major macro economic indicators

(f) Forecast

* grants excluded 

Risk assessment

Growth in 2014, driven by the oil and gas sector, will be held back by weaker domestic demand

Following the slowdown in 2013, a very slight increase in growth is expected in 2014. The driving force for the Ghanaian economy should be the oil and gas sector, even if the rise in production from the Jubilee field is slower than expected because of recurring technical problems disrupting operations. The completion of the Bui hydro-electric dam at the end of 2013 and the start of gas production in Atuabo, scheduled for 2014, should improve electricity supplies and help boost output from the manufacturing sector. The services sector (finance, telecommunications) are expected to remain positive factors in the economy.

Household consumption in 2014 could however begin to feel the effects of the slowing in wage growth and social expenditure in the context of public expenditures control. The cut in subsidies will lead to higher costs for energy and transport, reducing purchasing power. The high level of interest rates will continue to limit access to credit and weigh on investment.

Inflationary pressures, accentuated in 2013 following the lowering of fuel subsidies in February 2013, and the increase in wages, are set to continue into 2014. The relative weakness of household demand should hold back price rises which will however continue to move upwards as a result of higher import costs following the depreciation of the cedi.

The banking sector remains very fragile, particularly the public banks (20% of assets). The weaknesses in terms of regulation and inadequate supervision constitute a risk of higher bad debt.

The long-expected improvement in public finances and current account deficit still yet to be completed

Despite the commitments made by the government to reduce expenditure, the budget deficit is set to remain high in 2014. The growth in tax revenues is likely to be lower than initially hoped for because of the ongoing technical issues holding back oil production and the weakness of the economic recovery. The government needs to continue its efforts to stop the rise in public expenditure and especially wages, but gradually, in order to avoid triggering discontent among a population waiting for the benefits of the “oil manna”. On top of this the increasing cost of servicing the public debt, because of higher interest rates and the depreciation of the cedi (44% of the debt is denominated in dollars), will hinder attempts to improve the budget situation.

The need to import capital goods for the development of the country’s infrastructures, particularly for the oil sector, will continue to put pressure on the current account. Exports in 2014 could be higher with an increase in oil production. The less favourable outlook for the prices of raw materials, which account for three-quarters of export earnings (gold, oil, cocoa) will however make it difficult to reduce the deficit.

Doubts about the government’s ability to deal with the worsening current account balance and public finances are driving the cedi down, leading to the decision of the Ghanaian Central Bank, at the beginning of February, to raise its official market rate by 200 bp (to 18%). The authorities have also introduced exchange controls aimed at limiting the depreciation of the cedi, which lost over 20% of its value in 2013 and almost 9% so far in 2014. Without an improvement in the current account, the cedi is likely to continue its depreciation.

The political situation remains stable and the business climate relatively favourable

John Dramani Mahama, who had held the presidency since the death of President Atta Mills in July 2012, was re-elected and his party (National Democratic Congress) took the majority of the seats in the Assembly, in December of the same year. This result, contested by the opposition Nana Akufo Addo (New Patriotic Party, NPP) was finally ratified by the Supreme Court at the end of August 2013 without provoking a reaction from the opposition, which decided not to appeal.This episode in Ghana’s political life has rather strengthened its image as a democratic model.

Since the discovery of oil reserves, the population has high expectations in terms of improved living standards. Popular impatience is reflected in strikes and demonstrations, such as those of public sector doctors and teachers in April 2013, which do not challenge the country’s political stability. The business climate continues to improve (access to credit, administrative procedures). But new issues have arisen in terms of governance with the management of the revenue flows generated by the start of oil exploitation.