Ghana's Economy Snapshot

Economic Snapshot: Focus on Ghana (Q4, 2014)

Inflation – According to the Ghana Statistical Service (GSS), inflation remained stable in December, effectively bringing an end to a 15-month streak of consecutive higher readings. More specifically, the headline figure remained stable at 17% y-o-y in December, with an increase in food inflation offset by a decline in non-food inflation. Although inflation is expected to moderate moving forward, we believe the cedi will continue its depreciatory slide this year and, as such, inflation is likely to remain elevated.

Growth – A substantial fiscal slippage in 2012 and insufficient consolidation in 2013 have pressurised macroeconomic stability. Weak fiscal finances have contributed to a widening current account deficit, a depreciating currency, increasing levels of inflation, and high interest rates. All these factors, in addition to ongoing energy shortages, are likely to keep real GDP growth under pressure. We expect real GDP growth would have declined to 4.9% in 2014. This is much lower than growth rates seen in recent years, with real GDP growing on average by 8.1% p.a. during 2007-13.

National development plan – The main focus from a policy perspective relates to whether authorities will be able to secure a deal with the International Monetary Fund (IMF) for a loan and assistance with tightening the fiscal stance to correct economic imbalances.

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Macro-Economic Overview

Ghana experienced a major election-related expenditure slippage in 2012, and fiscal consolidation efforts since then have been insufficient to address the country’s fiscal problems. As a result, macroeconomic imbalances have been mounting. Nevertheless, the Ghanaian authorities declined to ask the International Monetary Fund (IMF) for assistance over the last few years, insisting that their home-grown policies will be sufficient. However, the government has finally changed its stance: with the fiscal situation continually deteriorating, President John Mahama instructed the government in July 2014 to open negotiations with the multilateral organisation in order to receive policy advice as well as funding.

The first round of discussions with the IMF regarding a possible support programme was completed on September 25, after which deliberations continued during the Fund’s annual meetings in Washington in October. The IMF released a statement on November 21, commenting on the results of the third round of deliberations with the Ghanaian authorities on a possible support programme. In particular, the Fund welcomed the government’s budget for 2015, and believes it contains crucial measures to limit growth in the public sector wage bill, boost revenues, and eliminate energy subsidies. The news that the IMF approves of the proposed fiscal budget is welcome, and paves the way for a programme to be agreed early in 2015. The involvement of the Fund should be very beneficial for Ghana; it could help improve policies as well as boost the credibility of the authorities, which in turn could unlock further funding.

The Ghana Statistical Service (GSS) held a news conference on January 14 during which it reported on Ghana’s preliminary 2014 Q3 GDP figures. According to Reuters, the economy expanded by 5.1% y-o-y during 2014 Q3, up from 4.6% y-o-y in 2013 Q3. The industrial sector (8.1% y-o-y) was the main growth driver in Q3, followed by agriculture (4.4% y-o-y) and services (3.5% y-o-y). We estimate the economy would have expanded by 4.9% in 2014, down from 7.6% in 2013. This is much lower than growth rates seen in recent years, with real GDP growing on average by 8.3% p.a. during 2007-13.

The Ghana Statistical Service (GSS) held a news conference on January 14 during which it reported on Ghana’s preliminary 2014 Q3 GDP figures. According to Reuters, the economy expanded by 5.1% y-o-y during 2014 Q3, up from 4.6% y-o-y in 2013 Q3. The industrial sector (8.1% y-o-y) was the main growth driver in Q3, followed by agriculture (4.4% y-o-y) and services (3.5% y-o-y). We estimate the economy would have expanded by 4.9% in 2014, down from 7.6% in 2013. This is much lower than growth rates seen in recent years, with real GDP growing on average by 8.3% p.a. during 2007-13.

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David Okwara

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