Ghana: Macroeconomic Challenges
and Prospects in the Medium Term
Joseph Kwadwo Asenso, PhD
Outline of Presentation
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Introduction
Gross Domestic Product
Inflation
Employment
Balance of Payment
Prospects
Introduction
• One of the most telling reforms has been
trade liberalization. Now we are faced with:
– An import bill headache
– Exchange rate conundrum
• We are also have large markets to export our
products.
Introduction II
• Game changers:
– The discovery of crude oil
– The rebasing of the GDP
– The rebasing of the CPI
• These have an impact on macroeconomic
stability
Introduction III
• Macroeconomics is built around four broad
themes:
– Gross Domestic Product (GDP);
– Inflation;
– Employment;
– Balance of Payment
Gross Domestic Product
• The Ghana Statistical Service (GSS) rebased
the GDP in November 2010 to reflect current
economic realities since the previous base was
perceived to have underestimated GDP.
• The rebasing of the GDP resulted in the ff:
– Ghana became a lower middle income economy in
2010; and
– The rebasing portrayed a changed economic
structure.
Lower Middle Income Status
Ghana achieved a per capita income of
US$1,307 in 2010;
Changing Economic Structure
• Ghana’s economic structure has changed
twice since 2006 due to:
– Rebasing of GDP in 2010: the Services Sector
overtakes the Agriculture Sector in 2006
– Crude Oil: the 206.5% growth in the Mining and
Quarrying sub-sector in 2011 due mainly to the
debut production of crude oil.
Current Economic Structure
GDP-related Challenges
• A middle income economy with a low income
economy infrastructure – future growth;
• Reduction in donor funding;
• Drying up of concessional sources of funding;
• Changing structure of the economy requires a
paradigm shift in policy;
Inflation
• The Ghana Statistical Service has rebased the
Consumer Price Index (CPI) to reflect current
household consumption patterns:
– the base year has changed from 2002 to 2012;
– the number of items in the basket has
increased from 242 to 267; and
– the markets from which price data are
collected have increased from 40 to 42.
Points to Note I
• Inflation has exited the single digit trajectory
[10.0% in February 2013 (old base year) as
against 10.1% in January 2013 (new base year)]
• The rise in inflation in the first half of 2013 is
mainly attributed to:
– petroleum price adjustments;
– demand pressures; and
– seasonal factors.
Points to Note II
– The weight of the food component of the CPI has been revised
downwards from 44.9% to 43.6%.
Possible Implication:
The food component was the main suppressing factor in the
single digit inflation era. With the reduction in weight, its impact
on overall inflation is also likely to reduce.
– The weight of transport has been revised upwards from 6.2%
to 7.2%.
Possible Implication:
Transport fare increases, which arise mainly from fuel
price increases, will lead to higher inflation in the new
rather than the old CPI, all other things being equal
Points to Note III
– The weight of the Housing, Electricity, Water and Gas component
has been revised upwards from 7.0% to 9.5%.
Possible Implication:
Most of these goods have almost assumed an inelastic demand status.
Price hikes could increase inflation because of the bigger weight
– The weights of other components have gone up while others have
come down. We have to monitor them and ensure that they do not
undermine our inflation targets.
• The rebased CPI has produced inflation rates which are
consistently higher than those of the old CPI, albeit at
small margins
Inflation Rate
Main Challenge with Inflation
• The new CPI has reduced the weight of the
food component in the basket and increased
those of the known triggers of inflation.
• This could pose challenges to BOG’s inflationtargeting regime in an era of petroleum and
utilities deregulation.
Employment
• The main challenge has to do with the lack of
reliable data on employment;
• Unemployed graduates;
• Youth without the requisite skills to fit into
vacant positions;
Balance of Payments
• The BOP recorded a lower deficit of US$677.8
million in 2013H1, compared with US$2 billion
in the corresponding period in 2012;
• The Trade Balance improved to a deficit of
recorded US$1.8 billion in the first 8 months
from US$2.5 billion in the analogous period in
2012;
– Earnings from gold fell by 12.6% to US$3.4 billion
– Earnings from cocoa fell by 21.4% to US$1.4 billion
BOP Challenges
• The country is primary commodity dependent.
The falling prices of cocoa and gold have put
both monetary and fiscal pressures on both
the Fiscal and Monetary Authorities;
• The ever-increasing import bill against the
slower growing export sector leads to a
negative balance of trade;
• This in turn leads to a weak domestic currency
through the CA effects;
The Dutch Disease in Ghana? No
• The Dutch Disease shows up mainly in two
ways:
– An appreciating (stronger) domestic currency;
– A declining output of the traditional sectors due to
the movement of labour to new natural resource
sectors.
• Neither of this has happened since Ghana
started producing oil. In fact, the cedi
depreciated by 18.4% against the US$ in 2012
Prospects
• Debut production of gas in 2014
• TEN fields production in 2016Q4
• Industrialization strategy built around the
petroleum sector
• A more stable outlook for electricity supply in
the medium term
• Conscious efforts to increase area under
irrigation
Thank You