Balance of payments, inward remittances compilation and analysis: The case of Ghana from 2016-2022 (Part 1)
This paper outlines the current practices for the compilation and dissemination of data on remittances in Ghana’s balance of payments framework.
It outlines discrepancies in this existing framework, as well as the need for additional data from new MTOs and Fintech companies to address the anomalies identified in the World Bank data on inward remittances and that from the Bank of Ghana’s data from the 23 authorised dealer commercial banks over the period 2016-2022.
This paper also illustrates weaknesses in the country’s remittance data as against that of the assessment of the World Bank’s remittance aggregates) and the need for specific practical guidance on data sources and compilation methods.
The inadequacy of practical compilation guidance concerns compilers, who, as a result, often produce data that is less credible than other balance of payments components.
As defined in the Balance of Payment Manual (BPM, the balance of payments (BOP) is a statistical statement that systematically summarises, for a specific period, the economic transactions of an economy with the rest of the world.
Transactions, for the most part between residents and non-residents, consist of those involving goods, services and income; those involving financial claims on and liabilities to, the rest of the world; and those (such as gifts) classified as transfers, which involve offsetting entries to balance—in an accounting sense—one-sided transactions (International Monetary Fund, 1996).
Balance of payments statistics are included in a broad set of economic statistics known as the national accounts.
The System of National Accounts 1993 (1993 SNA) presents the conceptual framework for national accounts and the fifth edition (1993) of the Balance of Payments Manual (the BPM) presents the conceptual framework and the structure and classification of the balance of payments.
The high level of concordance between the 1993 SNA and the BPM is extremely important. In Ghana, over the past decade, remittances have constituted an important component of balance of payments accounts, which is, usually, recorded as receipts under the capital account section by the Bank of Ghana.
Ghana’s remittance receipts, in recent times, have assumed an increasing trend. The micro- and macro-economic impact of remittances has been widely documented in the various World Bank country reports.
Stabilising balance of payment
At the macro-level, remittances stabilise the balance of payments, hence contributing to closing the large and persistent trade gaps in many countries and preserving macroeconomic stability (World Bank, 2006).
At the micro-level, the development effects of remittances, with a certain degree of variety, have been documented for poverty alleviation, improving education and health outcomes, improving income distribution, and steering entrepreneurial spirit (Adams & Page, 2005).
Remittances are a rapidly growing and stable source of foreign exchange inflow to several developing economies such as Ghana across the world.
Remittances through official sources far exceeded the size of Official Development Assistance (ODA) and are more stable than foreign private flows such as portfolio investments like Euro-bond markets which are characterised by high volatility and distortionary tendencies due to their short life cycle.
Money Transfer Companies (MTCs) and financial institutions were the two central means of transferring and receiving cash in Ghana before 2019.
Through their global networks, these institutions have provided avenues for diaspora communities to remit money to Ghana.
They offered a variety of delivery service channels such as direct-to-account, cash to the mobile phone, cash-to-card and person-to-person transfers.
Their platforms are integrated to allow money transfers from bank to bank from MTCs to bank and through a mobile money system.
According to the World Bank data on inward remittance, Ghana has witnessed a substantial rise in remittances inflow from US$2 billion in 2014, US$5 billion in 2015, US$3 billion in 2016, US$3.5 billion in 2017 to US$ 4.5 billion in 2021 and further to US$ 4.7 billion in 2022(World Bank 2022).
The Bank of Ghana’s estimates of the balance of payments suggested that remittances place second after exports in terms of resource inflow in Ghana.
The IMF balance of payments indicators in 2016 report that Ghana’s inward remittance receipts from the rest of the world for the past decade averaging US$ 2.9 billion per year far exceeding the surrendered gold proceeds from mining companies of US$863,356,251.30 and US$990,172,984.99 recorded in the years 2021 and 2022 respectively.
From the data analysis, it could be deduced that the country must put resources into harnessing inward remittances than investing in minerals such as gold, bauxite and diamond. Inward remittances have contributed in the past to the financing of Ghana’s trade deficit and kept the current account deficit manageable.
Inward Remittances have impacted real exchange rate appreciation was also seen through the favourable current account balances that raise the net foreign asset position. Remittances also impact on real exchange rate through growth.
Importantly, prior scholarship had associated large capital transfers among countries to improvement or exacerbation of the balance of payment, thereby putting pressure on the foreign exchange rate.
The Bank of Ghana’s data analysis on inward remittances has supported the Ghanaian economy more than surrendered gold proceeds from the mining companies operating in the country.
According to the Auditor-General’s Report on the Consolidated Statements of Foreign Exchange Receipts: Schedule of earnings from 23 authorised dealer commercial banks in the period between 2016 to 2022: Transfers – Inward Remittances US$ 1,837,506,014.80 in 2016 US$ 10,766,037,529.00 in 2017, US$1,021,916,059.59 in 2018.US$2,005,542,497.90 in 2019 US$2,310,586,691.47 in 2020 US$ 2,110,512,179.69 in 2021) US$2,121,081,266.78 in 2022).