Aurelia Butler

ACCRA (Reuters) – Hundreds took to the streets of Ghana’s capital Accra last week to protest over its deteriorating economy. Days later, the government of one of West Africa’s most prosperous nations announced it would begin formal talks with the International Monetary Fund (IMF) for support. It was a decision many analysts long thought inevitable, despite repeated pledges from finance minister Ken Ofori-Atta to never again seek IMF assistance. Why did the country reverse course, and what could the IMF demand in return?WHY NOW?Inflation hit an 18-year high of 27.6% in May, capping off a year of accelerating prices. Growth slowed to 3.3% in the first quarter, and the value of the cedi currency has declined 23.5% against the dollar since the year began.[L1N2YG1CH]In a statement outlining its plan for approaching the Fund, the government blamed its woes on a combination of recent external forces, including COVID-19, the Ukraine crisis, and American and Chinese economic slumps.Finance minister Ken Ofori-Atta told lawmakers last month that pandemic-related expenditure amounted to 18.19 billion cedis ($2.26 billion) as of May 2022. The country received $1.23 billion in COVID-19 relief funding from the IMF and World Bank over that period, he said. Prices of imported goods rose more than domestically produced ones for the second month in a row in May, with cereals — 20% of which Ghana imports from Russia — having repeatedly seen some of the largest price hikes. Petroleum prices have nearly doubled year-on-year. Authorities were still unsure about seeking IMF support only two weeks ago, but found their hands tied after lawmakers stalled a $1 billion loan, and an unpopular electronic payments tax meant to generate revenues, underperformed, Eurasia Group Africa head Amaka Anku said in a note.DEBT AND DEFICITAuthorities hope an IMF programme would relieve Ghana’s nearly $1 billion balance-of-payments deficit, which central bank governor Ernest Addison said in May results from a capital exodus caused by global factors. But experts say the root of Ghana’s problem is likely fiscal, as it utilizes continuously greater loans to plug its double-digit fiscal deficit. “Our biggest problem is that around 60% of our expenditure continuously goes towards paying public sector workers or interest payments,” said William Duncan, founder of the Ghana-based Spear Capital & Advisory. “It’s been a cycle through the last three governments.” Ghana’s debt stock has more than doubled since 2015, steadily climbing from 54.2% of GDP that year to 76.6% at the end of 2021, according to government data.The finance ministry’s plan for amortizing that debt rests squarely with the IMF, which it said would help the country regain access to international capital markets and roll over existing debt after recent credit rating downgrades cooled lender interest. Many have questioned the sustainability of that strategy. Interest payments have been the government’s largest annual expense since 2019 and were its second largest expense for five straight years prior to that, finance ministry figures show. While Ghana’s Eurobonds rallied on the news the government would seek IMF help, yields for all but the issue maturing this year still remain above 10%, the level seen as cutting a country off from issuing new debt as it becomes too expensive.PROGRAMME PROPOSALWhen Ghana last sought IMF assistance in 2015, it received $918 million through an Extended Credit Facility Arrangement, equal to 180% of its quota. This time, Ghana has proposed it’s own “Enhanced Domestic Programme” to the IMF, which would last a minimum of three years. It insists there be no cuts to the administration’s flagship programmes, such as campaign pledges to build hospitals and factories in each of the country’s 216 districts and a free secondary school scheme. And though debt servicing cost just under 48% of government revenue in 2021, the finance ministry’s proposal doesn’t require debt restructuring. Experts think such conditions may prove complicated.”A program would support creditors’ confidence, tempering the rise in government’s borrowing costs, but equally come with conditionality on fiscal consolidation that could prove challenging to meet,” said analysts at Moody’s (NYSE:MCO) Investors Service. (This story refiles to correct attribution of Moody’s comment, final paragraph) More

The ECB’s biggest shareholder, Germany’s Bundesbank, laid out its conditions for providing fresh support to the euro zone’s most indebted countries on Monday, after opposing such aid at an emergency meeting.In comments published in Der Spiegel magazine on Friday Lindner’s economics adviser Lars Feld urged the ECB to attach conditions to any aid in order to promote economic reforms.”Anyone who wants money from the central bank out of turn must be prepared to provide something in return,” Feld said.There was no comment immediately available from the finance ministry when contacted by Reuters.The ECB decided at the June 15 meeting to direct bond reinvestment to help euro zone countries on the bloc’s southern rim and devise a new instrument to contain divergence in borrowing costs between them.Bundesbank chief Joachim Nagel, who disagreed with that decision according to sources at the meeting, warned against trying to decide the right market spread as that was “virtually impossible” and risked making governments complacent.”This includes reforms supervised by independent institutions; anything else would endanger the stability of the monetary union,” Feld was quoted as saying by Der Spiegel.Feld’s comments are unusually prescriptive advice from a German government official on policy at the independent ECB.Lindner, of the business-friendly Free Democrats (FDP), has repeatedly pressed the ECB to tackle rising prices, saying last month that it has a responsibility to do so.Sources have told Reuters the new instrument to buy more southern European bonds is likely to come with strings attached, such as that a country’s debt is deemed sustainable by the ECB or that it complies with the European Commission’s fiscal rules and economic recommendations.Groups of German academics have complained about past ECB bond-buying schemes in multiple lawsuits at the constitutional court in Karlsruhe.While their claims were ultimately rejected, the German judges have demanded that Berlin parse ECB decisions with a fine comb when they may endanger taxpayer money.But tying the new programme with the European Commission’s recommendations or the ECB’s own assessment was still seen as less stringent and more politically palatable than the ECB’s previous rescue scheme, which required countries in distress to apply for a full-on bailout.An ECB spokesman declined to comment. More

WASHINGTON (Reuters) – U.S. job growth increased more than expected in June and the unemployment rate remained near pre-pandemic lows, signs of persistent labor market strength that give the Federal Reserve ammunition to deliver another 75-basis-point interest rate increase later this month.Nonfarm payrolls increased by 372,000 jobs last month, the Labor Department’s closely watched employment report showed on Friday. Data for May was revised slightly down to show payrolls rising by 384,000 jobs instead of the previously reported 390,000. Economists polled by Reuters had forecast 268,000 jobs added last month. Estimates ranged from as low as 90,000 to as high 400,000. June’s larger-than-expected employment gains pushed the economy closer to recouping all the jobs lost during the pandemic. The unemployment rate was unchanged at 3.6% for a fourth straight month. This is inconsistent with an economy that is on the verge of a recession.Most industries with the exception of leisure and hospitality, manufacturing, healthcare, wholesale trade and local government education have recovered all the jobs lost during the pandemic. Some of the slowdown in payrolls last month reflected issues with the seasonal factors, the model that the government uses to strip out seasonal fluctuation from the data, following the upheaval caused by the pandemic. Unadjusted payrolls increased by the most on record in June 2020 as the economy emerged from the first wave of COVID-19. Though this feat is unlikely to be repeated, the seasonal factor could still be anticipating large payroll gains in June, which ultimately lowers the seasonally adjusted number. While demand for labor is cooling in the interest rate-sensitive goods-producing sector of the economy, businesses in the vast services industry are scrambling for workers. There were 11.3 million job openings at the end of May, with 1.9 jobs for every unemployed person.The Fed wants to cool demand for labor to help bring inflation down to its 2% target. The U.S. central bank’s aggressive monetary policy posture has heightened recession worries, which were amplified by modest growth in consumer spending in May as well as soft housing starts, building permits and manufacturing production. In June, it raised its benchmark overnight interest rate by three-quarters of a percentage point, its biggest hike since 1994. Markets overwhelmingly expect the Fed, which has increased its policy rate by 150 basis points since March, to unveil another 75-basis-point hike at its meeting later this month.The release next Wednesday of inflation data for June, which is expected to show consumer prices accelerating, is also seen giving policymakers another reason to raise borrowing costs further.Employers continued to raise wages at a steady clip last month. Average hourly earnings increased 0.3% in June after gaining 0.4% in May. That lowered the year-on-year increase to 5.1% from 5.3% in May. Despite the deceleration, wage pressures remain robust. Labor costs surged in the first quarter and the Atlanta Fed’s wage growth tracker continues to run strong. More

Red-hot labour demand stoked another strong month of US jobs gains, defying expectations for a sharper slowdown and dampening fears of an impending recession. Non-farm payrolls grew by 372,000 in June, the Bureau of Labor Statistics reported on Friday, far above the 265,000 that economists had expected and just shy of the downwardly revised 384,000 positions created in May.With these gains, the unemployment rate stabilised at its historically low level of 3.6 per cent, just shy of its pre-pandemic threshold. Economists had widely expected monthly job creation to slow given the strength of the recovery and the fact that almost all of the jobs lost during the pandemic have been recouped. As June’s figures show, the labour market remains the bright spot of the world’s largest economy despite growing recession fears and concerns that American consumers are starting to tighten their purse strings as their pandemic savings dwindle.Employers still compete fiercely over a shrinking pool of new talent to fill a near-record number of job openings to keep up with strong consumer demand for goods and services. Lay-offs remain at historic lows and recent data show about 1.9 job openings for every unemployed person.Average hourly earnings ticked up another 0.3 per cent in May, after a 0.4 per cent increase the previous period, and are now 5.1 per cent higher on a year-over-year basis. Yet, the labour force participation rate, which tracks the share of Americans either employed or actively looking for work, dipped to 62.2 per cent. That is more than one percentage point shy of levels seen before the start of the coronavirus pandemic.With the Federal Reserve now embarking on what is expected to be the most aggressive campaign to tighten monetary policy since the 1980s, economists fear the US jobs market is at serious risk, with unemployment likely to rise next year and into 2024, delivering a further hit to president Joe Biden’s popularity. However, a senior White House official on Thursday said a slowdown in job creation is not a “cause for concern”, but rather reflective of a transition to a “more sustainable pace of job growth”.The US central bank has lifted its benchmark policy rate by 1.50 percentage points since March, having delivered the first 0.75 percentage point rate rise since 1994 last month. Another jumbo adjustment is expected at its policy meeting at the end of the month, with Fed officials now aiming to move interest rates to about 3.5 per cent by year-end, a level that actively begins to constrain economic activity. Minutes from the June meeting suggest officials have increasingly accepted that their efforts to quell the highest inflation in 40 years will require “some slowing in economic growth and tempering in labour market conditions”. Most have pencilled in the unemployment rate rising to 4.1 per cent in 2024, as core inflation drops to 2.3 per cent. More pain may be necessary, economists warn, with many expecting a more severe economic downturn. Fed chair Jay Powell also recently conceded that a US recession is now “certainly a possibility”, but has maintained there are still pathways for the central bank to reduce inflation without causing widespread job losses. More