Improved fiscal balance to boost economic outlook

The IMF has expressed cautious optimism over Ghana’s execution of an extended credit facility (ECF), with fiscal indicators showing signs of improvement, but has warned that some inflationary concerns remain.

According to its most recent report, published in October, the three-year, $918m ECF deal – which the government of Ghana finalised with the IMF in April 2015 – has resulted in a slowdown in public spending and a reduction of both the debt and deficit.

Public debt levels decreased to 63% of GDP as of May, down from 72% at the close of 2015, while the budget should see a recovery from a primary deficit of 0.4% of GDP in 2015 to a projected primary surplus of 1.1% this year.

Controlled spending

This improved performance comes in spite of the increased risk of weakened spending controls during a presidential and parliamentary election year.

The potential for expanded state spending ahead of the December 7 general election – which has frequently happened during previous election years – was a concern voiced by the IMF in the earlier ECF discussion; however, this so far seems to have been allayed, with the government keeping within the constraints set by the ECF.

“Although the revenue base is very weak, we are encouraged that the spending limits are being contained,” Abebe Aemro Selassie, director of the African Department at the IMF, told local media in October.

Solid foundations

Local officials have largely echoed the IMF’s views. The longer-term prospects for Ghana’s economy are positive, with the foundations laid for robust growth, according to Seth Terkper, minister of finance .

“The country has not posted negative GDP growth year-on-year since 1983,” he told OBG. “Nonetheless, the country has navigated through peaks and troughs related to commodity shocks seen in the prices of gold and oil, an average 2015/16 cocoa harvest season, as well as the still-simmering fallout from the global financial crisis.”

Ghana’s economic outlook for next year, Terkper said, will be boosted by an improved fiscal balance, a rebound in energy prices and new gas projects coming on-stream, as well as the steady upgrading of transport and utility services to support the private sector.

Central bank estimates put GDP expansion for 2017 at 7% or more, up on the 4.1% forecast for this year, before rising to 8% in 2018.

New hydrocarbons resources from the Tweneboa, Enyenra and Ntomme oil and gas fields, brought on-line in September, as well as the anticipated start of production of approximately 50,000 barrels per day of oil and 180m standard cu feet per day of gas at the Sankofa-Gye Nyame project, are expected to help the country meet growth projections.

Prices rising

Still, it is not all smooth sailing ahead. One economic indicator that the government is struggling to bring under control is inflation. From a peak of 19.2% in March, headline inflation fell to 16.7% in July, but then regained momentum, climbing to 16.9% at the end of August and 17.2% by the close of the third quarter, according to the Ghana Statistical Service. In October the country saw inflation dip back somewhat to 15.8%.

While there was a modest decrease in inflation on local goods, from 16.6% in September to 15.1% in October, inflation on imported goods and services rose to 18.7% in September, up from 17.3% in August, before easing to 17.3% again in October.

Uncertainty over the outcome of the December ballot, which in turn could impact the stability of the cedi and further affect import costs, could influence inflation through to the end of the year.

While inflation remains far above the medium-term target of 8%, plus or minus 2%, set by the central bank, Abdul-Nashiru Issahaku, governor of the Bank of Ghana, is confident that the consumer price index will resume its downward trajectory.

“Inflation is currently out of the target band, but the bank is optimistic that the economy is on the edge of a prolonged disinflationary process,” he told OBG. “The bank has pursued tight monetary policy consistent with tight fiscal policy to rein in inflation and inflation expectations.”