GHANA: Economy and Finance Update

The government's economic and financial policies are consistent with the Growth and Poverty Reduction Strategy II (GPRS II). The overall objective is to raise the per capita income of Ghanaians to at least US$1,000 per annum by 2015. The GPRS II is Millennium Development Goals compliant.

• The goal of GPRS II is to achieve accelerated and sustainable shared growth and poverty reduction, within a decentralized, democratic environment.

• Structural transformation under GPRS II is to be propelled by the agricultural sector and private sector driven growth.

General Economic Outlook

• Ghana is currently rated B+ by Standard & Poors ("S&P") and by Fitch Ratings.

• The Global Competitive-ness Report 2005-2006 ranks Ghana in 59th position among the 117 economies polled worldwide during 2005-2006. It placed 4th among the countries of sub-Saharan Africa. Ghana placed 68th in 2004.

• Ghana has made great progress in improving its business environment. Its aggregate rank in the 2007 World Bank Doing Business Report was 94th, compared to 102nd out of 175 in 2005.

• In addition, Ghana was rated among the top 10 reformers on the ease of doing business. These improvements reflect the tireless efforts of Government and the private sector.

• The country registered real GDP growth of 6.2% in 2006. It was the sixth consecutive year that Ghana had experienced increasing and sustained economic growth.

• Interest rates generally declined in 2006. The main policy rate, the Bank of Ghana Prime Rate, remained unchanged at 14.50 per cent from January 2006 till December 2006, when it was reduced to 12.5%. It was maintained at 12.5% by the Monetary Policy Committee of the Bank of Ghana at its meeting on March 19, 2007.

• Up to September 2006, Ghana's foreign reserves were worth US$1,782.69 million. It was projected to reach $2.0 billion by the end of December 2006, enough to provide cover for more than three months of imports of goods and services.

• Headline inflation has declined from a peak of 41.5 per cent in March 2001 to 10.4% at the end of February 2007. For the first time in many years the country hit single digit inflation in March (9.5%) and April (9.9%) 2006.

• Provisional balance of payments data show a strengthened external payments position. The overall balance of payments position improved from a surplus of US$84.34 million in 2005 to US$415.12 million in 2006.

• Total exports recorded an increase of 33.0 percent during the year 2006 over the 2005 level to US$3,726.67 million. Growth in exports during the third quarter of 2006 was sustained into the fourth quarter, with a marginal (1.1 percent) increase to US$932.10 million. The fourth quarter export growth was driven by growth in non-traditional exports (34.5 percent) and gold exports (1.2 percent).

• Total imports in 2006 rose by 22.0 percent to US$6,753.68 million. Capital and intermediate goods accounted for 73 percent of total imports. The relatively high import growth in the third quarter of 2006 slowed down by 2.2 percent in the fourth quarter, driven mainly by a relatively smaller import of oil in the fourth quarter of 2006.

• Total oil imports for 2006 increased by 45.7 percent to US$1,646.1 million, significantly above the US$1,129.4 million recorded in 2005, reflecting an increase in realised unit price and 2.3 percent increase in volume over 2005.

• The trade balance increased from a deficit of US$2,543.14 million in 2005 to US$2,788.51 million in 2006.

• The current account recorded a deficit of US$810.2 million, compared to US$773.4 million in 2005. However, the overall balance recorded a surplus on the strength of debt cancellation, private capital flows and unrequited transfers, raising gross international reserves to US$2.05 billion at the end of February 2007.

• Private inward transfers received by NGOs, embassies, service providers, individuals, etc, through the banks and finance companies for January-December 2006 amounted to US$5.78 billion, which represents 21.5 percent increase over 2005, which were in turn 58.3 percent over 2004.

• Developments in the nominal bilateral exchange rates of the cedi against the three major currencies - the US Dollar, the Pound Sterling and the Euro - show that for January-February 2007, the cedi depreciated cumulatively against all three currencies by 0.2, 0.5 and 0.6 percent. This compares with an appreciation of 0.01 percent against the US Dollar and a depreciation of 0.9 and 0.7 percent against the Pound Sterling and the Euro over the same period in 2006. The result was an effective depreciation of 0.2 percent in trade-weighted terms.

• International recognition of the cedi was finally established in October 2006 with the first Euro-Cedi bond issued offshore by the AfDB.

• Total government expenditure for 2006, including the supplementary budget, amounted to ¢39,828.6 billion, exceeding the budgetary ceiling by 2.4 percent.

• The overall budgetary deficit for 2006, including the supplementary budget, resulted in a net domestic financing of ¢4,765.2 billion (4.2 percent of GDP). The financing of this deficit caused a bounce in the public debt/GDP ratio from 10.8 percent to 13.5 per cent; accompanied by a significant lengthening of the   maturity structure of the stock of public domestic debt.

• Ghana's total medium and long-term external debt at the end of 2005 stood at US$6,347.9 million. This amount had been reduced significantly to US$2,143.79 million by the end of September 2006, as a result of a 66 per cent debt reduction under the MDRI.

• Indications from a recently conducted Debt Sustainability Analysis (DSA) are that in the long term Ghana's external debt is sustainable under the new Low Income Countries Debt Sustainability framework. The analysis showed that in 2006 the Present Value of Debt to Exports (PV/XGS) and to Domestic Budget Revenue (PV/DBR) was 50.5 per cent and 89.1 per cent respectively. This new framework is based on policy-dependent thresholds that are applied using the Country Policy and Institutional Assessment (CPIA).

• In December 2006, government issued its maiden 5-year bond, which was significantly over- subscribed. It was auctioned at 14.47% and yielded a total of ¢756 billion.

Priority Sectors for Development and Investment

• Energy
• Road and Rail Transport
• Water
• ICT
• Human Resource Development
• Good Governance

Doing business in Ghana Means

• Stable Economy
• Stable Political Environment
• Stable Business Conditions
• Large Consumer Market
• Literate Workforce
• Improving Infrastructure

Compiled by the PR Unit of MOFEP from various reports.
For more information contact the Public Relations Unit (Room 303/350)
 
Tel: 233-21-665132 
E-mail: promofep@mofep.gov.gh.