Economic growth for 2003 to fall below 5% - UN

Ghana's economy is forecast to expand by 4.9 percent in 2003, an improvement from the previous three years but well below a government target of 8.0 percent, a U.N. agency said on Wednesday.

Real GDP grew by 4.5 percent last year from 4.2 percent in 2001 and 3.7 percent in 2000 thanks to a recovery in gold and prices of cocoa -- which soared to a 16-year high of $2,157 per tonne last September on instability in key producer Ivory Coast.

Headline inflation is forecast to touch 18 percent in 2003 from 21 percent in 2002 and 41 percent in 2000 -- also sharply higher than a government target of eight percent, the Addis Ababa-based Economic Commission for Africa (ECA) said in an annual report.

The rate on the benchmark treasury bill eased to 29 percent last year from 47 percent in 2001. The drop, though significant, still left commercial rates in the 30s, which private business says is far too expensive, the ECA said

"The medium-term prospects for macroeconomic stability may deteriorate due to the pressures from the recent increases in petroleum prices," ECA said, but praised Ghana's commitment to establishing conditions for faster economic growth.

"Rapid growth in the money supply and high inflation have hurt economic performance in recent years, locking Ghana into a low quality growth equilibrium by dampening private investment -- a key determinant of economic growth," the ECA added.

ECA also noted that growth in Ghana had not transformed the structure of the economy or delivered significant improvements in the quality of life.

ECA said a major setback for the stability of Ghana's financial sector was the accumulating debt of its key Tema Oil refinery, which stood at more than $400 million in 2002 as a result of government delays in allowing total cost recovery of petroleum products distributed in the country.

"To restructure the refinery's debt, subsidies on petroleum had to be lifted -- this led to a 93 percent increase in petroleum prices in January 2003," ECA said.

ECA urged vigilance in Ghana in the next two years, warning of the danger of massive wage increases and lax monetary and fiscal policies in the runup to elections in 2005, when President John Kufuor will stand for his second and final five-year term as president.

It said the conflict in Ivory Coast could also increase the risk premium for foreign and domestic investment, dampening private sector activity and depressing remittances from the thousands of Ghanaians working in the Ivory Coast.

"Additional downside risks include the high levels of domestic debt that may crowd out private investment and derail social programmes," it said, but added that Ghana had also gained from Ivory Coast's woes because landlocked countries such as Burkina Faso had switched to its ports from Abidjan.

The rise in cocoa prices has forced a major reform in the sector. The government is introducing new agronomic technology, rehabilitating feeder roads to growing areas, conducting regular spraying exercises to control disease and pests and educating farmers to boost production.

Ghana was also experimenting on a new hybrid that will make cocoa an all-year crop in Ghana -- to be harvested nine times a year, ECA said.