Ghana going hyper?

Determining if a country is hyperinflationary, is a judgemental exercise. The requirements of IAS 29 Financial Reporting in Hyperinflationary Economies is applied in assessing this. The globally accepted view is that the last indicator in IAS 29.3, i.e., cumulative inflation over three years approaches or exceeds 100%, is a strong indicator of a hyperinflationary economy.

When a country becomes hyperinflationary, all entities having the local currency as its functional currency must apply IAS 29. All reported balances and transactions are adjusted to compensate for the currency losing its purchasing power, this is achieved by adjusting the values reflected for the country’s general price index at reporting date compared to the general price index at transaction date. For a company with a hyperinflationary economy’s currency as functional currency, comparatives are restated. When such a company is a holding company, the comparatives relating to entities with a hyperinflationary economy’s currency as functional currency, these entities’ comparatives are also restated.

Due to economic circumstances, Ghana’s annual inflation for 2022 was 54%. Inflation gradually decreased during 2023, with annual inflation decreasing to 31%. This is expected to normalise to approximately 15% during 2024. As a result of this short spell of high inflation, and considering the qualitative factors included in paragraph 3 of IAS 29, the Institute of Chartered Accountants, Ghana (ICAG) believes that the application of IAS 29 for annual periods ending on or after 31 December 2023 is inappropriate. Their publication called “Guide to accountants in business and accountants in practice on application of IAS 29 in Ghana” explains their position and can be accessed here. This is not uncommon for a country entering into hyperinflation for the first time.

Although determining if a country is hyperinflationary is a judgemental exercise including an aspect of qualitative assessment, 3-year cumulative inflation for Ghana, effective 31 December 2023, exceeds 100%. It would be very difficult to argue against the applicability of IAS 29 for entities with a Ghanaian Cedi functional currency. Views enforced by in-country regulators may differ, but the consolidation of Ghanaian subsidiaries into international groups must be performed by applying IAS 29.

Other countries now considered to be hyperinflationary are Haiti and Sierra Leone. Countries remaining hyperinflationary from prior periods are Argentina, Ethiopia, Iran, Lebanon, Sudan, Suriname, Turkey, Venezuela, Yemen, and Zimbabwe.

Countries on the hyperinflationary watchlist include Nigeria and Malawi. Indicators of identifying such at-risk countries include a cumulative 3-year inflation of between 70% and 100% and a large (exceeding 25%) annual increase in inflation during the last year. IAS 29 does not currently apply to these countries, but inflation statistics should be closely monitored as the position can easily change. The cumulative 3-year inflation of Nigeria, one of Africa’s three largest economies, is currently at 83%.

¹Information published by the International Monetary Fund (“IMF”) in its latest report dated October 2023 and confirmed by Ghana Statistical Services

08 February 2024

Authors:

Sonica Schoeman, Director