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Ghana Country Risk Report Q1 2016

Ghana Country Risk Report Q1 2016

Core Views

Real GDP growth in Ghana will accelerate in 2016 and 2017 as the economy recovers from the economic morass it has been in over the past two years. Increasing oil production, improving electricity generation and diminishing deficits will be the root causes of this.

Another hike to Ghana’s key policy rate on September 14, a hawkish communiqué and still-high inflation augur for further monetary tightening, and we now expect that there will be an additional 100 basis points (bps) hike to the policy rate before year-end – implying 26.00%, the highest rate since 2003. This is indicative of the macroeconomic troubles Ghana is undergoing, and the authorities’ determination to bring inflation under control at whatever cost.

Ghana’s current account deficit will begin to diminish in 2016, despite ongoing price weakness for the country’s key commodity exports.

A ramp-up in oil exports and import-limiting currency weakness will offset ongoing falls in prices.

There will be some increase in public spending by Ghana’s ruling National Democratic Congress government in the run-up to the 2016 elections, but not to a level that should concern investors.

A weak political opposition and the high costs involved in failing the IMF programme mean that a massive increase is unlikely.

Ghana has issued its third eurobond at a yield of 10.75%. This will help support the currency, preventing what would have been a likely sell-off of the cedi had the authorities delayed the issuance any further, and help cover the budget and roll over short-term debt.

However, while the eurobond is cheaper than short-term borrowing, the debt will be far more costly to Ghana than previous issuances; its 2026 bond issued last year launched at a rate of 8.20%.


Executive Summary
Core Views
Key Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Investors Need Not Fear Ramp-Up In Pre-Election Spending
There will be some increase in spending by Ghana's NDC in the run-up to the 2016 elections, but not to a level that should concern
investors. A weak political opposition and the high costs involved in failing the IMF programme mean that a massive increase is unlikely.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Oil: A Critical Test For The Polity
Ghana's political risk profile is relatively favourable, especially in the context of West Africa. However, oil revenues will require careful
management, presenting a formidable test for the government over the coming decade.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Emerging From The Macroeconomic Morass In 2016
Real GDP growth in Ghana will accelerate in 2016 and 2017 as the economy recovers from the economic morass it has been in over
the past two years. Increasing oil production, improving electricity generation and diminishing deficits will be the root causes of this.
GDP By Expenditure Outlook
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
Monetary Policy
Further Rate Hike To Come In November
We forecast that there will be another rate hike in Ghana in November, taking the year-end policy rate to 26.00%. The latest hike, a
hawkish communiqué, and persistent inflationary pressures point to further tightening.
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
TABLE: MONETARY POLICY
External Trade And Investment Outlook
C/A Will Narrow Despite Commodity Price Weakness
Ghana's current account deficit will begin to diminish in 2016, despite ongoing price weakness for the country's key commodity exports.
A ramp-up in oil exports and import-limiting currency weakness will offset ongoing falls in prices.
TABLE: CURRENT ACCOUNT
Fiscal Policy And Public Debt Outlook
Latest Eurobond Launch Indicative Of Deteriorating Conditions
Ghana's latest eurobond was issued with a yield of 10.75%, making it a far more costly debt than its previous issuances. This reflects
ongoing fiscal troubles in Ghana, and deteriorating market conditions for SSA borrowers generally.
Chapter 3: 10-Year Forecast
The Ghanaian Economy To 2024
Oil To Boost Growth Over The Long Term
We hold a positive long-term outlook on Ghana, forecasting that annual real GDP growth will average more than 6.0% over the
coming 10 years. The ramping up of domestic oil production will provide significant impetus to the economy, allowing the mitigation of fiscal and current account drags.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Education
TABLE: SUB-SAHARAN AFRICA - EDUCATION RISK
TABLE: PUBLIC UNIVERSITY ENROLMENT
Government Intervention
TABLE: SUB-SAHARAN AFRICA - GOVERNMENT INTERVENTION RISK
TABLE: PERSONAL AND INCOME TAX BRACKETS
Chapter 5: BMI Global Macro Outlook
Global Outlook
Exit The Dragon
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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