Ghana’s economy will enter a recovery phase this year as the government is expected to increase expenditure in an election year, rating agency, Fitch, has predicted.
It said the recovery would be driven by stronger private consumption.
Going into the 2024 elections; many have expressed concerns that the government
would overspend its budget, a situation which would derail the gains that have
been made under the IMF programme.
With every election year characterised by huge budget overruns, the government has
been cautioned to put in efforts to stay within its projected expenditure in
the 2024 budget.
But Fitch is projecting that an increase in government expenditure in an
election year would help set the economy on a recovery phase.
It said inflation would moderate further as a result of statistical base
effects and greater exchange rate stability, which would support purchasing
power and boost household spending.
“We expect that the government will increase expenditure ahead of the December
2024 general election.”
“That said, growing consumer imports will weigh on the contribution of net
exports to overall growth, thus we do not anticipate a return to the
pre-pandemic five-year average growth rate of 5.3% in 2024,” it stated.
IMF Concerns
During her three-day visit to Ghana, the IMF Managing Director, Kristalina
Georgieva, said she was leaving the country with the strongest conviction that
Ghana was going to stay within its programmed expenditure despite 2024 being an
election year.
She said she received firm assurances from all authorities that the country
would not deviate from the programme.
“I heard it from virtually everyone, I heard it from the President, the
Vice-President, the Minister of Finance and the Central Bank Governor so I’m
leaving Accra with a strong confidence that the programme will be implemented,”
she said in response to a question from the Graphic Business at a press
briefing in Accra.
She said she could confirm that the government was strongly committed to
implementing the programme and going through with the agreed reforms.
At a recent economic update, the Minister of Finance, Dr Mohammed Amin Adam,
also gave an assurance that he was going to hold the expenditure line despite
this year being an election year.
He said he has the commitment of the President and his colleague ministers and
was therefore confident that the government would stay within the 2024 budget
and IMF programme.
Ghana’s economy
Ghana’s economy has been faced with its toughest challenges in decades
characterised by high inflation which peaked at a 22-year high of 54.1% in
2022, unstable currency, high-interest rates, slow-down in economic growth and
an unsustainable public debt which surpassed 90% of GDP in 2022.
This prompted the government to formally seek help from the IMF and after
meeting all the prior actions and requirements, the Board of the IMF approved
Ghana’s programme in May 2023.
Ten months after implementing the programme, macroeconomic stability appears to
be re-emerging again.
Latest figures by the Ghana Statistical Service (GSS) indicate that on
provisional basis, overall GDP for 2023 grew by 2.9% compared to a target of
2.3% in the 2023 Mid-Year Review Budget.
Inflation also declined by 30.9 percentage points to 23.2% in December 2023,
before picking up slightly to 23.5% in January 2024 and declined again to 23.2%
in February 2024.
The cedi also cumulatively depreciated against the US Dollar by 27.8% at the end
of December 2023 down from the depreciation rate of 50% at the end of November
2022. For the first three months of the year, the Cedi has depreciated by 6.8%
as of March 20, compared to 22.1% recorded in the same period in 2023.
External side
On the external side, the current account recorded a surplus of US$0.46 billion
at end of 2023 compared to a deficit of US$1.52 billion at the end of December
2022.
The trade balance also ended 2023 with a surplus of US$2.6 billion compared to
a surplus of US$2.9 billion at the end of 2022.
The surplus trend continued in 2024 with a trade surplus of US$392 million at
the end of February 2024.
Gross International Reserves (GIR) including encumbered assets and petroleum
funds stood at US$5.9 billion (2.7 months of import cover) at the end of
December 2023 from US$6.3 billion (2.7 months import cover) at end December
2022.
The GIR improved to US$6.2 billion at the end of February 2024 compared to
US$5.9 billion in 2022.
On the monetary side, the Bank of Ghana (BoG) lowered the policy rate by 100
basis points to 29% in January 2024 after consistently increasing it.
In response, although interest rates moderated from 35.5% (91-day TB) in
December 2022 to 19.7% in April 2023, the rates increased to 29.36% as at the
end of December 2023.
The first 12 auctions in 2024 have witnessed a consecutive decline in interest
rates with the 91-Day Treasury Bill rate at 26% as of March 25.
On the fiscal side, public debt trajectory is improving as the debt to GDP
ratio reduced to 71.4% of GDP at the end of 2023 from 73.5% of GDP at the end
of 2022.
Source: graphic.com.gh