Ghana Economic Outlook

Economic performance and prospects

Economic growth fell from 14% in 2011 at the onset of oil production to 3.5% in 2016, the lowest in two decades. The economy recovered in 2017, growing an estimated 6.3%, spurred by recovery in nonoil sectors, lower inflation, and new hydrocarbon wells (the Tweneboa, Enyenra, Ntomme, and Sankofa oil and gas fields). Over the medium term, economic growth is expected to accelerate to 8.5% in 2018 and then moderate at 6.2% in 2019 as the budget and current account deficits narrow amid lower inflation and falling interest rates.

Macroeconomic evolution

Weak economic growth squeezed by tight monetary policy and lower oil production in 2016 have led to a decline in government revenues. Budget performance is expected to improve after the budget deficit drop from 8.9% of GDP in 2016 to 4.7% in 2017. Higher oil production and tightly controlled expenditures are likely to boost revenues. Improvements in tax collection and falling inflation and interest rates will facilitate economic activity. Revenue mobilization and efficiency measures will continue to be key factors in budget implementation. Inflation continued to gradually drop from a peak of 19.2% in January 2016 to 12.2% in September 2017. The Bank of Ghana reduced its policy rate from 25.5% to 21%, the fourth consecutive cut since November 2016. Exchange rates remained stable compared with 2014 and 2015, with a cumulative yearly depreciation of 4.7% against the U.S. dollar as of August 2017. Ghana is at a high risk of debt distress as the debt-to-GDP ratio remains high at 73.3% in December 2016, down from 68% in June 2017. Debt sustainability remains a priority for the government’s fiscal consolidation program.

Tailwinds

The smooth transfer of political administration following the December 2016 elections strengthened Ghana’s democratic credentials. The promotion of private sector– led growth provides a key platform for reviving the nonoil sectors, as well as for links to stimulate manufacturing. Restoring and maintaining a sustainable fiscal and macroeconomic environment, improving the business-enabling environment while strengthening the electricity supply, and ensuring the energy sector’s financial viability are requisite to enhanced productivity. The resolution of the production challenges of the Jubilee oil well and the September 2017 landmark ruling of the 2015 International Tribunal for the Law of the Sea on the boundary dispute between Côte d’Ivoire and Ghana in favor of Ghana pave the way for renewed drilling and exploration of oil and gas and offer the potential for new oil investment.

Headwinds

The wide budget overrun in 2016 calls for expanding Ghana’s tax base, which is relatively low, with a tax-to-GDP ratio of about 16%. Revenue mobilization remains key in achieving the country’s plans for a sustainable fiscal consolidation path while managing debt sustainability and funding of development objectives. Addressing the financial sustainability of state-owned energy enterprises is crucial to the financial health of the energy sector, as well as the banking sector, whose nonperforming loans rose sharply to 21.2% in June 2017. The increased minimum capital requirement of commercial and rural and community banks paves the way to consolidate and improve the health of the banking sector. The Bank of Ghana has taken steps to restore stability to the sector by requesting a recapitalization plan from banks with capital shortfalls, in addition to the implementation of collateral requirements and the development of an Emergency Liquidity Assistance plan.

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