal Reserve under its repo facility for foreign and international monetary authorities,” Addison said.
Standard Chartered Bank’s Razia Khan said the repo facility would provide additional reassurance on Ghana’s external liquidity. She added that the bank surprised markets by announcing it had triggered an emergency measure that would allow it to buy government bonds.
“This is to help with the estimated increase in Ghana government’s financing gap, as a result of the COVID-19 crisis,” Khan said.