Previous Quarterly Editions
Expropriation Risk: 48 50 52 53 Political Violence Risk: 38 38 40 40 Terrorism Risk: 36 38 39 43 Exchange Transfer and Trade Sanction Risk: 51 53 53 55 Sovereign Default Risk: 54 54 53 56
TREND ▲ OUTLOOK ▲
Ghana began 2020 with an upbeat economic outlook. The government forecast growth of 6.8% this year, and even the IMF expected a figure above 5% after the government completion of the economic programme that was a condition of its recent loan programme. But by the end of March 2020, the government had cut its growth forecast to 1.5%, the lowest for decades, as the country began to experience the impact of the COVID-19 outbreak. That figure still looked optimistic as the country had yet to enter full lockdown beyond parts of Accra and the economic hub of Kumasi. Having gone through the regional impact of the Ebola outbreak of 2014, which caused disruption for more than two years, the population has been generally supportive of measures to limit the impact of COVID-19. There are also strong memories of the 2014 commodities crash, which caused a drop in GDP growth across the region from 5.1% to 1.4%, and an appreciation that the impact of the virus emergency is now expected to be considerably worse. Moreover, Ghana is also being hit by the precipitous drop in global oil prices that was seen in March 2020. Oil and gas production for domestic use and export sales have been a key driver of the country’s economy since 2016 and has provided a foundation for many of the government’s future plans. The government already expects to see oil revenues fall by more than a billion USD this year, with that figure compounded by the loss of related tax revenue. At the same time, falling global demand is hitting the currencies of several African oil producers, including Ghana’s cedi, pushing up inflation and making debt servicing costs more expensive. The progress made towards fiscal consolidation in recent years under IMF encouragement was already under threat this year from the traditional government boost in election year spending, as presidential and legislative elections were due at the end of 2020. It is not yet clear whether these will be postponed, but this appears increasingly likely. Pushing elections into 2021 will prolong the period of greater public spending, putting even greater strain on fiscal discipline.
Ghana’s finance minister, Ken Ofori-Atta, has taken a leading role in urging China to provide relief to African countries that owe it money. Speaking at the start of April 2020, he put the total that African countries now owe to China at around 145 billion USD, with 8-9 billion USD falling due this year. Ghana itself has a number of major relationships with China, including granting the giant Sinohydro corporation access to 5% of Ghana’s bauxite reserves, found in the southeast of the country, in exchange for financing new road, rail and bridge infrastructure worth some 2 billion USD. The deal is set to become an election issue as it has been criticised by environmentalists as posing a pollution threat to three major rivers and by the government’s political opponents for being particularly opaque. The government has been heavily criticised for retroactively requiring all new and existing providers of electronic money services to meet 30% local ownership requirements under the 2019 Electronic Payment and Service Act. Although the issue has been eclipsed by the virus emergency, investors will continue to note the move as another example of the government’s occasional unpredictability.
TREND ► OUTLOOK ▲
While Ghana’s political stability remains underpinned by its strong democratic credentials, the COVID-19 emergency will sharpen the traditional political tensions between the ruling New National Party (NNP) and the opposition National Democratic Congress (NDC). The ability to provide sufficient levels of health care will be a particular point of contention, but the government’s handling of food distribution will also be watched carefully. There has been little follow-up to the government’s shock announcement in September 2019 that it had foiled what it termed ‘an elaborate plot’ to stage a coup. While the initial sense that this was a politically advantageous overreaction to a small incident appears to have been confirmed, the apparent belief among the handful of people involved that they could count on support from sections of the military and disaffected urban youth clearly rattled the political establishment.
Ghana is increasingly concerned about the situation in neighbouring Burkina Faso, where instances of extremist violence have been increasing; an attack on a market town on the border with Mali in January 2020 killed more than 50 people. It is now seen as the epicentre of militant jihadism in the region, and its government has been weakened by the impact of COVID-19. Ghana continues to strengthen its resources to fight terrorism and is encouraging greater regional cooperation to address the situation in Burkina Faso.
The central bank cut its base rate by 150 basis points to 14.5% in March 2020 as part of its efforts to cushion the economy from the imminent economic slowdown. However, commercial rates remain substantially higher than the central bank’s base rate and even a cut of this magnitude may have limited impact. Having fallen back into single digits during 2019, it is clear that inflation will rise sharply in the second quarter and the government’s need for more borrowing will put further pressure on the cedi. Although its IMF bailout package is now complete, Ghana hopes to benefit from the Fund’s efforts to make concessional lending available as countries contend with the economic consequences of the virus.
At the start of the year, the major rating agencies all had a positive outlook for Ghana, and this encouraged government plans to issue debt, initially to boost infrastructure spending but increasingly now to support public services. However, these issues may have to be scaled back or delayed as borrowing from domestic and international lenders becomes harder. Moreover, the IMF still considers Ghana to be at significant risk of debt distress due to the high ratio of debt service costs to government revenue. Total public debt currently stands at 63% of GDP. Of this, some 35%, or roughly 20 billion USD, is external debt. Unless there is easy access to financing from multilateral lenders, the government may be tempted to look for more agreements along the line of the China bauxite deal that swaps natural resources for infrastructure investment.
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