Ghana Economic Outlook
Economic performance
and prospects
Economic growth fell
from 14% in 2011 at the onset of oil production to 3.5% in 2016, the lowest in
two decades. The economy recovered in 2017, growing an estimated 6.3%, spurred
by recovery in nonoil sectors, lower inflation, and new hydrocarbon wells (the
Tweneboa, Enyenra, Ntomme, and Sankofa oil and gas fields). Over the medium
term, economic growth is expected to accelerate to 8.5% in 2018 and then
moderate at 6.2% in 2019 as the budget and current account deficits narrow amid
lower inflation and falling interest rates.
Macroeconomic
evolution
Weak economic growth
squeezed by tight monetary policy and lower oil production in 2016 have led to
a decline in government revenues. Budget performance is expected to improve
after the budget deficit drop from 8.9% of GDP in 2016 to 4.7% in 2017. Higher
oil production and tightly controlled expenditures are likely to boost
revenues. Improvements in tax collection and falling inflation and interest
rates will facilitate economic activity. Revenue mobilization and efficiency
measures will continue to be key factors in budget implementation. Inflation
continued to gradually drop from a peak of 19.2% in January 2016 to 12.2% in
September 2017. The Bank of Ghana reduced its policy rate from 25.5% to 21%,
the fourth consecutive cut since November 2016. Exchange rates remained stable
compared with 2014 and 2015, with a cumulative yearly depreciation of 4.7%
against the U.S. dollar as of August 2017. Ghana is at a high risk of debt
distress as the debt-to-GDP ratio remains high at 73.3% in December 2016, down
from 68% in June 2017. Debt sustainability remains a priority for the
government’s fiscal consolidation program.
Tailwinds
The smooth transfer of
political administration following the December 2016 elections strengthened
Ghana’s democratic credentials. The promotion of private sector– led growth
provides a key platform for reviving the nonoil sectors, as well as for links
to stimulate manufacturing. Restoring and maintaining a sustainable fiscal and
macroeconomic environment, improving the business-enabling environment while
strengthening the electricity supply, and ensuring the energy sector’s
financial viability are requisite to enhanced productivity. The resolution of
the production challenges of the Jubilee oil well and the September 2017
landmark ruling of the 2015 International Tribunal for the Law of the Sea on
the boundary dispute between Côte d’Ivoire and Ghana in favor of Ghana pave the
way for renewed drilling and exploration of oil and gas and offer the potential
for new oil investment.
Headwinds
The wide budget
overrun in 2016 calls for expanding Ghana’s tax base, which is relatively low,
with a tax-to-GDP ratio of about
16%. Revenue mobilization remains key in achieving the country’s plans for a
sustainable fiscal consolidation path while managing debt sustainability and
funding of development objectives. Addressing the financial sustainability of
state-owned energy enterprises is crucial to the financial health of the energy
sector, as well as the banking sector, whose nonperforming loans rose sharply
to 21.2% in June 2017. The increased minimum capital requirement of commercial
and rural and community banks paves the way to consolidate and improve the
health of the banking sector. The Bank of Ghana has taken steps to restore
stability to the sector by requesting a recapitalization plan from banks with
capital shortfalls, in addition to the implementation of collateral
requirements and the development of an Emergency Liquidity Assistance plan.
Ghana sits on the
Atlantic Ocean facing south and borders Togo, Cote d'Ivoire, and Burkina Faso.
It has a population of about 28 million (2016). In the past two decades, it has
taken major strides toward democracy under a multi-party system, with its
independent judiciary winning public trust. Ghana consistently ranks in the top
three countries in Africa for freedom of speech and press freedom,
with strong broadcast media in particular and radio the medium with the
greatest reach. Factors like these provide Ghana with solid social capital.
In December 2016, Nana
Dankwa Akufo-Addo of the opposition New Patriotic Party was elected President
in a peaceful election. Akufo-Addo and his
vice-president, Mahumdu Bawumia, were sworn-in in January 2017, and a
cabinet and ministers-of-state appointed. The size of their victory clears the
way for them to carry out their political agenda, but significant economic
challenges remain. The goodwill the government has earned is not inexhaustible;
many Ghanaians are watching how it delivers on its promises in its first year.
It started with free senior high school education, and President Akufo-Addo has
pledged to reduce Ghana's budget deficit and cut waste in all sectors of public
life.
Recent Economic
Developments
Ghana’s economic
performance improved in the first half of 2017, after substantial fiscal
slippage in 2016. The fiscal deficit for the first half of 2017 was 2.7% of
GDP—on track to meet its target of 3.5% of GDP.
Revenues underperformed and were 14.9% below their target, but the
government cut both its recurrent and capital expenditure to keep its fiscal
consolidation program on track. This underperformance was to be reversed in the
second half of 2017 as policies, announced in March, took effect. These were
supported by the World Bank through technical assistance to the Ghana Revenue
Authority. Ghana's total debt had increased from $29.2 billion (73.1% of GDP)
at the end of 2016, to $31.7 billion (68.1% of GDP) in 2017, reflecting a
slowdown in the rate of external debt accumulation, as well as higher GDP
growth.
Ghana’s economy
expanded for the third, successive quarter in March 2017, to 6.6% up from 4.4%
the previous year. The industry sector recorded the highest growth
of 11.5%, compared to 1.8% in 2016, with significant contributions of this from
mining and petroleum. The agriculture sector grew by 7.6%, up from 5% the
previous year, driven by good performances in the crops, fisheries, and cocoa
sub-sectors. However, growth in the services sector slowed to 3.7% from 6.6%,
due to slower growth in information, communication, and finance. Non-oil growth
slowed to 3.9% from 6.3% in the same period of 2016.
The inflation rate
continued to moderate itself, allowing the central bank to reduce its policy
rate. Headline year-on-year inflation was 12.3% in August, a slight uptick from
11.9% in July but continuing a decreasing trend overall since September 2016.
This created room for monetary policy easing and the Bank of Ghana cut the
policy rate by a cumulative 450 basis points to 21.5% in July. Consequently,
the 91-day Treasury-bill rate fell from 16.81% in December 2016 to 12.10% in
June 2017; and the rates on the 182-day Treasury-bill rate moved from 18.5% to
13.28% over the same period. Thus, broad money expanded by 23.7% in the first
five months of 2017, up from 16.8% in 2016. Outstanding credit to the private
sector grew by 16.2% in May 2017, against 10.1% for the same period in 2016.
The external sector
further improved as the cedi continued to stabilize and the reserve buffer
expanded. The June 2017 trade balance turned out a surplus of $1.43 billion,
equivalent to 3.1% of GDP from a deficit of 3.3% the previous year. This was
attributed to export earnings, especially from gold, cocoa, and oil. After a
sharp decline in the value of the cedi in January (due to demand caused by
seasonal factors), pressure has eased with improved liquidity and increased
reserves. Gross International Reserves went up from $4.9 billion, equivalent to
2.7 months of imports, at the end of December 2016, to $5.9 billion in June
2017, equivalent to 3.4 months of imports.
Ghana’s near
term economic prospects are good but challenges remain. Overall GDP is
projected to rebound to 6.1% in 2017. The rebound is expected to be
driven primarily by an increase in oil production. Also, goldoutput will
likely remain high and cocoa production is expected to grow to above 900,000
tons. However, non-oil growth is expected to slow to 4.3%. Inflation is
expected to fall within its target range of 6-10% by 2018, allowing for more
monetary policy easing and lower interest rates to spur private investment.
The fiscal deficit
target of 6.3% of GDP for 2017 is expected to be met. In addition, if met, the
targeted 2.5 percentage points primary balance adjustment, could help reduce
the debt stock from 73.4% to 70.5% by December 2017. Considering that Ghana is
already placed at high risk of suffering debt distress, any further fiscal
slippage could have a significant adverse impact on the debt dynamics. Ghana
still faces high financing costs in both the domestic and external markets.
Ghana’s economic
performance over the medium term lies in its ability to regain and sustain its
economic stabilization program through a return to fiscal consolidation. The
Ghanaian authorities have expressed their commitment to embark on a steep path
of fiscal consolidation; their half-year fiscal performance is evidence of
this.
Ghana is also likely
to continue to face high domestic and external financing costs as its debt
expands and global interest rates rises. In addition, the government faces
other major challenges: high youth unemployment; ongoing delays in the
resolution of debt incurred by energy state-owned enterprises; and the high
cost of electricity and need to match capacity and demand for its supply.
