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Ghana Economic Outlook

Macroeconomic performance

After two years of sluggish growth from 2014 to 2016, real GDP growth recovered to 8.5% in 2017 and was estimated to be 6.2% in 2018, driven mainly by the oil sector. The fiscal account deficit improved marginally, from 5.9% in 2017 to an estimated 5.7% in 2018, as did the current account deficit, from 4.5% in 2017 to an estimated 4.4% in 2018. Inflation declined to the single digits, at 9.8%, and average lending interest rates declined by 4.71 percentage points to 16.23% in September 2018. The Ghanaian cedi stabilized against major currencies, except for a slight depreciation against the US dollar in the second quarter of 2018. In September 2018, Ghana rebased its GDP from 2006 to 2013. The rebased 2017 GDP is 24.6% greater than the previous 2017 GDP. Private consumption increased by 6.2% of GDP in 2018. The economy is projected to grow by 7.3% in 2019 and a slower 5.4% in 2020 as the effects of increased oil production from new wells fade.

Tailwinds and headwinds

Despite the positive outlook, Ghana faces potential domestic and global headwinds. On the domestic front, the government faces a challenge in bridging its financing needs, with domestic revenues at about 10% of GDP and gross financing needs of more than 20% of GDP. This challenge is compounded by a high external debt–to-GDP ratio, which declined from 40.5% of GDP in 2017 to 38.5% in 2018. On the external front, dependence on primary commodity exports continues to expose the economy to international commodity price shocks, which could weaken GDP growth and the current account balance. Domestic private consumption is also projected to slow down, to 4.9% of GDP in 2019 and to 3.5% in 2020. The potential weakness in oil prices could lower exports receipts and hence revenues.

Continued strengthening of external demand for oil and cocoa will support medium-term growth. But years of growth based on the extractive industry have not addressed widening inequality and the creation of decent jobs. Agriculture remains the main employer of labor. Low productivity in agriculture has triggered a large movement of labor from the sector into mostly informal services in urban areas. This phenomenon explains the country’s high employment rate but low-quality jobs. Ghana is undertaking proactive measures to increase productivity through a phase approach to industrialization, as defined in the country’s 10-point industrialization agenda.

Ghana is gradually building industrial capacity, and growth in industry is projected at 9.8% in 2019 and 5.9% in 2020. Recent trends reflect more machinery in the country’s import basket. Between 2000 and 2017, the total value of machinery imports increased fourfold, to $670 million. This rapid increase in machinery imports had a substantial adverse effect on the country’s current account balance, but it reflects a gradual shift toward industrialization. While total machinery imports have increased over time, the government’s capital expenditure has been on the decline since 2016. This implies greater private participation in industrialization, which is consistent with the government’s private sector–led agenda for economic transformation.

Under high debt and low public and private savings, the government’s main recourse for financing its economic transformation agenda is foreign direct investment. Such financing would require increased focus on sustaining achievements in macroeconomic stability and the business environment. Complementing these gains with enhanced domestic revenue mobilization would expedite the path to debt sustainability and increase fiscal space for further government capital and social spending.