Financial market

Fiscal consolidation commitment keeps investors in financial markets

Investors’ position in the financial market remains unchanged

The position of investors in the financial market remains unchanged, as the government, through the mid-year budget review, has committed to return to fiscal consolidation. Investors, in their anticipation, assessed the economy’s worst-case scenario. However, the result for the first half of 2021 suggests a favorable budgetary situation, in the middle of the third wave of the coronavirus pandemic.

Provisional fiscal data from the 2021 Mid-Fiscal Policy Review revealed the government’s commitment to fiscal consolidation, as data from January to June 2021 show an overall budget deficit of $ 22.32 billion. GH ¢, or 5.1% of GDP, compared to a programmed target. of GH ¢ 22.73 billion, 5.2% of GDP.

Databank Research senior analyst Courage Kingsley Martey said in an interview with the B&FT that this indicates investors prefer to stay overweight Ghana Government Bonds (GHGBs) given that the market’s pre-budget stance is already assessed in a worse tax situation. results.

“Investors were not shaken by the mid-year budget review, as we saw no transactions or adverse reactions to the mid-year budget review. In fact, it appears that the general expectation was the worst-case scenario where the budget result for the first half of the year would be an unfavorable result, ”said Martey.

He added: “We have seen some large investors prefer to remain overweight Ghana Government Bonds (GHGBs) as the market’s pre-budget stance was already predicting a worse budget outcome, which did not exactly materialize from the start. ‘review presented. “

Republic Investment Managing Director Madeline Nettey also shared the same point of view in an interview with B&FT, stating; in general, there were not many changes before and after the mid-year budget reading, as the budget did not call for additional spending.

“I want to believe in part that this budget does not call for additional spending. Even more, we have seen that inflation is moving around the same parameters. So that in itself also did not push any reaction in any direction, nor to upward or downward.

“More often than not, investors react immediately to changes in the monetary policy rate. However, we do not anticipate any change in the TPM given the position and outlook for headline inflation. This should prevent the market from making any major changes, all of them. things being equal, ”she said.

Although the government raised the primary deficit target from 1.3 percent in the original budget to 2 percent in the revised budget, financing or borrowing needs have remained unchanged from the original plans of late.

Commenting on this, Mr Martey said: “This tells you that the government is signaling a commitment to fiscal consolidation despite the risk of a revenue shortfall. interest expense in order to leave borrowing requirements unchanged.

Finance Minister Ken Ofori Atta, in his presentation to Parliament, said the government remains fully committed to meeting the budget deficit target of 9.5% of gross domestic product (GDP) for this year, aimed at returning to the Fiscal Responsibility Act (FRA), by 2024.

During the period, the government embarked on a frontloading of its financing requirement, signaling a much lower financing requirement in the second half of the year.

“The market rightly saw this signal, so trading continued without major budget disruption. the second half of the year to partially mitigate any shortfall, ”said Mr. Martey.

The stock of public debt, as a percentage of GDP, rose from 76.1% at end-December 2020 to 77.1% of GDP at end-June 2021, including bailouts in the financial and energy sectors.

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