GHANA’S fiscal deficits with and without grants are projected to fall by 2019 to 3.6 percent of GDP and 3.9 percent of GDP respectively, from their 2017 levels of 5.0 percent and 5.8 percent.
“Ghana’s fiscal situation improved considerably in 2017. This was due to both higher revenues and lower expenditures as a proportion of GDP, leading to a smaller fiscal deficit.
“The main question now is if this favourable fiscal outcome is sustainable. Projections by the IMF show that the situation is likely to be positive in the short run,” the Institute of Statistical, Social and Economic Research (ISSER) said in ‘The State of the Economy 2017 Report’.
A lower fiscal deficit means the government is prudently managing its resources well vis-à-vis revenue mobilization. This is expected to free space to allow government to undertake numerous infrastructure projects.
According to the report, Ghana’s growth rate of 6.3 percent for this year, down 2.2 percentage points from 2017 is based on the premise that dumsor has been solved or reduce drastically.
“Ghana’s growth rate is projected to slow to 6.3 percent in 2018. This forecast is based on lower growth of the oil sector but an increase in the non-oil growth rate from 4.0 percent to 5.0 percent. A rise in non-oil sector growth would be good news, given the concern of possible oil dependency.
However, the projection also critically assumes that the dumsor challenge involving severe constraints in energy supply will have been addressed. That of course remains to be seen, though significant improvements occurred in 2017”, the report explained.
Going forward, it said “Backed by strong investment in the oil and gas sector, Ghana can sustain economic growth well into the future, provided the country continues to improve its infrastructure and macroeconomic management. However, unemployment remains a key challenge and opportunities for employment in the industrial sector remain limited and highly specialized.”
Ghana’s external balance also improved substantially in 2017, due to both an expansion in exports and a contraction in imports, both nominally and as a proportion of GDP. The trade balance even enjoyed a surplus, for the first time in recent history.
However, ISSER’s report noted that “This balance is projected to fall slightly to -0.5 percent by2019.” This indicates that the nation might import more or fails to meet its exports targets such as gold and cocoa.
Meanwhile, the external current account deficit improved by some two percentage points in 2017, and is projected to fall further to 4.0 percent by 2019. Nonetheless, international reserve holdings, which are slightly higher in 2017 than in 2016, are not forecast to change much by 2019, the IMF said in its report in June 2018.
Inflation and interest rate
Ghana’s inflation rate has been historically high, often about twice the Sub Saharan Africa (SSA) average. But the report said the gap has been closing, with Ghana’s average inflation rate decreasing from 17.5 percent in 2016 to 12.4 percent in 2017, compared to SSA’s slight decline from 11.3 percent to 11.0 percent. Presently inflation is in the single digit level.
However, interest rates remain very high in Ghana, especially compared with very low rates globally. The report said such levels are likely to discourage borrowing and productive investment, thus, the decline in real long-term rates in Ghana during 2017 is a welcome development. Average lending rates presently stands at 28.9 percent.
The report stated that although total government debt has decreased from 73.4 percent of GDP in 2016 to 71.8 percent in 2017, it remains far above the debt-to-GDP ratio of SSA as a whole (45.9 percent).
Indeed, this 2017 debt ratio is double its level in 2009, and is huge by both historical and SSA standards with a rapidly increasing share owed to the domestic and external private sectors.
But the recent rebase of the Ghanaian economy took the debt-to-GDP ratio to below 68.0 percent.
Moreover, the report added infrastructural challenges remain daunting, as demonstrated by the ongoing, though improved,dumsor problem. In addition, Ghana performs in the bottom two quintiles among African countries on ‘proportion of people using at least basic sanitation services’ and on ‘proportion of roads paved’ (Fosu, 2018).
This infrastructural challenge it said calls for a serious prioritisation of Ghana’s public finances. Such an undertaking would, inturn, require considerable political discipline.
On governance, despite Ghana’s current ranking among the top quintiles of SSA countries on measures of institutional quality (IQ), the report said the country’s scores on ‘government effectiveness’, an indicator of the quality of public services, have fallen below the world average since 2009 and have been falling steadily since 2011.
Similarly, ‘control of corruption’ has been declining, suggesting an increasing level of corruption in the country. It then noted that higher measures of IQ are critical if Ghana is to maintain the level of ‘developmental governance’ that is required to sustain the economic growth and development success accruing from the reforms begun in the 1980s.
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