Ghana: GDP rebasing improves economic outlook

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Ghana’s newly rebased GDP presents a larger and more diverse economy, with greater appeal for lenders and investors.

At the end of September, the Ghana Statistical Service rebased its economic calculations from the base year of 2006 to 2013 – determining GDP to be GH¢257bn (US$53bn) in 2017, a 26% increase from the GH¢204bn (US$42bn) the IMF calculated previously.

The rebasing process, which provides a more accurate depiction of a country’s overall wealth, is not uncommon in emerging economies: Nigeria notably rebased its economy in 2014 and became the country with the largest GDP in Africa.

According to Baah Wadieh, acting government statistician, the revaluation was necessary to take into account the growth and shifts within Ghana’s economy, reflecting the rise of new sectors.

“Ghana, a major commodity exporter, recalculated its GDP based on measurements from 2013 instead of 2006 to more accurately reflect recent activity in its petroleum, communication technology and construction sectors,” he told local media.

Prior to the rebasing, the agriculture sector accounted for 18% of the economy, industry 25% and services 57%. The new rebased figures, however, reflect greater balance: agriculture now accounts for 27% of the economy; industry, 36%; and services, 41%.

In addition to giving government planners a more accurate picture of economic output, the rebased numbers are expected to improve the country’s credit ranking by shrinking its debt-to-GDP ratio, which was calculated to be 69.8% at the end of 2017. However, that figure falls to 55.5% when measuring that same debt to the rebased GDP.

This is a welcome development, as Ghana’s debt-to-GDP ratio trended around or above 70% for most of 2016 and 2017. By lowering this ratio, Ghana is positioning itself as a more reliable borrower, improving its attractiveness for international lending or sovereign issuance.

Greater stability improves credit rating

In a similarly positive signal for attracting international investment, Ghana’s economy was given a vote of confidence by ratings agency Standard & Poor’s (S&P), which in mid-September upgraded the country’s credit score from ‘B-’ to ‘B’, with a stable outlook.

The assessment balanced Ghana’s fairly robust growth prospects and decreasing inflation against risks from persistently elevated budget deficits and high amounts of public sector debt.

Inflation has remained within the range of 9.6% to 10.6% since beginning of the year, on a steady decline from its 19.2% high in March 2016. This is within or close to the central bank’s inflation target of 8% with a band of 2% on either side.

The possibility of further S&P upgrades was floated if Ghana continues to implement and adhere to measures which materially alleviate pressure on public finances; or if the current account deficit narrows at a more rapid pace, which in turn would reduce the requirement for external financing.

The agency did, however, warn that it could lower its rating if growth were to significantly slow or if fiscal discipline weakened.

In this regard, government will be looking closely at tax revenue as a share of GDP, an indicator that has fallen in the wake of the rebasing exercise, given the larger headline GDP figure. Analysts therefore expect government moves to further shore-up tax revenue.

In early October, the World Bank announced it would be working with government to simplify the tax code so as to encourage voluntary compliance.

The bank also said it will help government enact a modern company law, and approve implementing regulations to increase both domestic and foreign investment in sectors beyond oil – measures which could help to offset tax revenue shortfalls in the energy market, as well as sustain broader economic growth and diversification.

Economic projections buck global growth trend

In early October, the IMF released its latest ‘World Economic Outlook report in which it forecast a reduction in the pace of global economic growth, from 3.9% in earlier projections to 3.7% for this year and next.

For Ghana, however, the outlook is far brighter. While its projections are still based on 2006 prices, the fund expects GDP to expand by 6.29% in 2018 and 7.58% in 2019, before settling at a steadier 5% or higher for most of the coming four years.

The fund’s report also forecast a gradual narrowing of the current account deficit, as well as a continued decrease in the inflation rate.

Nevertheless, this projected growth could be moderated by several factors – from the price of oil to the strength of the US dollar, as well as the tax increases which will likely accompany the tax code reforms.

This Ghana economic update was produced by Oxford Business Group.

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