Previous Quarterly Editions
Expropriation Risk: 47 47 50 50 Political Violence Risk: 38 38 38 38 Terrorism Risk: 32 34 32 34 Exchange Transfer and Trade Sanction Risk: 54 54 52 55 Sovereign Default Risk: 56 54 54 55
TREND ▲ OUTLOOK ►
After a faster rebound than expected last year, Ghana is now one of the fastest growing economies in Africa. Although growth is expected to dip to around 6.5% in 2018 from the 8.5% achieved in 2017, it will be a marked improvement on the 3.7% recorded in 2016. The cedi has stabilised and inflation is receding, providing evidence that the IMF-backed fiscal consolidation programme, while unpopular, is succeeding. The well-received Eurobond offering of two billion dollars in May has enabled a drop in interest rates but it was no more than a temporary fix for government finances as bigger challenges lie ahead. Concluding its sixth review of Ghana’s Extended Credit Facility in April, the IMF welcomed the reduction in the fiscal deficit from 6.5% to 6.3% of GDP. This has been helped by rising prices for oil and cocoa, two of the country’s three main exports along with gold. Ghana is currently producing around 170,000 barrels per day, which is set to increase as oil producers Tullow and Eni prepare to ramp up production. Despite these improvements, the government’s room for maneuver remains limited. As much as 30% of its revenues are consumed by debt servicing requirements, while a further 45% goes to meet the public sector wage bill. The IMF imposed a mandatory hiring freeze as part of the conditions for the bail-out programme but concerns are rising about a return to fiscal irresponsibility once the IMF bail-out expires in December. The government has yet to explain how it will finance the expansive pledges made during its successful election campaign in December 2016, which included universal free secondary education, a dam in every village, and a factory in every district. One obvious move, which is to widen the country’s unusually narrow tax base, remains a political challenge. This year Ghana has begun to implement the 0.2% levy on eligible imported goods that African Union members signed up to in 2016 in order to fund their contributions to the AU budget.
TREND ► OUTLOOK ▲
The 2% Special Import Levy brought in 130 million dollars last year but it is unlikely to be extended beyond 2019 given its unpopularity with the business sector. The government has yet to decide whether to impose capital gains tax on the takeover by Norway’s Aker of Hess Corporation’s oil and gas assets in Ghana in February in a deal worth 100 million dollars. Although it is under some political pressure to do so and the revenue would be welcome, some senior cabinet members fear that such a move would scare off much needed investment from the extractive sector, which has been under pressure since AngloGold Ashanti, the world’s third largest gold miner, ceased production at its Obuasi mine in 2014. The government is, however, attempting to claw back some of the excessive costs from a number of overpriced public sector contracts, including the power barges acquired from Karpower of Turkey, and the Eni-Vitol joint venture producing oil and gas from the offshore Sankofa field.
TREND ► OUTLOOK ►
The improving economy has reduced the risk of any domestic political turbulence arising out of frustration with the country’s prolonged period of fiscal austerity. But having promised substantial infrastructure spending, the government is under pressure to show progress soon. In addition, it will need to ensure that expenditure does not exacerbate the divide between the Muslim north and the Christian south.
The death of three suspected terrorists and one member of the security forces in neighbouring Burkina Faso in May was a reminder that the region remains vulnerable to the threat of extremists moving from the Middle East battle grounds to West Africa. Ghana has so far escaped the level of activity seen in some adjacent countries, and the mutual defence and security partnership that Ghana signed with Cote d’Ivoire in October 2017 remains the country’s best defence against such threats.
TREND ▲ OUTLOOK ▲
The government’s adherence to the IMF’s fiscal constraints helped to keep the cedi relatively stable during the first months of 2018 but it then lost ground to reach a record low against the dollar by mid-year as it struggled, along with other emerging market currencies, with the impact of tighter US monetary policy and the Turkish lira crisis. A support effort by the central bank helped to halt the slide, at least temporarily. Inflation is continuing to fall gradually and is now below 10% and within the central bank’s target band. Ghana is in the final phase of a GDP rebasing exercise, using data from 2013 rather than 2006. That should increase the official size of its economy when complete, which in turn should ease its debt to GDP ratio, although this figure is already easing. Having jumped from 47% in 2012 to 73% in 2016, it has been falling back and should be around 68% for 2018. On the down side, the rebasing will make the revenue to GDP figure, already low, look even worse. Only about one million of the country’s 29.6 million people pay tax, while estimates suggest that the number should be between 6 and 15 million. Despite this, the tax revenue target for 2018 has been increased by more than 15% over the target for 2017.
The government’s effort to restructure Ghana’s debt and stretch out its repayments entails more current borrowing in order to buy the government greater freedom of manoeuvre in the medium and long term. The national debt stock is now close to 32 billion dollars, and there is a risk of Ghana returning to higher fiscal deficits if the strategy backfires. Up to 1.25 billion dollars from the May Eurobond offering will be used to retire maturing Eurobonds or set aside to service future debt obligations.
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