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Growth in sub-Saharan Africa to slow but Ghana to grow

Seth Terkper
Seth Terkper

Growth in Sub-Saharan Africa is forecast to slow again in 2016 to 2.5 per cent, down from an estimated 3.0 per cent in 2015, the World Bank Group has said.

The fall, according to the Group, is based on the fact that; “commodity prices are expected to remain low, global activity is anticipated to be weak, and financial conditions are tightening”.

It said oil exporters were not likely to experience any significant pickup in consumption growth, while lower inflation in oil imports should support consumer spending. However, food price inflation due to drought, high unemployment, and the effect of currency depreciation could offset some of this advantage.

In terms of investment growth, the report said this was expected to slow in many countries as governments and investors cut or delay capital expenditures in a context of fiscal consolidation.

Ghana’s economic picture

Since the beginning of the John Mahama administration, the economy has suffered some setbacks which have been largely attributed to major changes in the focus of his government towards putting the country back on a firm growth trajectory as against the wobbly measures undertaken in the past.

Some analysts have argued that for the country to stand on a firm footing, there was the need for the government to take bold steps to place the economy on a sound footing, a measure that could create challenges in the initial stages as witnessed in the last few years before growth will be witnessed.

The decline in growth also has to do with a reduction in commodity prices such as gold, cocoa and oil, the three most important commodities that fetches the economy billions in revenue.

But in a revised World Bank report, Ghana’s real gross domestic product (GDP) growth is projected to rebound to 5.2 per cent in 2016 from 3.4 per cent in 2015 reflecting the positive impact of a more stable energy supply and increased contribution from the oil and gas and agriculture industries.

Energy supply which was at its worst in the last three years has seen some significant improvement in terms of stability and it is expected to improve even further following the emergency measures including the use of power barges which have been brought into the country.

The country’s medium-term growth prospect is strong, the report said “with 8.2 per cent in 2017 and moderating to 7.5 per cent in 2018 under the assumption that fiscal adjustment remains on track with the support of the International Monetary Fund (IMF) and other development partners.

Ghana, the report further noted, has embarked on the second year of its fiscal consolidation programme with an ambitious target for 2016. After successfully cutting its fiscal deficit by more than three percentage points to 7.1 per cent of GDP in 2015, Ghana’s 2016 budget aims to further reduce the fiscal deficit to 5.3 per cent of GDP. The target was revised down from 5.8 per cent, given the high level of public debt and the significant financing constraints.

The country’s external balance improved in 2015, despite unfavorable global economic conditions. The international prices of oil and gold, which account for 50 per cent of Ghana’s exports, fell by 47 per cent and 8 per cent, respectively in 2015. Nevertheless, Ghana’s current account deficit narrowed to 7.8  per cent of GDP in 2015 from 9.6 per cent of GDP in 2014 as the rise in other services exports and private transfers including remittances more than compensated for the increased merchandise trade deficit. Overall, the Ghanaian cedi lost 18 per cent of its value against the US dollar in 2015 while it remained relatively stable following the Eurobond issuance ($1 billion) and disbursement of the Cocobod (short-term syndicated loan for $1.8 billion) in October.

More work required

In spite of the positives, the report was emphatic in drawing attention to the fact that “Despite this progress, the country continues to face persistently high inflation, even with efforts to tighten monetary policy. The high inflation rate remain elevated at 18.5 per cent in February 2016 compared to 17.7 per cent in February 2015, even after the Central Bank’s 500 bps policy rate hikes.”

It further added that Ghana’s economic growth slowed for the fourth consecutive year to an estimated 3.4 per cent in 2015 from 4 per cent in 2014 as energy rationing, high inflation, and ongoing fiscal consolidation weighed on economic activity.

The government’s major challenge is to avoid slippage from the fiscal consolidation program in light of the upcoming general elections in late 2016.

With mounting public debt, fiscal deficit and other worsening metrics Ghana began fiscal consolidation in 2014, with the International Monetary Fund (IMF) approving a $918 million Extended Credit Facility (ECF) to aid the country’s efforts.

Election blues

Many economists and the international community are keeping a close eye on the government, monitoring how it will be spending in this election year.

There has been a precedence since the onset of the fourth republic in 1992 where economic gains made are derailed because of excessive spending during elections years. With governments in power poised to retain power, there are records of over spending to provide infrastructure projects which have not been budgeted for in its quest to win votes.

Much as the ruling government continues to pledge its commitment to stay within budget, particularly with the IMF watching from close range, it only takes time to observe the situation. Should the government keep to its pledge, the projected will not be farfetched and the inverse is also possible.

 

Source: Daily Graphic

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