Previous Quarterly Editions
Expropriation Risk: 47 50 50 48 Political Violence Risk: 38 38 38 38 Terrorism Risk: 32 32 36 36 Exchange Transfer and Trade Sanction Risk: 52 55 53 51 Sovereign Default Risk: 54 55 56 54
TREND ▼ OUTLOOK ►
Ghana will be the fastest growing economy in the world this year, according to projections released in April. The IMF expects growth to be 8.8%, and while the World Bank figure is slightly lower at 7.6%, both estimates are above the government’s own projection of 7.4% in its budget statement earlier this year. These numbers are particularly impressive given that growth was barely 2% as recently as 2015. While increases in oil and gas production will be the main drivers over the next twelve months, growth in the non-oil sector that includes mining, agriculture, services and manufacturing will also remain significant. Growth in agriculture should be close to the figure for the economy as a whole, largely as a result of the government’s continuing investment in the ambitious ‘Planting Food for Jobs’ initiative. This has already seen nearly 600,000 low-income farmers receive subsidised seeds and fertilisers as part of an effort to boost agricultural output and cut the cost of food imports. Ghana currently spends some two billion dollars per year importing food, with rice alone costing the government half of that total, and there is considerable scope for domestic production to reduce the import bill. Ghana’s macroeconomic performance has improved markedly over the past 24 months as it met the conditions of the IMF’s Extended Credit Facility, a programme that formally came to an end in April. Its economic turnaround, which did not look promising as recently as 2017, contrasts sharply with Africa’s three biggest economies, Nigeria, South Africa and Angola, where economic growth continues to be weak. Despite the gains made by greater fiscal discipline, however, the overall structure of the Ghanaian economy remains largely unchanged as overdependence on primary exports of hydrocarbons, gold and cocoa continues. This leaves the country exposed to future price fluctuations, such as the 2014-15 commodity price collapse that ultimately forced Ghana to seek assistance from the IMF. As a result, the New National Party (NNP) government of President Nana Akufo-Addo is still under pressure to boost fiscal receipts through improved revenue collection while also cutting a public sector wage bill that remains unsustainably high. This will become an increasing challenge as the country gears for next year’s elections. The presidential election is likely to be a rerun of the two previous elections, pitting the incumbent against John Mahama of the National Democratic Congress, who was his predecessor in the post.
President Akufo-Addo’s centre-right NNP government has been at pains to assure international investors of its commitment to fiscal responsibility and macroeconomic stability. This has become more important as the country exits the IMF’s Extended Credit Facility programme and the prospect of backsliding increases. In an effort to demonstrate its commitment to prudent fiscal management, the government passed a Fiscal Responsibility Act in December that caps the fiscal deficit at 5%. The legislation provides for a vote of censure against the finance minister if public spending exceeds defined limits. The government’s decision to inaugurate an independent Fiscal Council to enforce the legislation, together with its appreciation that investors will be watching spending levels and the debt-to-GDP ratio closely, should encourage a greater degree of fiscal prudence than may have been the case a few years ago.
TREND ► OUTLOOK ▲
Ghana has not experienced any serious political violence since the military stepped back from direct governance a generation ago. The greatest threats to political stability are perhaps linked to the declining trust in government as politicians consistently make excessive promises on which they then fail to deliver, and the danger that government spending becomes unequally distributed between the north and south of the country. As the 2020 election approaches, more questions will be asked about the various vigilante groups associated with the ruling NNP. Since Akufo-Addo’s victory at the end of 2016, these groups have become more prominent, staging sporadic attacks on those within the party who attempt to curb their influence.
TREND ► OUTLOOK ►
The Ghana Immigration Service launched a Document Fraud Expertise centre in Accra earlier this year in response to the threat posed by jihadis moving into West Africa. This follows joint National Counter Terrorism unit exercises between the armed forces, the police, the immigration services and the country’s National Security Council, aimed at demonstrating Ghana’s readiness to deal with extremist attacks on the capital similar to those that took place in Burkina Faso in May 2018 and Nairobi in January 2019.
TREND ▼ OUTLOOK ▼
The central bank left its monetary policy rate unchanged at 16% in April while making it clear that it would be increased if inflation moves beyond its 6-10% target range. The bank acknowledges that its monetary policy stance remains tight, with real interest rates still comparatively high. However, risks for inflation from the depreciation of the cedi remain. After the central bank cut its rate by 100 basis points in January, the cedi fell by around 11% during February and March. The bank has attributed this to seasonal pressures driven by foreign exchange demand from importers, but also accepts that concern over the economic outlook after the completion of the IMF’s fiscal consolidation programme played a part. A major consolidation effort in the banking sector has managed to increase confidence, with deposits up by 20% since January.
Ghana’s debt-to-GDP ratio fell to 62% at the end of 2018. This was down from 64% in 2017 and suggests that the efforts to reduce spending have had a measurable effect. Although a total debt of some 32 billion dollars remains a significant burden for an economy valued at 47 billion dollars, if growth this year reaches current projections of 7-8% then the government will have some room to take on more debt to help implement election pledges that include the construction of 20,000 new houses this year, an employment scheme for graduates, and more money to train new teachers. The key requirement remains converting high-interest short-term debt to lower-interest longer maturity instruments.
Return to contents Next Chapter