Previous Quarterly Editions
Expropriation Risk: 51 51 51 48 Political Violence Risk: 36 36 37 39 Terrorism Risk: 42 42 42 42 Exchange Transfer and Trade Sanction Risk: 35 35 35 45 Sovereign Default Risk: 66 66 66 66
TREND ▲
The Supreme Court decision in March 2021 to uphold the outcome of the December 2020 presidential election brought considerable relief to President Nana Akufo-Addo’s ruling National Patriotic Party (NPP), which had faced allegations from the opposition National Democratic Congress (NDC) that the December 2020 poll had been ‘fraudulent’. The Court upheld the Electoral Commission’s verdict that the NPP won the ballot with 51.59% of the vote, compared to the NDC’s 47.36%, removing at a stroke the threat of an election re-run.
The decision enabled Akufo-Addo to press ahead with implementing his second mandate, beginning with the swearing-in of key officials including Finance Minister Ken Ofori-Atta for a second term, who will be primarily responsible for negotiating Ghana’s path out of COVID-19. Putting a brave face on Ghana’s economic outlook, Ofori-Atta insisted that despite COVID-19’s adverse economic effects, Ghana continued to chart a course to the goal of ‘Ghana Beyond Aid’ by boosting growth and improving socio-economic conditions.
The government’s 2021 budget forecast projected growth of 5% for the year, significantly higher than the World Bank’s forecast of 1.4% in January but is only marginally higher than rating agency Moody’s 4% forecast. Ofori-Atta also said that the government expected inflation to return to its target band of 8%, plus or minus 2%, which was seen by some critics as unduly optimistic.
In the face of a depressed economic outlook, Ofori-Atta unveiled a USD19.9bn budget for the year 2021, up 13.7% from 2020, including stimulus measures intended to help the economy recover from the effects of COVID-19. The fiscal deficit was projected at 9.5% of gross domestic product (GDP), down from 11.7% in 2020, although again critics saw this as excessively optimistic.
Stressing that Ghana remains in a difficult position, Ofori-Atta warned of the need to control spending and increase tax to boost revenue. Despite the finance minister’s generally upbeat assessment of Ghana’s economic outlook, the increased spending pressures Ghana faces due to higher health expenditures, additional fiscal stimulus initiatives and increased external borrowing, can be expected to lead to recurring fiscal deficits and delayed fiscal consolidation.
TREND ▼
Former NDC Finance Minister Seth Terkper warned in March 2021 that President Akufo-Addo’s ‘borrow and spend’ policies risked putting Ghana on the path towards renewed ‘heavily indebted poor country’(HIPC) status and called on the government to draft urgent plans to salvage the country from its debt distress. Warning that Ghana was once again drifting towards HIPC status as the country’s debts exceeded 70% of GDP, he insisted that debt remains debt, even if it is deferred into a sinking fund, as it will still have to be paid off eventually.
Terkper called on the government to heed International Monetary Fund (IMF) and credit rating agencies’ warnings that commodity-dependent countries will struggle to service new debt if demand for primary exports remains depressed. Despite warnings about raising fresh debt from the Eurobond markets, Ghana raised USD3bn in a four-year, zero-coupon bond in March 2021, which was twice oversubscribed. The strong appetite for such debt was hailed as a strong signal by the government in investor confidence in Ghana’s economic outlook- a view not widely shared.
Ghana survived the most recent threat to its reputation as an outpost of stability and tranquillity in West Africa following the contested 2020 presidential ballot. The Electoral Commission’s decision to revise its initial voter tally to give the incumbent NPP a clear first-past-the-post electoral majority led to a sharp increase in post-election tensions across the country, which were augmented by former President John Mahama’s decision to brand the ballot “fraudulent” and to issue an incendiary call to his supporters to “take to the streets” to prevent the Electoral Commission from “stealing the election”.
Post-election crises are not new to Ghana, but few have tested the country’s democratic credentials as much as the 2020 ballot. Opposition protests led to a series of violent incidents, which were significantly worse than in previous elections. Fortunately, these protests ran out of steam when the Supreme Court delivered its verdict, but the sharp uptick in post-election tension was unmistakable.
TREND ►
Islamic State militants continue to pose a significant threat in Syria, Iraq and beyond including Africa, said John Godfrey, US Acting Special Envoy for the Global Coalition to Defeat ISIS, in March 2021. Africa remains a fertile recruiting ground for jihadist groups seeking to exploit conflict and tensions that have festered for years, he added, raising hopes that US President Joe Biden’s new administration will reverse the relative neglect of African security issues under the former Trump administration. Sporadic terrorist attacks across the West Africa region continue to fan anxieties in Accra over the risk of similar attacks taking place on Ghanaian soil.
Ghana’s central bank kept base rates steady at 14.5% in March 2021, the sixth consecutive time the bank has maintained that rate since its March 2020 cut. Central Bank Governor Ernest Addison said inflation was expected to return to its target in the second quarter of the year, following evidence of a sustained pick-up in business confidence which was partly attributable to the gradual rollout of COVID-19 vaccines. He made little or no reference to growing concerns about Ghana’s rising public indebtedness and the near inevitability that additional revenues will have to be sourced from tax, while at the same time broadening the tax base to compensate for falling or flat revenues from other sources.
While IMF and World Bank interventions have enabled Ghana to withstand many of the economic headwinds that hit the commodity-dependent country with COVID-19’s onset, the persistent rise in Accra’s public debt is fanning regional and international anxieties over Ghana’s medium- to long-term financial stability.
Although buoyed by high demand for its USD3bn, four-year, zero-coupon bond issued in March 2021 (USD400mn of which will be used to retire more expensive debt, saving the country USD200mn over the next four years) these savings are small compared to the rising stock of public debt. Ghana’s external debt is now well above the 40% debt-to-GDP ratio that the IMF considers sustainable, increasing the pressure on the government to allay investor anxieties.
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