But a Senior Economist at Databank, Mr Kingsley Courage Martey, said in an interview that a gauge of the government’s pro-business stance pointed to improved investment prospects.

Notwithstanding the tax reductions, the government remains confident of narrowing the budget deficit by 220 basis points Year–On-Year to 6.5 per cent in 2017.

The overall economic policy framework and debt management strategies as spelt out in the country’s 2017 budget appear to have inspired hope for a brighter economic prospect in the medium to long term.

“This positive outlook stoked a renewed investor interest in the country’s debts, culminating in successful issuance of GH¢10 billion (US$2.25 billion) in a series of long-term bonds at fairly favourable coupon rates,” Mr Martey said.

It is expected that a sustained cycle of monetary easing in support of the government’s growth agenda for the rest of 2017 possibly from July as inflation drifts towards the 8±2 per cent medium-term target.

Cost pressures

The underlying cost-side pressures to inflation have generally slowed down with the cedi expected to stabilise in the medium to long term despite the threat of a steady recovery in developed and emerging markets and expected interest rate hikes in the US.

Mr Martey said the positive outlook provided the impetus for government to re-profile the national debt stock away from the shorter end of the curve in a bid to reduce its interest expenditure.

As a result, nominal yields are expected to decline sharply in the second quarter of 2017, which could support growth in private sector credit in the medium term.

“We expect the clearing yields on fresh debt issues to range between 15 per cent and 19 per cent across the maturity spectrum in the second quarter,” the senior economist said.

 Government is also expected to be active on the longer-dated end of the market to mop up the extra liquidity generated by the recent policy rate cut by the Bank of Ghana.

 The policy easing would likely trigger a reduction in banks’ cost of funds as the inter-bank interest rate saw an immediate drop from 25.2 per cent to converge with the policy rate.

While a lower cost of funds could trim the base rates of commercial banks, the persistently high Non-Performing Loans ratio (17.7 per cent in Feb-2017) remains a key risk to growth of private sector credit.

Domestic sources

The government’s plan to finance the GH¢13.18 billion budget deficit solely from domestic sources would provide the demand for the resultant increase in the cedi liquidity arising from the policy easing.

“We also expect this strategy of deficit financing from domestic sources to reduce the exposure of the country’s debt portfolio to exchange rate shocks, thereby supporting efforts to gradually restore debt sustainability in the medium term,” Mr Martey said.

 The high levels of public debt and a wider-than-expected fiscal deficit weakened investor confidence in the Ghanaian economy and negatively affected foreign exchange inflows early in the quarter.

Seasonal foreign exchange demand pressures from importers and repatriation of profits of multinationals also put downward pressure on the Ghana cedi. Fiscal policy clarity provided in the 2017 budget, however, calmed investor nerves.

This was reflected in the high levels of foreign participation in treasury bonds issued in March, which raised a total of USD2.25 billion.

Interventions by the central bank in the form of periodic foreign auctions totalling US$130 million coupled with the foreign exchange inflows shored up the value of the cedi in March.

 It is expected that the cedi would remain stable in the upcoming months as demand pressures have been subdued by forex inflows arising from the renewed confidence in the Ghanaian economy.