Ghana: Economic Update 3 November 2004
1. Summary: economic activity remains buoyant: higher growth, falling inflation and robust reserves. GoG is more or less on-track with spending targets. BUT, government is investigating problems with its accounts. Donors are taking a wait-and-see approach to the petroleum deregulation. The IMF is leading discussions on post-HIPC financing requirements.
2. Macro: IMF has increased its growth forecast from 5.2% to 5.4%, helped by high cocoa production and prices, remittances and relatively stable fiscal and monetary policies.
3. The single digit inflation target is unlikely to be met by year-end, but it continues to fall thanks to the efforts of BoG.
4. The balance of payments remain robust thanks to favourable cocoa and gold prices, increased remittances and continued lower demand for oil.
5. The Revenue Agencies are set to exceed targets for 2004 (by 1% of GDP), with total revenue of 24% of GDP. VAT and import duties driving performance, sign of better admin and buoyant economic activity.
6. At the aggregate level indications are that GoG may exceed its expenditure target by 1% of GDP. Barring any mishaps in the final quarter this will represent a considerable achievement in light of the pressures caused by the high oil prices and elections.
7. By the end of the year the government will have spent around 2.4% of GDP, over $200m, on the petroleum subsidy. This will increase domestic debt by 0.7% of GDP. After a net repayment last year.
8. GoG should remain within the salary ceiling of 8.4% of GDP. This represents progress considering past overshoots and election difficulties.
9. GoG is considering changes to the salary structure to fill key posts.
10. Overall it looks like the government may avert the damaging pre-election overspends. However, there are problems with the 2004 accounts that will need to be rectified before an unconditional assessment can be made.
11. Deregulation of the petroleum sector is still expected by 15 February. The aim is for government to end their involvement in the petroleum sector and their exposure to subsidise prices.
12. Last week, Parliament gave the go ahead to buy VALCO for $18m. The value of this deal will depend on a number of factors, if: Kaiser is responsible for the liabilities; a strategic investor can be found; and a deal can be struck on electricity prices.