Ghana sits on the Atlantic Ocean facing south and borders Togo, Cote d'Ivoire, and Burkina Faso. It has a population of about 28 million (2016). In the past two decades, it has taken major strides toward democracy under a multi-party system, with its independent judiciary winning public trust. Ghana consistently ranks in the top three countries in Africa for freedom of speech and press freedom, with strong broadcast media in particular and radio the medium with the greatest reach. Factors like these provide Ghana with solid social capital.
In December 2016, Nana Dankwa Akufo-Addo of the opposition New Patriotic Party was elected President in a peaceful election. Akufo-Addo and his vice-president,
Recent Economic Developments
Ghana’s economic performance improved in the first half of 2017, after substantial fiscal slippage in 2016. The fiscal deficit for the first half of 2017 was 2.7% of GDP—on track to meet its target of 3.5% of GDP. Revenues underperformed and were 14.9% below their target, but the government cut both its recurrent and capital expenditure to keep its fiscal consolidation program on track. This underperformance was to be reversed in the second half of 2017 as policies, announced in March, took effect. These were supported by the World Bank through technical assistance to the Ghana Revenue Authority. Ghana's total debt had increased from $29.2 billion (73.1% of GDP) at the end of 2016, to $31.7 billion (68.1% of GDP) in 2017, reflecting a slowdown in the rate of external debt accumulation, as well as higher GDP growth.
Ghana’s economy expanded for the third, successive quarter in March 2017, to 6.6% up from 4.4% the previous year. The industry sector recorded the highest growth of 11.5%, compared to 1.8% in 2016, with significant contributions of this from mining and petroleum. The agriculture sector grew by 7.6%, up from 5% the previous year, driven by good performances in the crops, fisheries, and cocoa sub-sectors. However, growth in the services sector slowed to 3.7% from 6.6%, due to slower growth in information, communication, and finance. Non-oil growth slowed to 3.9% from 6.3% in the same period of 2016.
The inflation rate continued to moderate itself, allowing the central bank to reduce its policy rate. Headline year-on-year inflation was 12.3% in August, a slight uptick from 11.9% in July but continuing a decreasing trend overall since September 2016. This created room for monetary policy easing and the Bank of Ghana cut the policy rate by a cumulative 450 basis points to 21.5% in July. Consequently, the 91-day Treasury-bill rate fell from 16.81% in December 2016 to 12.10% in June 2017; and the rates on the 182-day Treasury-bill rate moved from 18.5% to 13.28% over the same period. Thus, broad money expanded by 23.7% in the first five months of 2017, up from 16.8% in 2016. Outstanding credit to the private sector grew by 16.2% in May 2017, against 10.1% for the same period in 2016.
The external sector further improved as the cedi continued to stabilize and the reserve buffer expanded. The June 2017 trade balance turned out a surplus of $1.43 billion, equivalent to 3.1% of GDP from a deficit of 3.3% the previous year. This was attributed to export earnings, especially from gold, cocoa, and oil. After a sharp decline in the value of the cedi in January (due to demand caused by seasonal factors), pressure has eased with improved liquidity and increased reserves. Gross International Reserves went up from $4.9 billion, equivalent to 2.7 months of imports, at the end of December 2016, to $5.9 billion in June 2017, equivalent to 3.4 months of imports.
The fiscal deficit target of 6.3% of GDP for 2017 is expected to be met. In addition, if met, the targeted 2.5 percentage points primary balance adjustment, could help reduce the debt stock from 73.4% to 70.5% by December 2017. Considering that Ghana is already placed at high risk of suffering debt distress, any further fiscal slippage could have a significant adverse impact on the debt dynamics. Ghana still faces high financing costs in both the domestic and external markets.
Ghana’s economic performance over the medium term lies in its ability to regain and sustain its economic stabilization program through a return to fiscal consolidation. The Ghanaian authorities have expressed their commitment to embark on a steep path of fiscal consolidation; their half-year fiscal performance is evidence of this.
Ghana is also likely to continue to face high domestic and external financing costs as its debt expands and global interest rates
Last Updated: Oct 05, 2017