The year 2016 ended with presidential elections and the victory of the opposition party. Although the transition has unrolled smoothly, the new executive team will not benefit from much of a honeymoon period. The announcement of massive budget overruns threatens to weaken an economy that is only just getting back on its feet. The prospects of an “oil boom” will not change anything. To restore the confidence of investors, the fiscal consolidation programme backed by the IMF will have to be revised. The budget presented in March is a step in the right direction, but there are still numerous sources of tension.
The macroeconomic situation began to improve in 2016, after two years of turmoil. The Ghanaian cedi (CHS) remains broadly stable against the dollar, thanks to the strengthening of Ghana’s external position and the renewed confidence of foreign investors. Forex reserves increased by USD 250 mn in 2016, for the first time since 2011. Inflation has eased since mid-2016, even though it’s still high at 13.2% (18.7% on average between January and June), which allowed the central bank to ease monetary policy. The key policy rate dropped to 23.5%, from 26% in November, easing financing conditions for the government in the domestic debt market. Hydrocarbons prospects are also bright. Oil production is expected to virtually double between 2017 and 2018, to 180,000 barrels/day, after the sector’s performance was plagued by technical problems at the main oil field in 2016. In this context, we expect growth to rebound strongly, to 6.1% in 2017 and 6.8% in 2018, after bottoming out at only 3.6% in 2016. Even so, the overall situation remains very fragile.
Budget overruns: a heavy burden
The opposition won the general elections held in December 2016. After two failed attempts in 2008 and 2012, Nana Akufo-Addo, the leader of the New Democratic Party (NPP), was elected Ghana’s new president with a little more than 53% of the vote. As expected, the transition has gone smoothly, confirming the entrenchment of the democratic process. Yet as many feared, the pre-electoral period gave rise to massive budget overruns, reducing the manoeuvring room of an executive team whose electoral platform was built on ambitious promises of tax cuts and public investment.
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by Stéphane ALBY