Ghana Country Risk Report Q2 2016 - New Market Report

Core Views:

An uptick in investor sentiment, the launch of the TEN oilfields and the waning of the electricity crisis will lead to an uptick in real GDP growth in Ghana in 2016, following two years of macroeconomic turmoil. We forecast expansion of 4.9% and 5.8% in 2016 and 2017, respectively.

The November 2016 presidential and parliamentary elections in Ghana will be closely contested between incumbent John Mahama and primary challenger Nana Akufo-Addo. President Mahama will seek to present himself as strong on corruption and policy failure in the coming months, but cutting the fiscal deficit while retaining support will take careful balancing.

The Bank of Ghana's (BoG)'s Monetary Policy Committee (MPC) opted to leave its key policy rate unchanged at 26.00% at its January meeting, indicating to us that it has in fact reached the end of its hiking cycle. We now expect that rates will be maintained at current levels through H1 before 100bps of cuts are enacted in the second half of the year, taking the year-end policy rate to 25.00%.

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The Ghanaian government is implementing some difficult reforms in 2016, which will help it to bring in the budget deficit even while the global price of oil - on which the government is becoming increasingly reliant for revenues - is looking extremely weak. These new tax measures will see the deficit continue to decline over the next several years, so long as the government stands its ground - particularly as the November 2016 presidential elections approach. We forecast the shortfall will be equivalent to 6.4% of GDP in 2016, and 5.2% in 2015.

Ghana's current account deficit in 2016 and 2017 will be wider than we had previously anticipated, thanks to a dimmer outlook for the country's primary commodity exports, oil in particular. We forecast that the deficit will stand at 7.2% of GDP in 2016 and 6.7% in 2017, following an estimated 8.4% in 2015. While our expectation of a diminishing shortfall remains, the deficit will not be reduced as quickly as we projected in our last quarterly report. We had expected that the deficit would fall from a projected 8.0% of GDP in 2015 to 6.9% in 2016 and 5.9% in 2017.

Key Risks:

If the government fails to abide by the IMF's conditionality following the deal finalised in early 2015, 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.

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