Previous Quarterly Editions
Expropriation Risk: 50 50 48 50 Political Violence Risk: 38 38 38 38 Terrorism Risk: 32 36 36 38 Exchange Transfer and Trade Sanction Risk: 55 53 51 53 Sovereign Default Risk: 55 56 54 54
TREND ▲ OUTLOOK ►
Ghana remains on track to become the world’s fastest growing economy in 2019. The IMF forecasts an annual growth rate of 8.8%, double the figure for emerging market economies as a whole. Rising oil and gas output and higher prices for its other exports have spurred growth in a country that remains one of the world’s largest producers of gold and the second largest cocoa exporter. Improvements in electricity generation, although proving costly to the government, are helping to support greater productivity in industry and manufacturing, while the services sector recorded its strongest expansion in three years. However, the outlook from the New National Party (NNP) government of President Nana Akufo-Addo is less confident. When Finance Minister Ken Ofori-Atta delivered his budget in July, he trimmed his annual growth forecast from 7.6% to 7.1%. The government had a budget deficit of 3.3% in the first half of 2019, significantly higher than the target of 2.9%. As a result, the annual budget deficit is expected to reach 4.5%, higher than the target of 4.2% and up from 3.7% last year. However, the government should be able to ensure that it will not breach the legal deficit cap of 5%. As attention swings towards the general election that is due at the end of next year and the related temptation to boost public spending, the government is acutely aware that investors are watching whether it will adhere to its self-imposed fiscal sustainability targets. The increased budget deficit was disclosed barely three months after the IMF’s $925 million financial bailout programme formally ended in April, having been made necessary by years of excessive spending. Ghana has a long track record of fluctuating between bouts of pre-election fiscal irresponsibility and periods of post-election austerity. Even so, the government initiatives to formalise the economy by squeezing the informal sector while introducing a more favourable taxation system are slowly beginning to show results. Unemployment is low and the country’s once ailing manufacturing sector is benefiting from government efforts to dilute excessive dependence on primary exports of gold, hydrocarbons and cocoa. However, it will be some time before the country’s economy will be cushioned from the impact of sudden commodity price collapses like those seen in recent years. Ghana, whose cocoa production is second only to neighbouring Côte d’Ivoire, has not yet faced the same degree of US criticism as Abidjan for the use of child labour in cocoa farming, but it is watching the situation carefully.
One consequence of the rising budget deficit has been a fundamental review of the government’s power procurement deals. These were undertaken to accelerate an increase in the country’s installed generation capacity to nearly double its peak demand requirement of some 2,700 megawatts. The review is likely to result in less favourable prices paid to the foreign energy companies that have been attracted to the country’s power sector over the past five years or so. The government says that under the procurement deals, it currently pays 460 million dollars for power that is not yet needed, and even more for unused gas production. Finance Minister Ofori-Atta announced in July that he intends to convert all power procurement deals with independent power producers and gas suppliers into take-and-pay contracts, which will reduce government spending in this area.
TREND ► OUTLOOK ▲
Ghana continues to enjoy a reputation for political stability that has held steady since the military returned to barracks in 1993. Political tensions tend to rise in the run-up to general elections but with the next not due until 2020, the remainder of 2019 should remain relatively relaxed. One area of concern, however, is the activities of various vigilante groups associated with the main political parties in some regions of the country. These have been known to operate at election time, and particularly during by-elections, by disrupting opponent meetings, stealing ballot boxes, and taking other measures to affect the electoral process. The president has proposed legislation to tackle the problem, but these groups may still be active in 2020.
Ghana is on a renewed terrorist alert following a series of attacks on Christian churches in neighbouring Burkina Faso, the latest of which took place in May and killed four worshippers. More than 400 people have been killed in Ghana’s northern neighbour as a result of religious violence since 2015. Ghana, like neighbouring Côte d’Ivoire, has intensified patrols on its northern border, and security officials have met with the Christian Council of Ghana to discuss how best to protect congregations from possible attacks.
Following the unexpected cut of 1% in January, which followed complaints from President Akufo-Addo that interest rates were too high, the central bank kept its benchmark rate unchanged at 16% in July. It acknowledges that monetary policy remains tight, and average high street rates of around 25% from commercial banks are deterring small businesses from seeking loans to expand. But the bank is focused on the rate of inflation. Although this was running at below 10% in July, the risk that a return to double figures would pose to the cedi, which lost 10% of value against the dollar during the first quarter, remains a concern.
TREND ► OUTLOOK ►
Government figures show that Ghana’s debt-to-GDP ratio fell to just under 60% in June from 62% at the start of the year. Although public debt has actually risen sharply in absolute terms over the last eighteen months, the debt-to-GDP ratio has fallen as a result of the rebasing of the economy in October 2018, a move which expanded the size of the economy by some 24%. This lower ratio has, ironically, enabled the government to borrow more money. While S&P raised Ghana’s sovereign rating from B- to B with a stable outlook last year, giving the country its first upgrade in a decade, the IMF still considers Ghana to be at significant risk of debt distress in part because of the high ratio of debt service costs to government revenue.
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