Statement by the IMF Staff Representative, May 7, 2014

This 2014 Article IV Consultation highlights the emergence of large fiscal and external imbalances since 2012, which has created significant challenges for Ghana. A swift return to macroeconomic stability in 2013 was thwarted by weaker external and domestic conditions. Reflecting lower gold and cocoa exports, the current account deficit exceeded 12 percent of GDP. Although recently revised estimates point to an only moderate slowdown in growth to about 7 percent, the fiscal deficit target of 9 percent of GDP was missed by about 1 percentage point. Ghana’ short-term economic outlook is subject to significant risks, and growth is projected to slow to 4¾ percent in 2014.

Abstract

This 2014 Article IV Consultation highlights the emergence of large fiscal and external imbalances since 2012, which has created significant challenges for Ghana. A swift return to macroeconomic stability in 2013 was thwarted by weaker external and domestic conditions. Reflecting lower gold and cocoa exports, the current account deficit exceeded 12 percent of GDP. Although recently revised estimates point to an only moderate slowdown in growth to about 7 percent, the fiscal deficit target of 9 percent of GDP was missed by about 1 percentage point. Ghana’ short-term economic outlook is subject to significant risks, and growth is projected to slow to 4¾ percent in 2014.

This statement provides information on recent economic developments in Ghana that updates information provided in the staff report issued to the Board on April 22, 2014. These developments do not change the thrust of the staff appraisal.

Data released in April reveal stronger-than-anticipated growth in 2012 and 2013. The Ghanaian Statistical Service (GSS) released revised GDP data for the first three quarters of 2013 and preliminary data for the fourth quarter and the full year, implying an annual growth rate of 7.1 percent. The report also presented revisions to the 2012 GDP data, with an upward revision in growth from 7.9 to 8.8 percent. GSS attributed the revisions to more comprehensive information received from the major data collection sources (the Ministries of Agriculture and Fisheries and the Forestry and Minerals Commissions).

The revisions reflect a stronger performance in the first half of the year, followed by a deceleration in the second half (albeit to a much lesser degree than suggested by the earlier estimates). Contributions to growth of the industrial sector in the first and second quarter were revised to 2.4 and 6.0 percent, respectively (against -0.2 and 0.7 percent in the previous estimates). The main contributors to the upward revisions for the first half of 2013 were mining and quarrying in Q1 and manufacturing and construction in Q2. Growth in the oil, manufacturing, and construction sectors, however, decelerated significantly in the second half of the year, driving industrial sector growth to -1.6 percent (-0.4 percent contribution to growth) in Q4, while growth in the services sector also declined.

GDP Growth, 2012-13

(year-on-year, in percent)

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The higher 2013 GDP figure implies somewhat lower fiscal and current account deficits, as a share of GDP, in both 2013 and 2014 (Table 1). Staff maintains its GDP growth estimates for 2014 unchanged at 4.8 percent, closely aligned with the revised growth rates for the third and fourth quarters of 2013. On this basis, the 2014 overall fiscal deficit is now projected at 9.4 percent of GDP (around 0.8 percentage points below previous projections). The medium-term outlook through 2019 remains broadly unchanged.

The update does not alter staff’s recommendation for additional fiscal adjustment. While the projected 2014 fiscal deficit is now closer to the government’s own target of 8.5 percent of GDP, a more ambitious and front-loaded consolidation path would generate savings on interest payments, reduce gross financing needs, and expedite the reduction of external vulnerabilities.

Table 1.

Ghana: Selected Economic and Financial Indicators, 2012–14

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Sources: Ghanaian authorities; and Fund staff estimates and projections.

Including public enterprises and errors and omissions.