The Emergency Credit Facility (ECF) between Ghana and the IMF has been key to the West African country's economic recovery over the past two years, and the outcome of the latest edition in the saga will determine Ghana's real GDP growth rate over the remainder of 2016 and 2017. We currently forecast a 4.1% expansion in 2016 and 6.5% in 2017, marking a moderate downgrade from the 4.2% and 6.7% respectively we anticipated previously. This is predicated on a belief that while payment of the latest tranche of the USD918mn credit facility will be delayed, the IMF will not fail Ghana altogether, which would entail a greater downgrade than that we have enacted.
Recent developments in the economy and the power sector have pushed the closely fought presidential race in Ghana in favour of the challenger, Nana Akufo-Addo of the New Patriotic Party (NPP). We do not expect that he will win in the first round, but rather that neither he nor incumbent President John Mahama of the National Democratic Congress (NDC) will secure the 50%-plus-one-vote needed in order to avoid a second-round run-off. A recent online poll by management consultancy Goodman AMC put Akufo-Addo on 49%, with Mahama trailing on 44%. Akufo-Addo will likely attract the remainder of the opposition vote in the second round and take the NPP to power for the first time since 2008.
Ghana's budget balance will remain under considerable scrutiny over the next several months as its relationship with the IMF comes under strain. We hold to our view that the country will continue to rein in its budget deficit, even with the upcoming presidential elections. However, we expect that some slippage is inevitable as spending will likely exceed projections and revenues have been constrained by low oil prices through much of the year. Our forecast of a deficit equivalent to 5.4% of GDP will beat the 5.8% originally set in the fiscal consolidation programme, but will fall short of the 5.3% the target was subsequently changed to in light of high public debt levels. The situation will improve still further in 2017 on the back of greater oil exports - we forecast a budget deficit equivalent to 4.9% of GDP in 2017.
If the IMF fails Ghana following parliament passing the Bank of Ghana Act in August - enabling government to borrow from the central bank - investor sentiment will sour severely.
The Ghanaian cedi remains vulnerable amid the sizeable current account deficit and could depreciate more swiftly than we anticipate.
Mismanagement of oil revenues - perhaps stemming from insufficient institutional capacity - could dent investor perceptions.
|e/f = BMI estimate/forecast. Source: National Sources|
|Real GDP growth, % y-o-y||4.0||3.9||4.1||6.5|
|Nominal GDP, USDbn||35.2||36.8||42.4||49.1|
|Consumer price inflation, % y-o-y, eop||17.0||17.7||15.5||13.2|
|Exchange rate GHS/USD, eop||3.22||3.81||4.05||4.26|
|Budget balance, % of GDP||-9.4||-6.7||-5.3||-4.9|
|Current account balance, % of GDP||-9.5||-5.4||-6.7||-6.1|
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