By Rafiq Raji, Ph.D.
Real GDP growth for 2014 revised up to 1.6%; a contraction of 1.4% was previously estimated. Latest revision comes on the back of authorities’ estimation of a lower than expected contraction of 8.4% in the agriculture sector (previously -22.7%). The hard-hit services sector (65% of GDP) – due to effects of Ebola fears on tourism sector – apparently expanded by 6.9% in 2014 (8.1% in 2013), according to authorities.
Fiscal deterioration continues – Q1 2015 domestic debt rose 38.7% y/y, indicative of continuing fiscal deterioration. In spite of this, the government yield curve (maturities no more than a year) shifted downwards, with the interbank rate falling to 12.7% in March 2015 from 15.2% a year earlier. Net borrowing in Q1 2015 amounted to c. GMD 0.5bn (8.8% of GDP, based on pro-rata 2014 data). With data such as these, authorities plan for a 1.3% of GDP fiscal deficit in 2015 (12.6% of GDP fiscal deficit in 2014) is clearly at risk.
Inflation rises above target, prompting 100bps rate hike to 23 % – Inflation remains on an upward trajectory with the rate rising to 6.7% y/y (above the CBG target of 5.0%) in March 2015, largely due to food inflation. Much more noteworthy is how core inflation (excludes energy and food prices) accelerated faster, rising 7.1% in the same month. In light of the recent downward revision of the exchange rate by fiat, the balance of payments (BOP) data is not of much use. Noteworthy though, gross FX reserves stood at USD 95.8mn (3.4 months of imports) as at end-March 2015, a decline from its 2014 level of USD 112mn (4 months of imports). This was as the volume of FX transactions increased 13.7% y/y to USD 1.41bn for the same period. Dalasi depreciation (e.g. USD: GMD depreciated by 21.9% in the period) probably explains the converse trend.
See link to MPC statement http://www.cbg.gm/research/pdf/Press%20Release/Press%20Release_Draft_May_2015.pdf