Ghana has evolved into a stable and mature democracy throughout the last two decades. The country continues to show good performance on democratic governance, arising from strong multi-party political system, growing media pluralism and strong civil society activism. The most recent elections were held in December 2012 with the Electoral Commission declaring the candidate for the National Democratic Congress (NDC) party, the incumbent President John Mahama, as the winner with 50.7% of the vote. NDC also won a parliamentary majority. However, the presidential election result was contested in the courts by the main opposition New Patriotic Party (NPP). The opposition peacefully abided by the ruling upholding President John Mahama’s victory, confirming the trend of stronger governance and democratic consolidation.
On press freedom, Ghana progressed from 41st to 30th position out of 179 countries and 3rd in Africa according to the ‘Reporters Without Borders’ 2013 Press Freedom Index report. Ghana also retained its 2013 ranking of 7th out of 52 countries on the Mo Ibrahim Index, increasing its score by 1.6 to 68.2 per cent. This performance reflects the positive effects of an improving environment for democratic governance, coupled with a gradual improvement in the effectiveness of public institutions and persistent economic growth, resulting in Ghana attaining a lower middle income status.
The country’s economy slowed down to 7.1% in 2013 and is expected to remain lower around 6.0 % for the full year 2014. Amid the macroeconomic challenges, economic growth slowed down in the first quarter in 2014 as the manufacturing sector contracted sharply. GDP growth rate in the first quarter was 6.7%. The slowdown was mainly driven by the 21.2% contraction in the manufacturing sector which reversed the growth in the entire industry sector and other sectors. Nevertheless growth in 2014 is expected to remain modest at around 6%. Despite the downside risks in the short-term, Ghana’s growth prospects are positive in the long-term, at around 4-6% per capita.
Recent Economic Developments
Ghana faces significant macroeconomic challenges in 2014, with large twin-deficits lingering, fueling government debt and inflation, a sharp depreciation of its currency, and a weaker pace of economic growth.
The fiscal deficit remains the biggest source of vulnerability in the Ghanaian economy. Preliminary figures show the fiscal deficit was 9.2% of GDP in the first half of 2014, driven by the high wage bill and rising interest costs. The wage bill grew 25.7% (y-o-y) during the first half of 2014 despite promised measures to contain it, while interest payments reached 5% of GDP. With large expenditures planned for the second half of the year, the deficit is projected to be around 10% of GDP, above the government’s 8.8% target for 2014.
Headline inflation was 15.9% in August 2014 up from 13.5% in December 2013 due to adjustments in prices of petroleum and utilities, plus rising prices of imported products following depreciation of the Ghanaian Cedi since January 2013. Ghana’s external imbalance persisted in 2014. While the current account deficit remained around 10% of GDP (first half of 2014) financing was particularly challenging. Despite the robust FDI inflows, the financial account significantly weakened following net outflows of portfolio investment and short-term capital. As a result, the Ghanaian cedi depreciated against the US dollar by 35% on the official interbank market, but by 43% on the forex bureau market by July. Net international reserves declined to $601 million in June 2014, covering only 12 days of imports of goods and services. International reserves will get a boost from the Ghana Cocoa Board (Cocobod) loan of $1.7billion and recently issued $1 billion Eurobond. Ghana issued its third 10-year Eurobond in mid-September with a yield of 8.25%. Spreads on Ghana’s existing sovereign bonds have narrowed slightly in September after the Ghanaian government officially requested assistance from the International Monetary Fund (IMF.)
Macroeconomic challenges continue to weigh on economic growth. In first quarter, growth was lower at 6.7% compared to 9% in the first quarter of 2013.
Growth in 2014 is expected to remain modest at around 6%. Despite the downside risks in the short-term, Ghana’s growth prospects are positive in the long-term, at around 4-6% per capita.
Inflationary pressure will continue mounting, due to adjustments in petroleum product prices and utilities. As a result, inflation is not likely to return to the target band of 13±2 percent before the end of the year. The producer price inflation is projected to reach 50 percent by the end of the year due in parts to the impact of the exchange rate depreciation on the manufacturing sector.
Other inherent risks in the economy include the rising wage bill, high and rising interest rates, and the loss of net international reserves.