Previous Quarterly Editions
Expropriation Risk: 50 52 53 52 Political Violence Risk: 38 40 40 37 Terrorism Risk: 38 39 43 42 Exchange Transfer and Trade Sanction Risk: 53 53 55 55 Sovereign Default Risk: 54 53 56 54
TREND ▼ OUTLOOK ▲
Ghana locked down for the first three weeks of April 2020 in response to COVID-19, but a first quarter figure of 4.7% showed that growth was already slipping from 6.7% in the same quarter in 2019. Moreover, the main driver of growth in the first quarter was services, a sector that was particularly affected by President Nana Akufo-Ado’s decision to lockdown all movement in the country’s two largest cities, Accra and Kumasi, as well as in Kasoa and Tema. He also imposed a total travel ban on all countries with cases of COVID-19. Since Ghana identified its first COVID-19 cases in early March 2020, infections have risen steadily to reach 28,000 confirmed cases in mid-July 2020 although with only 150 confirmed fatalities. Both numbers are lower than expected after a spike in cases during April and May 2020. It is not clear why this is the case, although the government has claimed that its ‘pool approach’ to testing has been a contributory factor. However, there have been incidents of hotspots, such as when a worker in Tema reportedly infected 533 others at a fish factory in May 2020, and workers in the Jubilee oil field have also been affected. The IMF provided Ghana with one billion USD in emergency funding in April 2020, while the World Bank agreed to a debt stand-still that freed up a further 500 million USD in the short term through deferred principle and interest payments. This is not sufficient to offset the economic impact of the pandemic however, and more help will be needed. Government forecasts now suggest that economic growth for 2020 could be below 1%, compared to expectations of 6.8% at the start of the year. If so, that would represent the worst performance in four decades. A full recovery is seen as three or four years out. One consequence of the current situation is that President Akufo-Ado’s ruling New National Party (NNP) will find the fiscal deficit rising rather than falling, which will contribute to a further weakening of the cedi. The loss of an estimated one billion USD in revenues from the oil and gas sector as a result of lower global prices will affect government spending plans at a time when further borrowing from international capital markets will become harder and more expensive. Oil and gas explorers such as Aker Energy have shelved plans for the development of new fields, and the longer that oil prices remain depressed the more likely it becomes that investment in the sector will fall further. This could force the government to focus more on other growth sectors, especially agriculture.
TREND ▼ OUTLOOK ►
Recognising that Ghana and similar countries will struggle to meet external financial commitments as they grapple with the costs of the COVID-19 pandemic, a group of private sector creditors created the Africa Private Creditor Working Group (AfricaPCWG) in May 2020. Its members hold the majority of sub-Saharan Africa’s main Eurobond issues. With investors concerned by calls early in the second quarter, from individual countries asking for debt restructuring or payment deferrals, its aim is to facilitate direct dialogue between creditors and debtors on debt-related issues. Coming at the same issue, but with a concern about future downgrades of sovereign ratings due to missed or postponed payments, the African Union has created a special purpose vehicle to lobby for managed deferrals and restructurings for fear that credit downgrades and debt sell-offs could push up borrowing costs for all African countries. Despite these initiatives, however, and in common with a number of its peers, Ghana has to work out a bilateral agreement with Beijing. The government recently admitted to owing China around 145 billion USD, of which some nine billion USD is due this year.
Finance Minister Ken Ofori-Atta admitted that Ghana’s lockdown had been lifted after only three weeks in April 2020 because it had become financially unbearable. The thriving hospitality sector was one of the first victims as all hotels in the Greater Accra region shut down and sent thousands of workers home. Workers in the informal sector, who account for a sizable majority of the working population, faced the stark choice of continuing to work and risk contracting COVID-19 or having no source of income. The easing of the lockdown prevented the build-up of anti-government sentiment, although considerable economic dislocation remains. How the ruling NNP manages the run up to the presidential and legislative elections that are still expected to take place in December 2020 could have a significant impact on the prospects for political violence as the elections approach, with the opposition already accusing the NNP of channelling pandemic relief to its own supporters.
TREND ▲ OUTLOOK ►
Although US Secretary of State Mike Pompeo recently pledged increased security support for West Africa, the Pentagon is considering cuts that include a deep reduction in the number of American troops stationed in Africa and reduced support for French forces battling Islamic militants operating across Mali, Niger and Burkina Faso. Given the fast-rising jihadist activity in Burkina Faso, its northern neighbour, Ghana will be concerned about any reduction in security aid to the region.
TREND ► OUTLOOK ▲
A spike in food prices, and the rising cost of imports, have kept inflation in double digits both of which the government attribute to the COVID-19 crisis. 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, as commercial rates remain substantially higher than the central bank’s base rate, even a cut of this magnitude may have limited impact. Yet with inflation at 11% in May 2020, substantially above its target of 8%, the bank sees the room for further cuts as limited. The central bank bought 950 million USD of the government’s relief bond issue in May 2020 and says it is ready to buy more.
Although the IMF and the World Bank were quick to step in to help ease Ghana’s mounting financial crisis, the country remains at risk of serious debt distress. The central bank sees the budget deficit expanding to more than 7% this year and is urging the government to raise more domestic revenue despite the current state of the economy. The country’s debt-to-GDP ratio, already relatively high at 63%, is expected to approach 68% this year as borrowing increases and productivity drops, while the budget deficit widens as pandemic-related spending merges with the traditional pre-election boost to public expenditure. The disappointing performance of the oil sector may now force the government to focus on other drivers of economic growth, especially agriculture, which the IMF says is necessary to make the country more resilient to external shocks.
Return to contents Next Chapter