Estudios Económicos
Ghana

Ghana

Population 26,2 million
GDP 1,473 US$
C
Country risk assessment
B
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Synthesis

major macro economic indicators

  2013  2014 2015 2016 (f)
GDP growth (%) 7.3 3.9 3.5 4.0
Inflation (yearly average) (%) 11.7  15.5 17.2 15.7
Budget balance (% GDP) -10.1 -10.3 -6.7 -5.3
Current account balance (% GDP) -11.7  -9.6 -7.6 -6.9
Public debt (% GDP)  56.2 69.0 70.1 69.1

 

(f) Forecast (e) Estimate

STRENGTHS

  • Significant mining (gold), agricultural (cocoa) and now oil resources
  • Democracy installed, political and social stability
  • Attractive business climate, favourable to foreign direct investment
  • Support from multilateral (IMF, World Bank, EU) and bilateral (United States, United Kingdom and China) donors

WEAKNESSES

  • Rapid increase in the deficit and public debt
  • Infrastructure shortcomings (energy, transport)
  • Dependence on raw material prices (gold, oil, cocoa)
  • Weak public banks, which affect the entire banking sector

Risk assessment

Slower growth in a context of deficit reduction

Growth in the Ghanaian economy is likely to only pick up slowly in 2016. The rise in oil output will continue at a slower pace than expected because of ongoing technical problems with the Jubilee field. The increasing production from the Atuabo gas facility should help boost electricity production at a time when the frequent power cuts are limiting industrial activity. The agriculture sector is expected to benefit from better cocoa harvests following the poor harvest in 2015 due to a disease affecting cocoa trees. Services (financial, telecommunications) are expected to remain strong.

Household demand and investments will suffer the effects of reduced public spending as part of the budget austerity plan. The high rate of interest (26% since November 2015) will continue to limit access to credit.

Inflation is expected to remain high due to the rise in water (59%) and electricity (67%) prices announced in December 2015 and of the depreciation of the cedi. The relative reduction in domestic demand should however help limit price rises.

 

The public finances and current account are likely to only improve slowly.

The budget deficit is expected to continue falling in 2016, but the target of -4.8% of GDP contained in the budget would seem to be difficult to achieve in an election year, in the context of weak commodity prices. Tax revenues will remain constrained by low prices and the slow growth in oil production, as well as by the slow rate of expansion in non-oil activities that could limit revenues. The implementation of measures announced in accordance with the agreement reached with the IMF aimed at bringing public spending under control, namely the reduction of the proportion of wages in spending (around 35% for a number of years), could be slowed by the prospect of parliamentary elections at the end of 2016. The payment of arrears owed to Nigeria for gas supplied will also be a burden on the budget and the worsening financial situations of certain public companies (electricity utility) are a further source of concern.

The level of public debt is becoming a worry, aggravated by the depreciation of the cedi (more than 60% of the debt is denominated in currencies) and the high rate (10.75%) Eurobond (USD 1 billion) issued in October 2015 which will increase the repayment burden. Ghana plans to sell another Eurobond of USD one billion to fill its budget.

The need to import capital infrastructure goods (related to oil production in particular) will continue to impact the current account. The current account deficit should decline slightly due to an increase in cocoa’s revenue, mainly in volume terms. However export income from gold and oil is not likely to rise rapidly any time soon as there is no prospect of any upturn in prices (also applies to cocoa).

After depreciating by 46% against the USD between end-2013 and August 2015, the cedi has since stabilized thanks in particular to the Central bank’s intervention. Given the persistence of both current account and fiscal deficits and the low level of oil prices, the depreciation of the cedi should continue in 2016/17, albeit at a moderate level.

The banking sector is being progressively weakened by the economic slowdown: profitability declined, credit growth has slowed, liquidity indicators have deteriorated and non-performing loans rose sharply.

 

Elections due at the end of 2016 could lead to tensions whilst governance is deteriorating

Regularly cited as an example in the region in terms of democracy, Ghana is organizing its next presidential and legislatives elections on November 7th 2016. Opposition leader, Nana Akufo-Addo, topped the latest polls against the current President Mahama. Social tensions, driven by inflation, inequalities and low redistribution of oil wealth should continue with the upcoming elections and tight results could lead to disputes.

Even though border tensions have eased with Ivory Coast and good relations with trading partners continue, the regional terrorist risk has increased, following the attacks in neighbouring countries since the beginning of the year.

According to World Bank indicators, Ghana ranks better than most countries in the region although weak infrastructure and bureaucracy burden hamper private sector development. After significant progress between 2005 and 2010, performances in terms of control of corruption and government effectiveness have declined sharply.

 

Last update: July 2016

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