Overview: The Economy of Ghana

The Republic of Ghana lies in West Africa, on the Gulf of Guinea.It is bordered by Cote d'Ivoire to the west, Togo to the east, and Burkina Faso to the north.  The population of Ghana is approximately 25 million, with approximately 50.9 percent of the population living in urban areas.  Accra, the capital of Ghana and its largest city, has an estimated population of over 1.8 million.

After prolonged periods of instability, Ghana has recently been one of the most stable democracies in Africa with democratically elected governments since 1992.  The most recent presidential and parliamentary elections were held on 7 December 2012, which resulted in the election of incumbent president, John Dramani Mahama of the National Democratic Congress.

The next presidential and parliamentary elections are scheduled to be held in December 2016.  On 6 March 2013, Ghana commemorated the 56th anniversary of its independence from British colonial rule.

The Economy 

The Ghanaian economy is in its twelfth consecutive year of expansion, combining improvements in macroeconomic management and strong export growth, notwithstanding on-going power shortages and high global oil prices.  Ghana’s overall economic growth and relatively stable macroeconomic environment facilitated its upgrade to a lower middle-income economy in late 2010. 

The economy continues to expand in key sectors, including oil production in commercial quantities, high commodity prices including cocoa, gold and oil, increased exports volumes and steady remittance flows.  Important economic indicators reveal an overall increase in macroeconomic stability:

Gross Domestic Product

Real gross domestic product (“GDP”) grew by 7.9 per cent in 2012, compared to 15 per cent in 2011 and 8 per cent in 2010.  The decrease has mainly been driven by the fact that the 2011 GDP figure, reflected revenues from oil production. It also reflects a rising deficit due to an increase in public sector wages and costly energy subsidies. Historically, Ghana’s economy has relied heavily on gold production and agriculture, particularly production of cocoa, as the primary drivers of GDP growth.  Since the Republic began producing oil in 2010, it has become an additional driver of GDP growth.

Inflation

The Consumer Price Index (CPI) declined from 12.7 per cent in December 2007 to a low of 8.6 per cent in 2011.  Increased global oil prices in 2012 pushed the CPI up to 9.4 per cent in June 2012.  Since then, the upward inflationary trend has continued, with the CPI increasing to 11.4 percent in June 2013.

 Interest Rates

The BOG increased its prime interest rate, from 15 per cent in July 2012 to 16 per cent in May 2013. The relatively stable real interest rates has allowed for the increased provision of financial services. Private sector credit has increased from 21 per cent of GDP in 2007 to 23.2 per cent of GDP in 2012.

Exchange Rate 

Since 2009, the Cedi has maintained relative stability against the major international currencies, although the Cedi depreciated sharply in 2012 due to a high demand for foreign reserves. Between January 2013 to June 2013, the Cedi cumulatively depreciated by 1.1 per cent against the British Pound, 6.6 per cent against the Euro and 3.4 per cent against the US Dollar.  The depreciation against the British pound and the Euro was driven in large part by the weakness of the US Dollar. Based on an IMF study titled “Estimation of a Behavioural Equilibrium Exchange Rate Model for Ghana”, developments in the real exchange rate indicate that the country has maintained its export competitiveness.

Gross International Reserves

Between 2008 to 2012, gross international reserves increased significantly, from US$2 billion at the end of 2008 to over US$5.3 billion at the end of 2012. The increase is attributable primarily to increased export earnings, receipts of foreign aid, increased foreign direct investments and debt relief.

Fiscal Deficit

The overall fiscal deficit amounted to 6.6 per cent of GDP in 2008, 5.8 per cent at the end of 2009, 6.5 per cent at the end of 2010 and was reduced to 4 per cent at the end of 2011. However, the fiscal deficit increased to 11.8 per cent at December 2012 due to shortfall in grant disbursement, unanticipated higher spending on wages resulting from the implementation of a new salary structure, higher interest cost and increased subsidies as a result of the challenges stemming from the rupture of the West African Gas Pipeline.

Domestic Debt

Domestic debt as a percentage of GDP increased from 13.38 per cent in December 2008 to 14.67 per cent in December 2012. Fitch's credit rating for Ghana in February 2013 was B+ with a negative outlook. Ghana obtained its first sovereign rating of B with a positive outlook from Fitch and B from Standard & Poor’s in late 2003.  Fitch rated Ghana B+ with a stable outlook in 2012, while Standard & Poor’s rated Ghana B with a stable outlook in its 2012 annual reviews. 

The economy of Ghana is making positive strides to become one of Africa's economic giants. The country is rapidly developing its human resource, as well as, the infrastructure base, especially in the areas of energy, transport and ICT to actualize this dream.