The economy of Ghana has started to show some signs of stabilisation, following the widening of fiscal and external deficits in 2008 as demand pressures lessen. The Government has taken a number of measures to stabilise the situation, including an ambitious budget and medium term macroeconomic framework, financially supported by the World Bank and the IMF.

• As anticipated, both the fiscal and external deficits were reduced in the first half of 2009 (H1 2009, in comparison with that of the same period in 2008, H1 2008), under the impact of positive exogenous shocks (good rains, low oil prices, high cocoa and gold prices, good cocoa season) and fiscal stabilisation efforts. The fiscal deficit reached 4.5 percent of GDP while the Balance of Payment (BOP) current account was in little surplus. Since July, the exchange rate has broadly stabilised against the US$, as well as the inflation rate, around 20 percent. Indirect indicators (Bank of Ghana composite index, private sector credit, indirect tax revenue, etc.) all suggest a deceleration in GDP growth, which should nevertheless remain positive in per capital terms. And while Ghana’s sovereign bonds spreads are now declining, as in the other emerging markets, the impact of the global crisis is now mostly felt through the decline in remittances and foreign direct investment. Except for a few specific cases (e.g. Ghana Commercial Bank’s high exposure to oil related SOEs unable to meet their obligations), the financial sector seems to be withstanding the global crisis, but non performing loans could suffer from a delayed settlement of government arrears. Foreign currency reserves have stabilised and are expected to improve with IMF support and the decision of the G20 to raise special drawing rights will enable Ghana to place an additional US$425 million at the Central Bank.

• Challenges, however, remain if Ghana is to meet its medium-term fiscal targets. Following the adoption of the IMF-backed macroeconomic framework in June 2009, the Government revised its budget law to introduce a new set of austerity measures (removal of tax exemptions, introduction of new levies, account for additional budget support - from the World Bank in particular - in substitution of domestic borrowing) in order to be able to meet its end-year fiscal deficit target of 9.4 percent of GDP. It also managed to negotiate a within-budget increase in public wages with the trade unions (except for the health sector, where negotiations with doctors were not concluded by early September). The submission of the supplemental budget to Parliament in August 2005 (for the remainder of 2009) nevertheless also revealed a stock of outstanding public arrears largely exceeding that budgeted (US$ 1.2 billion or 7.9 percent of GDP, against 2.5 percent budgeted). However, it is still not clear how the issue of arrears will be settled, as the supplemental budget does not include any specific provision for it, beyond due diligence and audit.

• Persistent price inflation and State Owned Enterprises (SOEs’) financial situation also remain of concern. The annual inflation remains high at around 20 percent (end-July), as do interest rates (26 percent on 3 month T-bills). Nonetheless, the stabilisation of the exchange rate could help the Central Bank to approach its end-of-year 14.6 percent inflation target. Commercial banks have tightened their credit stance in Q2 09 (shorter maturities, higher collaterals), while net private demand from enterprises and households for credit continued to drop, in particular for investment expenditures (equipment and housing loans). At 10 percent in June 2009, the share of banks’ non performing loans remains of a concern with growth deceleration and the issue of public arrears and contingent liabilities. The high exposure of some banks to energy SOEs (and related high indebtedness of the same SOEs) seems to be of particular concern to the Government, for its implications in terms of financial sector vulnerability and SOEs’ ability to continue operating.

Ghana’s Policy Score Card

Ghana ranks 3.9 in the provisional Country Policy and Institutional Assessment index 2008, which means it is classified amongst the strong performers in Sub-Saharan Africa, along with Botswana, Cape Verde, Mauritius and South Africa, Senegal, Tanzania and Uganda.