Previous Quarterly Editions
Expropriation Risk: 50 48 50 52 Political Violence Risk: 38 38 38 40 Terrorism Risk: 36 36 38 39 Exchange Transfer and Trade Sanction Risk: 53 51 53 53 Sovereign Default Risk: 56 54 54 53
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The budget for 2020 and the accompanying medium-term economic statement, which the government presented to parliament in November, are the first since the end of close fiscal monitoring by the IMF. Although Finance Minister Ken Ofori-Atta knew that this budget cycle was being closely watched, his budget set out an increase of 21% in government spending during a year that will see both legislative and presidential elections. This has raised concerns that Ghana is once again embarking on a familiar cycle in which a pre-election spending spree is then followed by a round of austerity from whichever party wins office. Ofori-Atta stated that the budget deficit will rise only slightly during 2020, to 4.7% from 4.5% of GDP, but with the likelihood of overrun this could bring it very close to the legislative cap of 5% that was introduced in 2018. The budget also shows plans to raise a further 3 billion dollars on the international capital markets, much of which has been earmarked for public sector salary increases and infrastructure projects. Looking ahead, government projections show the pace of growth falling from 7.4% in 2019 to 5.6% in 2020 and 4.2% in 2021. The 2020 spending plans were unveiled as the government of President Nana Akufo-Addo faced mounting criticism for granting China’s 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 across the country worth some two billion dollars. China released the first tranche of 650 million dollars under the deal in November, but ecological critics say that the bauxite excavation risks the pollution of three major rivers while political opponents have criticised the New National Party government for the opaque nature of the arrangement. Although the deal does little to ease the country’s persistent problem with its high debt-to-GDP ratio, which is not expected to fall much below 60% over the medium term, the main credit rating agencies are now more sanguine about Ghana than they were before the IMF intervention in 2015. An inflation rate of 15% in 2016 had been halved by 2019, interest rates have been scaled back to 14%, and the volatility of the cedi has also been reduced. Moreover, a trade deficit of 1.8 billion dollars in 2016 had become a surplus of 2.8 billion dollars in 2019. Acknowledging these improvements, Parliament’s Finance Committee reported in November that the economy is now on a sound footing. But the NPP government looks vulnerable to the temptation to raise public spending during an election year, and this puts the achievements made during the years of IMF conditionality under threat.
There has been mounting criticism of the government’s 2019 Electronic Payments & Services Act, which requires all new and existing providers of electronic money services to meet new 30% local ownership requirements. 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. The government is continuing to review its power procurement deals after agreements meant to hasten the construction of new generating capacity have now left it with obligations to purchase amounts of power that it cannot use.
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The government shocked the country and its regional neighbours in September after announcing that the security services had foiled what it termed ‘an elaborate plot’ to stage a coup. A handful of soldiers and civilians were arrested and a small cache of arms was seized, but there was a widely shared sense that the threat was overstated. Nevertheless, given that Ghana has been a stable democracy for nearly three decades since the military returned the country to civilian rule, the apparent belief of those attempting the coup that they could find support within the military as well as among the country’s disaffected youth clearly rattled the political establishment. With the elections likely to be held in November or December 2020, there should not be a notable increase in the risk of political violence before mid-year.
Three attacks in neighbouring countries at the end of 2019, one on the operations of a Canadian mining company in Burkina Faso that left 40 people dead and two in Mali that killed 80 soldiers, underscored the threat posed to the region by Islamic militants. With the latest evidence that Burkina Faso and Mali were unable to prevent these attacks, Ghana and other countries in the region are stepping up their own security provisions.
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The central bank kept its benchmark interest rate at 16% at the end of 2019, but indicated a small cut was likely in early 2020. However, lending rates offered by commercial banks are still around 25% for most private borrowers, which is frustrating local investment. President Akufo-Addo has called on the central bank to work with its commercial counterparts to bring down lending rates, which he blames for constraining private sector development, and the gradual fall in inflation during 2019 may mean more progress in this area during 2020.
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Public debt has actually risen sharply in absolute terms over the last eighteen months, although the debt-to-GDP ratio has fallen as a result of the rebasing of the economy in 2018 which expanded the size of the economy by 25%. This lower ratio has enabled the government to borrow more. The fact that all the major rating agencies now have a positive outlook for Ghana may help the government raise fresh funding on international markets, but 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. This suggests that more agreements along the line of the China bauxite deal that swaps natural resources for infrastructure investment may be likely.
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