Accra, September 19, 2017//-Ratings agency Fitch is forecasting that Ghana’s government is not likely to meet its 6.3 percent growth projection for this year, citing lower than expected revenue performance.
The agency in its latest forecast for the country projects that the economy will grow at 6 percent, a rise from 3.5 percent recorded in the previous year.
Revenue performance for the first half of the year has been largely sluggish leading to government missing its revenue target in the first quarter of the year by more than GHS2billion.
“Revenues have underperformed their mid-year budget targets, but reported expenditure has been lower as well. Fitch expects the general government deficit on a cash basis to narrow to 7.3% of GDP, down from 9.3% in 2016,” the forecast said.
Oil boost
According to the forecast, the ongoing repair of the faulty turret that restricted output at the Jubilee field and the commencement of production at the Sankofa Gye Nyame and TEN fields has boosted oil sector growth.
The agency expects non-oil domestic output to continue to grow as power provision improves and banks continue to clear non-performing loans from their balance sheets, allowing for greater credit provision to the private sector.
Inflation has continued to fall through 2017, with headline inflation going from 15.4% in December 2016 to 12% in July 2017. Falling inflation will allow the Bank of Ghana (BOG) to continue lowering the monetary policy rate and take other actions to loosen monetary policy, providing some growth stimulus.
However, the large amount of non-performing loans (NPLs) in the Ghanaian banking sector complicates the transmission of monetary policy rates to market rates, weakening the overall impact of monetary policy.
On government’s budget deficit projection, fitch’s forecast is higher than the government’s forecast of 6.3%, reflecting the view that tax cuts included in the budget to spur economic activity will keep revenues lower than envisaged.
“Moreover, the risk of off-budget spending and the accumulation of new arrears remains a risk. Ghana’s high public-sector debt level stabilised in 2016. Fitch forecasts general government debt to fall to 71% of GDP in 2017, down from 73% at end-2016.
Falling government debt is positive for Ghana’s ratings, but the current debt level is higher than peers, both as a percentage of GDP and a percentage of revenue. Ghana’s general government debt/revenue is 364%, well above the ‘B’ median of 227%,” the forecast stated.
Fitch affirmed Ghana’s rating at ‘B’ with a Stable Outlook. The ratings, Fitch said, reflects the country’s medium-term growth potential and improving macroeconomic stability, which is supported by the authorities’ commitment to putting public finances on a sustainable path.
“This is balanced against high government debt, existing weaknesses in public finances, and low GDP per capita,” the forecast said.
B&FT
