Estudos Económicos
Ghana

Ghana

Population 26.8 million
GDP 1,401 US$
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Country risk assessment
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Synthesis

major macro economic indicators

  2014 2015  2016 (f) 2017 (f)
GDP growth (%) 4.0 3.5 4.0 5.7
Inflation (yearly average) (%) 15.5 17.2 16.0 10.0
Budget balance (% GDP) -10.1 -6.3 -5.2 -3.5
Current account balance (% GDP) -9.6 -7.8 -7.6 -6.6
Public debt (% GDP) 70.7 73.8 70.4 67.0

 

(e) Estimate (f) Forecast

STRENGTHS

  • Significant mineral (gold), agricultural (cocoa) and now oil and gas resources
  • Settled democracy
  • Attractive business climate, favourable for FDI
  • Support of international financial community

WEAKNESSES

  • Rapidly growing public debt
  • Infrastructure weaknesses (energy, transport)
  • Dependant on raw material prices (gold, oil and gas, cocoa)
  • Weakness of public banks which impacts on entire banking sector

Risk assessment

Faster growth powered by oil and gas production

Growth in the Ghanaian economy should receive a boost from the oil and gas sector in 2017, as the TEN oil field gradually comes fully online following the start of production at the end of 2016, together with the arrival of the Sankofa field (scheduled for mid-2017). The industrial sector could also further improve thanks to gradual improvements in electricity supplies, with the increased production of gas to fire electricity power plants (Atuabo in particular). Services (financial, telecommunications) are expected to remain positive. Agricultural production, specifically that of cocoa, is likely to benefit from improved climatic conditions from those experienced in 2016, when there was a severe drought.

Investor confidence should improve with the increase in economic growth and the efforts by the government to secure the country’s financial situation. The high cost of credit, despite an easing in monetary policy in November 2016 (interest down 5 bp to 25.5%), will remain a limiting factor on investments. Household consumption (more than 60% of GDP) should increase as inflation falls. The rise in prices for imported goods is likely to ease with the stabilisation of the cedi against the dollar. The slowing in inflation will also depend on movements in oil and gas prices.

 

Continuation of the gradual improvement in public finances and the current account balance

The government will stick to its commitments to consolidate public finances as part of an IMF agreement, with the aim of reducing the deficit to 3% of GDP in 2018. The measures aimed at reducing spending on wages (at around 35% for several years), are likely to be implemented by the government following the elections in December 2016. Other current expenditure items are also expected to be cut. The State is also expected to receive a slight boost to its tax revenues thanks to the increases, even small, in oil and gas prices and the faster rate of economic growth. The budget deficit is therefore expected to gradually shrink, allowing a slow reduction in the level of public debt. The financial situation of a number of state-owned companies (mainly in the energy sector) could however present a problem for the public finances, if these get any worse.

The current account balance is expected to improve slightly with increased earnings from cocoa, oil, gas and gold exports. Whilst the prices for these raw materials, accounting for around 70% of all exports, are only likely to rise slowly, the increase in volumes produced and sold abroad will help generate additional revenues. Imports of goods and services however are also expected to grow because of the country’s needs in terms of building its infrastructures, as well as increasing household consumption. Any reduction in the deficit is thus likely to be limited.

The currency reserves increased slightly, thanks to IMF aid payments and a Eurobond issue (USD 750 million), to around 4 months of imports at the end of 2016. The relative stabilisation of the cedi (a depreciation of 4% between January and November 2016 against the dollar, compared with -16% in 2015) should continue in 2017, thanks to the improved economic outlook which should help boost capital inflows.

The position of the banking sector, undermined by the economic slowdown, the depreciation of the cedi over recent years and the financial problems of major state-owned companies, has deteriorated significantly. The rate of non-performing loans doubled in a year to 24% at mid-2016. A recapitalisation of some banks is to be expected.

 

Political changeover at the head of a country which benefits from a good level of governance

Regularly held up as an example in the region in terms of democracy, Ghana held in early December 2016 its general elections, which were conducted in a peaceful and quiet manner. The leader of the opposition, Nana Akufo-Addo (New Patriotic Party - NPP) has won in the first round with 53% of votes against President, Mahama (National Democratic Congress - NDC). The Ghanaian population relies on the new president to get the country out of the crisis.

According to the World Bank indicators, Ghana has a better record than most other countries in the region, whilst the lack of infrastructure and poor bureaucratic practices continue to inhibit the development of the private sector. Its performances in terms of combating corruption have improved significantly (98th in 2015 against 103rd in 2014). This will remain a top priority of the new government.

 

Last update: January 2017

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