What else could go wrong for the economy of Ghana?

Last August 8th back in the days when my output was on Mindful Money I took a look at the economy of Ghana. This had received praise from quite a few different areas as I pointed out. Firstly there was US President Obama from March 2012.

In addition, Ghana has become a wonderful success story economically on the continent.  In part because of the initiatives of President Mills, you’ve seen high growth rates over the last several years.


Then the Guardian joined in (December 2012).

Ghana expatriates return home to seize opportunities from booming economy..

Followed by George Alagiah (who I wish well with his cancer problem) of the BBC in May 2013 discussing the “African Lion”

Growth rates here put most of the rest of the world in the shade and Ghana is in the vanguard.

Indeed the BBC hype carried on as a luxury property development was visited.

all the mod cons including the wine cooler, just the thing you need to keep your chablis at the right temperature. It’s exactly what Ghana’s new burgeoning middle class would want.


I think that in the manner of the BBC television program A Question of Sport you can guess what happened next? There were burgeoning problems then and these have been added to for an economy which recently struck oil (the main Jubilee oil field came on stream in 2010) as of course projections for the value of that oil took a dive in the latter part of 2014. Consequently Ghana is one of the countries which is ruing the 48% fall in the Brent Crude benchmarked price of oil over the past year.

What is the current position?

An ominous start to proceedings is provided by the fact that Ghana is looking for help from the International Monetary Fund or IMF.

a three-year Extended Credit Facility (ECF) arrangement. Proposed access could total SDR 664 million (around US$940 million), or 180 percent of Ghana’s IMF quota.


That will be decided on tomorrow if the IMF calendar is accurate and already looks a far cry from the “African Lion” so let us look at the state of play.

In 2014 economic growth reached its lowest level in many years, with non-oil GDP growing at 4.1 percent, in the context of high interest rates, a fast depreciating currency, low aggregate demand and a deepening energy crisis. Inflation reached 17 percent, well above the central bank’s inflation target.


That looks quite a toxic mix doesn’t it? If we consider matters from reverse then in the current disinflationary environment it is quite an anti-achievement to manage to get inflation up to 17%! The route as places like Ukraine and Russia have discovered is invariably via an exchange rate which has plummeted. Unfortunately for Ghana it has not only been the price of oil which has fallen so let me hand you over to the Governor of the Bank of Ghana.

If you look at our flows especially from gold and cocoa; between 2013 and some parts of 2014, gold prices declined significantly and we’ve lost close to US$2 billion from declines in gold prices since 2012. The prices went down
from US$1,700 to US$1,100, and don’t forget that gold is the major source of foreign exchange. Cocoa prices also fell from more than US$3,000 to about US$2,000 per tonne.


Foreign praise was quite a poisoned chalice was it not? Things started to go wrong virtually immediately and in response the monetary situation went awry too.

Inflation and Interest-Rates

When you read a central bank press conference in these times of low inflation and see that the inflation target of 2016 is 8% plus or minus 2% then you can see there is trouble ahead. Firstly the country involved must have very high inflation now and the 16.5% annual rate of consumer inflation fits that bill. Invariably this arrives via a falling exchange rate ans this too can be seen by the way that it took 2.7 Ghanian Cedis to buy one US Dollar a year ago and it now takes 3.8. Quite a drop! Unfortunately for Ghana its own problems were followed by a period of US Dollar strength.

Such movement in exchange-rates and inflation brings us to the third-party involved in such a situation which is rising interest-rates and in November 2014 the Monetary Policy Rate was raised to 21%. Yes you did read that right and other interest-rates are even higher according to the Governor of the Bank of Ghana.

Whereas the rate of interest you will get from the established financial institutions and even Treasury bills currently is about 26 percent a year or a little above 2 percent a month,


How do interest-rates like this work in a world of negative interest-rates and the answer is not very well?! Quite a break is being applied to the economy of Ghana a subject I will return to shortly.

Banking Problems

This of course is a generic issue that covers the whole world but there are additional problems in Ghana.

There are lot of such illegal ones indeed, and we have already published the names of about 25 illegal microfinance institutions operating in Accra alone. We are investigating another 105 illegal ones which would be published on our website


I imagine that this is a factor in the situation reported today by Ghana Web.

Out of Ghana’s population of 25.9 million, a whopping 18.13 million, representing 70 percent of the population is unbanked.


They represent it as some 70% do not trust banks a number which they may not realise is low for these times!

Government Deficits

This is an ominous issue when the IMF is in town as we know what its austerity programs have done in Portugal and Greece. Due mostly to the high wage bill I discussed last August – with its hints of corruption – Ghana does have a fiscal deficit problem.

Coming from last year, the preliminary estimate is about 9 percent of GDP.


You can guess the IMF remedy no doubt.

with the fiscal deficit projected to decline from 9½ percent of GDP in 2014 to 7½ percent in 2015 and about 3½ percent in 2017, including the repayments of all arrears outstanding at end-2014.


How has that worked out elsewhere? Somewhere between economic contraction and collapse. Added to this has been the fact that in by now familiar refrain further measures have already been required.

Since the budget was adopted, the substantial decline in oil prices is projected to result in a shortfall of budget revenue of about 2 percentage points of GDP.


Deficit Financing

One of the problems that Ghana has faced has been that there has been outright debt monetisation. It is rare for a central bank governor to confess to this but here it is below.

On central bank financing of government, last year it was 6.6 percent of the projected revenue, so we are well within the legal requirements.


It makes me smile that it is within “legal requirements”. Tell that to the Bundesbank in Germany!

Trade Worries

Problems with a government fiscal deficit usually have a twin in the Balance of Payments and Ghana does (not) disappoint in this regard.Last September the IMF reviewed it thus.

The external current account deficit is projected to narrow to 10 percent of GDP, as imports declined substantially due to slower growth and a large depreciation of the currency, while export performance remained weak.


According to the World Bank then the last three years have seen the current account balance as a percentage of GDP go 11.4% (2012),12% (2013) and the latest 10.6%. So quite a bit of financing is required here.


There are a variety of issues here all pointing at issues for the economy of Ghana. We open with the lower oil price which in a very unfortunate coincidence for Ghana has been combined with lower gold and cocoa prices. Then we note the double-digit inflation,interest-rate,fiscal deficit and current account deficit numbers. Added to this there will be the contractionary effects of an IMF austerity program. Not inspiring is it? On this basis the IMF forecast may turn out to be optimistic.

In the context of the program, total GDP growth is expected to decline further in 2015 to 3½ percent on the back of a severe energy crisis and fiscal consolidation.


A potential Black Swan for Ghana is the amount of debt denominated in foreign currencies which is around US $15 billion. Even last September the Ghanaian government took advantage by raising US $1 billion via a 12 year bond at an interest-rate of 8.125%. Much cheaper than in Cedis! What could go wrong? Well a collapse in the currency…Oh hang on…

Also the IMF has a shocking track record here. For example as recently as the summer of 2013 it told us that public debt would stabilise around 52% of GDP and it is 67.1% and that the fiscal deficit would now be 2.2% of GDP. Let us hope that the various Black Swans which have circled the Ghanaian economy will move on as it is a poor country and hopefully can grow quickly again soon. On its side are the impact of a lower oil price on its non-oil economy and the impact of a lower exchange-rate. But for now it looks hard going for the individual Ghanaian especially for anything they need to import.






8 thoughts on “What else could go wrong for the economy of Ghana?

  1. what else?

    after allowing the IMF in ?

    no ,that should do it , Shaun , the IMF have managed to bu@@er up most of what they’ve touched !

    cocoa prices fell, just like corn prices I guess , chocolate got cheaper? no ? no surprise there then!


    • Hi Forbin

      You reminded me of the Governor’s statement so I looked it up. The price of cocoa beans has been falling since August when the averaged US $3270 per tonne to US $2751. If we allow for the fall in the UK Pound then around a 9% fall for us. I did get a cheaper offer for some fruit and nut but had to buy 2 bars to get it. Does that count?

      Oh and can we expect the chocolate bars which shrunk to expand again?! Last I recall Cadburys was reducing the size by 10% in Australia.

  2. “Out of Ghana’s population of 25.9 million, a whopping 18.13 million, representing 70 percent of the population is unbanked.”

    that could be the UK as well Shaun , if they try it on with Minus Interest Rates on current accounts or even a Bail-in !

    I guess the next step is to make it illegal not to have a bank account , or difficult like DHSS payments ….. ( showing my age there )


  3. Fascinating blog, Shaun. I know a doctoral student at the University of Ottawa who is writing his doctoral thesis on inflation targeting by central banks in poor countries like Ghana. If I understand him properly the thrust of his argument is that inflation targeting may be appropriate for developed countries like the UK, but is inappropriate for Third World economies. Do you have any opinion on that?

    • Hi Andrew and thank you

      There are plainly issues for inflation targeting in developed countries but if we move to developing ones what are the main differences?

      Whilst we debate statistical issues in the 1st world the 60% revision to GDP the last time Ghana rebased its numbers is in a whole different league! How can we know even vaguely reliably what the situation is which includes inflation?

      Next is the issue of asset prices which seem by the BBC report to be a warning sign. In a way this expresses part of the problem as the BBC at least in part implicitly reported asset price inflation as growth.

      So actually the main difference I think is in the reduced reliability of the numbers. On the other side of the argument is that inflation has the most severe effect on the poorest of which there are by definition many in poorer countries. So on that basis you might easily argue that inflation targeting is even more important there. In the case of Ghana they could quite reasonably argue that 8% per annum is too high.

  4. We don’t have quite the same problem with illegal money-lending, as all the sharks, fraudsters and wide-boys have found it more lucrative working in mainstream banking.

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