Ghana has evolved into a stable and mature democracy throughout the last two decades. The country continues to show good performance on democratic governance, arising from strong multi-party political system, growing media pluralism and strong civil society activism. The most recent elections were held in December 2012 with the Electoral Commission declaring the candidate for the National Democratic Congress (NDC) party, the incumbent President John Mahama, as the winner with 50.7% of the vote. NDC also won a parliamentary majority. However, the presidential election result was contested in the courts by the main opposition New Patriotic Party (NPP). The election results were upheld in August 2013, after an eight-month battle in the Supreme Court of Ghana. The opposition peacefully abided by the ruling upholding President John Mahama's victory, confirming the trend of stronger governance and democratic consolidation. The New Patriotic Party (NPP) candidate in the 2008 and 2012 elections, Nana Akufo Addo, announced on March 20th 2014, his intention to seek the party's presidential candidacy for the 2016 election.
On press freedom, Ghana progressed from 41st to 30th position out of 179 countries and 3rd in Africa according to the ‘Reporters Without Borders’ 2013 Press Freedom Index report. The 2012 report of the World Wide Governance Indicators places Ghana between the 50th and 60th percentile on political stability, government effectiveness, and regulatory quality, rule of law, control of corruption and voice and accountability. This performance reflects the positive effects of an improving environment for democratic governance, coupled with a gradual improvement in the effectiveness of public institutions and persistent economic growth, resulting in Ghana attaining a lower middle income status.
The country’s economy slowed down to an estimated 5.5% in 2013 and is expected to remain at the same level in 2014. Nevertheless, Ghana’s growth prospects are positive in the long-term. Growth in 2014 is expected to remain modest at around 5% but it is projected to recover in 2016 when Ghana commences the production of gas and explores its new oil fields, barring any macroeconomic instability. Headline inflation breached the monetary policy target of 9% ±2 for 2013. The consumer price inflation increased from 10.1 % in January 2013 to reach 13.5% in December 2013 and 14.0 % in February 2014. The rise was driven by the non-food inflation while food inflation remained flat despite erratic rainfall in 2013.
Private capital flows (including FDI) fell as a percent of GDP from 7.4% in 2012 to 6.6% ($2.92billion) in 2013. Foreign direct investment (net) declined by 0.8% of GDP while medium and long term loans declined by 0.4% of GDP in 2013. Net international reserves fell from US$3.2 billion in December 2012 to $2.1 billion by end 2013 and $ 1.7 billion by January 2014 covering only less than one month of imports of goods, services and factor payments.
Recent Economic Developments
Ghana faces significant macroeconomic challenges in 2014 as its fiscal and current account deficits remain very high. Economic growth reduced to 0.3% (year on year) in the third quarter of 2013, while inflation is on the rise. The stock of public debt reached close to 60% of GDP in 2013. Increased volatility in global financial markets since mid-2013 and a sharp decline in international commodity prices led to a 16% depreciation of the Ghanaian cedi against the US dollar in 2013, and 17% in 2014. Ghana’s net international reserves have also declined significantly, covering less than one month of imports of goods and services by the end of February 2014.
The high fiscal deficit, which reached 10.9% of GDP in 2013, remains the biggest source of vulnerability of the Ghanaian economy, and does not include accumulation of new arrears. The main drivers of the deficit in 2013 were the high wage bill, increased interest costs, the energy subsidy, and a shortfall in revenue collection. The government has taken some measures to reduce fiscal deficit. These include a 2.5 percent increase in the VAT rate, moratorium on the award of new contracts, and adjustment in utility tariffs and petroleum product prices. However, the deficit is projected to come down to around 10% of GDP.
The large fiscal deficit was financed mostly domestically, though the government issued a Eurobond for $1 billion in August 2013. The domestic financing of the deficit is possible due to the Bank of Ghana’s (BoG) accommodative credit policy as it expanded net credit to the government and to public enterprises. The monetary expansion was sterilized by increasing open market operations, and BoG also raised its policy rate by 200 bps to 18% in February 2014 to control inflation and arrest the depreciation of cedi. Interest rates on 91-day Treasury bills reached 23.5% by mid-March and the sovereign spreads on the Eurobond maturing in 2017 have oscillated between 650 and 700 basis points since February.
Headline inflation reached 14.0% in February, up from 13.5% registered in December 2013. Consumer price inflation breached the monetary policy target of 9% ± 2 for 2013. Inflation has been on rise since January 2013 and the rising trend is expected to continue due to adjustments in prices of petroleum and utilities, rising prices of imported products due to the devaluation of the Ghanaian cedi, and strong demand pressures from the fiscal expansion. Producer price inflation reached 27%% in February 2014.
Ghana’s current account deficit increased to 13.2% of GDP in 2013, from 12.2% of GDP in 2012. Despite positive capital flows (private debt and FDI in particular), net international reserves declined to USD$2.1 billion by end December 2013. By January 2014, net reserves had fallen to USD 1.7 billion, equivalent to less than one month of imports of goods, services and factor payments. Concerns over the loss of reserves and currency depreciation led to strict regulation on transactions and holdings of foreign currency in Ghana starting in February 2014.
Ghana’s GDP growth slowed down to an estimated 5.5% in 2013 and is expected to remain subdued in 2014. Nevertheless, Ghana’s growth prospects are positive in the long-term, as suggested by econometric models which predict average per capita growth rates of 4 to 6 percent for 2014-24. However, the predictions are subject to uncertainty associated with the expected trends and volatility of the drivers of growth: investment, mineral and oil rents, and macroeconomic factors such as inflation and government spending.