12 October 2022

Quarterly Update | Ghana

Debt restructuring talks a linchpin to unlocking aid

◼ During the past quarter, local news was dominated by the fact that the Ghanaian government had
reached out to the IMF for funding – a move that Ghana had refused to make in the past. Though,
it is highly likely that the multilateral organisation will need to see some form of debt
sustainability plans as a precondition for funding, which could be troublesome for the West
African country. Subsequently, reports have surfaced that the government will approach local
creditors to restructure its debt obligations in an effort to get back on track to sustainability.
◼ Data showing that economic activity remained solid in Q2 was just about the only upside to a
dismal quarter for Ghana. Real GDP expanded by 4.8% y-o-y in Q2, which brings overall economic
growth to 4.0% y-o-y in H1 2022. Nonetheless, a weakened domestic economy, highlighted by a
deterioration in private sector activity and a slowdown in global economic growth, will hurt local
activity. As such, we have lowered our GDP growth forecast to 3.6% for 2022.
◼ Inflation continued to spiral out of control, reaching close to 34% y-o-y in August – and is yet to
peak. We expect inflation to reach its highest point in Q4 only. The inflation print prompted the
central bank to call an emergency meeting in August and raise interest rates by 300 bps to 22%,
before pushing rates up by another 250 bps in October's meeting.
◼ The country was hit from all sides over the past three months. The sell-off from international
investors caused the cedi to depreciate by another 20% to its worst level ever. Meanwhile, the
increasing likelihood of debt restructuring resulted in a wave of credit rating downgrades.
Moreover, cocoa production is now projected to be lower in 2022, relative to last year.

Table 1: Ghana forecast overview

2019 2020 2021 2022 2023 2024
Nominal GDP $bn 66.7 68.3 77.4 70.2 70.4 76.5
Nominal GDP per capita $ 2,114.8 2,121.2 2,357.3 2,099.5 2,062.0 2,200.0
Real GDP growth % year 6.5 0.3 5.3 3.6 2.6 4.0
CPI inflation % 7.1 9.9 10.0 29.6 21.0 10.0
LCU/$ Average 5.4 5.74 5.92 8.63 10.23 10.58
Exports $bn 15.7 14.5 14.7 17.3 17.3 17.4
Imports $bn 13.4 12.4 13.6 14.6 14.5 15.5
Current account $bn -1.9 -2.1 -2.5 -2.4 -2.0 -2.7
Current account % of -2.7 -3.1 -3.3 -3.4 -2.9 -3.6
GDP
Foreign direct investment % of 4.9 2.0 3.1 2.1 2.6 3.3
GDP
External debt % of 40.1 45.9 47.3 56.8 62.1 61.4
GDP
Reserves $bn 7.0 7.2 8.3 5.3 7.0 7.5
Import cover Months 3.1 3.5 3.8 2.3 3.1 3.0
Government balance % of -4.3 -11.0 -9.3 -8.4 -7.3 -6.4
GDP
Government debt % of 62.0 75.5 78.0 87.7 80.7 79.8
GDP
Brent Crude oil US$/bbl 64.4 41.8 70.7 103.1 96.1 87.1
Source: Oxford Economics Africa

Pieter du Preez - Senior Economist - pdupreez@oxfordeconomics.com

Zaynab Mohamed - Political Analyst - zmohamed@oxfordeconomics.com
Debt restructuring talks a linchpin to unlocking aid

Forecast Overview debt sustainability before extending funding

assistance. As a result, Bloomberg reported that
Recent developments Ghana is mulling over the restructuring of its
domestic public debt. This news triggered a wave
Ghana’s economic woes continued to deepen of sovereign credit rating downgrades.
during Q2 2022. The only upside to a dismal
three months was the Q2 national accounts Short-term outlook
release, which showed that economic activity
The near-term outlook has been altered
held up relatively well during the second quarter.
significantly. We have lowered our economic
More specifically, the economy expanded by
growth forecast to 3.6% for 2022 as a result of
4.8% y-o-y in Q2, surprising to the upside, as the
headwinds intensifying on home soil, while the
consensus expected a more modest 2.7% y-o-y
storm clouds have also started to gather on the
rise in GDP. On a cumulative basis, the
global economic side. Inflation rising further than
economy expanded by 4.0% y-o-y during H1
anticipated compelled us to increase our forecast
2022. But this is about as good as it will get for
for this year; we now expect inflation to average
the Ghanaian economy, as local and global
close to 30% in 2022. The fiscal deficit is still
headwinds have strengthened significantly since
forecast to narrow, but to a lesser extent than we
then.
had expected in our June forecast round. With
Chart 1: Macroeconomic instability to weigh on Ghanaian authorities struggling to rein in
growth expenditure, we see the fiscal deficit narrowing
Real GDP growth
marginally to 8.4% of GDP in 2022, from a
% year shortfall of 9.3% of GDP in 2021.
7.0
6.5

6.0
6.2
6.5 Chart 2: Inflation expected to peak soon before
6.2
5.3
4.9
receding slowly
5.0
5.3 4.5

4.0 Consumer price inflation

4.0
4.0 % year
3.6 35
3.0
Jun-22
2.6 29.6
30
2.0 Oct-22 Update

0.3 25
1.0
Jun-22
21.0
Oct-22 Update 0.3 20
0.0 21.5
2018 2019 2020 2021E 2022F 2023F 2024F
15

9.9 10.0 10.0

Source: Oxford Economics Africa 10

7.8
7.1 9.9 10.0
9.2
7.8
5 7.1
6.1
On the local front, the latest consumer price
index (CPI) report showed that inflation rose by
0
2018 2019 2020 2021E 2022F 2023F 2024F

another 1.2 ppts to 33.9% y-o-y in August.

Despite reaching such elevated levels, we expect
price pressures will intensify over the coming
months and peak in Q4. Inflation spinning out of
control prompted the Monetary Policy
Committee (MPC) of the Bank of Ghana (BoG) to
call an emergency meeting in August and raise
rates by 300 bps to 22%, before raising rates by a
further 250 bps in October. The local exchange
rate lost another 20% of its value in Q3, reaching
GH¢10.40/$ – the worst level ever.
Notwithstanding these eye-watering
developments, the fact that the Ghanaian
government decided to turn to the IMF for a
$3bn funding package made headlines during
Q3. Local authorities are well aware that the
multilateral organisation will want some form of
Source: Oxford Economics Africa
Key drivers of our short-term forecast
Soaring inflation and rising interest rates to
weigh on consumers. The indebted sovereign
has sent investors running for the hills and the
country has been severed from global capital
markets. As such, the cedi has depreciated at a
rapid pace since the start of the year, which
caused inflation to accelerate to its highest level
in decades. In fact, in an attempt to curb
inflationary pressures, the central bank has had to
raise interest rates by a cumulative 1,100 bps
since October last year. Therefore, we expect
consumers to be hit hard as the cost-of-living
crisis deepens, which, in turn, will drag economic
activity lower.

Page 2 Pieter du Preez - pdupreez@oxfordeconomics.com

Debt restructuring talks a linchpin to unlocking aid

Private sector activity slowed markedly in Q3. Chart 4: Government's struggle to contain
The latest S&P Global purchasing managers' spending a stumbling block to narrowing the
index (PMI) indicates that things have gone from fiscal deficit
bad to worse for Ghana's private sector. The Budget balance
overall PMI for September showed that private % of GDP
0
sector activity deteriorated for an eighth-
consecutive month and slowed by its quickest -2

pace in more than two years. This underlines the -4

-3.7
-4.3
-3.7
problems faced by the economy and should -4.3
-5.7

highlight the fact that economic growth is -6 -6.5

-6.4

projected to slow over the short term.

-7.7
-8 -7.3

-9.3 -8.4
Slowdown in global economic growth to keep -10
Jun-22
-11.0 -9.3

a lid on local activity. Internationally, the cost- Oct-22 Update

-11.0
-12
of-living crisis and the subsequent hefty rise in 2018 2019 2020 2021E 2022F 2023F 2024F

interest rates in most of the advanced economies

are expected to lower global economic growth in Source: Oxford Economics Africa
the short- to medium term. In fact, the
Local exchange rate to remain weak. The sell-
probability of a recession in the US, UK, and
off by international bondholders caused the local
eurozone has increased in recent months. This
unit to depreciate rapidly. With the cedi losing
will likely lower local production as international
value and commodity prices accelerating,
demand for Ghanaian goods recedes.
inflation surged. The big inflation differential with
Chart 3: Elevated commodity prices and the US will put further strain on the cedi over the
weakened currency keep import bill high medium term. The weakened exchange rate is set
Current account balance
to keep the import bill high, while the slowdown
% of GDP in global growth will likely hurt export demand.
0.0
Jun-22
-0.6
This disparity will also weigh on the cedi.
-0.5
Oct-22 Update

-1.0 Overindebtedness limits the government's

-1.5 scope to enhance economic activity. Interest
-2.0
-2.3
payments on Ghana's public debt reached north
-2.5 -2.7 of 60% of fiscal revenues during H1 2022. On one
end, the government is struggling to broaden the
-3.1 -2.7 -3.1
-3.0 -3.2 -2.9
-3.1 -3.1
tax revenue base. The weak local macroeconomic
-3.3 -3.6
-3.5
-3.4

-4.0
-4.5
2018 2019 2020 2021E 2022F
Source: Oxford Economics Africa
Inflation is yet to peak. The upsurge in the bank
rate will aid in driving inflation lower over the
short term but will do little to stop inflation from
rising further thereafter. The cedi's ongoing rapid
depreciation, together with the rise in utility
prices, suggests that the worst is yet to come. We
expect inflation to peak at around 38% y-o-y in
October, before starting to recede at a slow and
steady pace to average close to 30% this year.
Rampant inflation has pushed the central bank to
raise interest rates aggressively during the past
quarter. Although we think that the interest rate
hiking cycle has run its course in Ghana, it will
likely remain elevated for longer.
-4.0 environment and slowing global growth will
2023F 2024F further impede this process, while a split
government creates further difficulties to pass
reforms to increase the tax base. At the same
time, as we mentioned, spending is limited by the
government's huge debt burden. This means the
government has run out of fiscal space, and
government consumption and fixed investment
will be subdued in the foreseeable future.
Cocoa production is set to decline. Cocobod,
the cocoa regulator, said that cocoa production
for this year is now projected at 689,000 tonnes,
which is lower than last year's record of 1,047
tonnes. Lower cocoa production will weigh on
agricultural output in 2022.

Page 3 Pieter du Preez - pdupreez@oxfordeconomics.com

Debt restructuring talks a linchpin to unlocking aid
Economic Developments
Economic activity was solid in H1
The Ghana Statistical Service (GSS) released the
country's national accounts data, which showed
that the economy expanded by 4.8% y-o-y in Q2.
Economic activity surprised to the upside during
the second quarter, as the consensus expected a
more modest 2.7% y-o-y rise in GDP. From a
sectoral perspective, agriculture (+4.6% y-o-y),
industry (+4.4% y-o-y), and services (+5.2% y-o-
y) all delivered strong performances during the
second quarter. On a cumulative basis, the
Ghanaian economy expanded by 4.0% y-o-y
during H1 2022.
Chart 5: Solid broad-based activity kept
economy afloat in H1
Real GDP growth
% change, y-o-y
GDP
20
Industry
15
10
5 1,000
0
-5
-10
2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
Source: GSS
On a quarterly basis, the economy grew by 1.1%
relative to the preceding quarter. Services
contributed 0.5 ppt to the quarterly growth rate,
followed by industry (+0.3 ppt) and agriculture
(+0.2 ppt). Delving deeper into the subsectors,
manufacturing and cocoa production were the
biggest contributors to the quarterly growth rate,
each adding roughly 0.2 ppt. While cocoa
production was the main driver behind
agricultural growth, the mining sector
contributed 0.1 ppt to aid in driving industrial
growth higher. Likewise, within the services
sector, information & communication technology,
public administration, education, and health &
social services each contributed 0.1 ppt to the
quarterly growth rate.
Short-term outlook has deteriorated
The Ghanaian economy has managed to deliver
solid growth over the past couple of quarters. But
we expect activity to moderate over the coming
quarters as the economy starts to feel the pinch
from both the local and international front.
Domestically, the indebted sovereign has seen
Page 4 Pieter du Preez - pdupreez@oxfordeconomics.com
investors hightailing it and the country has been
cut off from international debt markets. As a
result, the cedi has been depreciating swiftly
since the start of the year, which caused inflation
to accelerate to its highest level in decades. In
fact, in an attempt to curb inflationary pressures,
the central bank had to raise interest rates by a
cumulative 1,100 bps since October last year.
Therefore, we expect consumers to be hit hard as
the cost-of-living crisis deepens, which, in turn,
will drag economic activity lower. Weak
government consumption is also expected to
weigh heavily on GDP as the cash-strapped
government tries to consolidate its finances.
Chart 6: Ordinary citizens will be worse off in
the coming years
Real GDP growth vs. GDP per capita
% year US$
16 2,500
GDP per capita, $ (rhs)
Real GDP, % change (lhs)
14
Agriculture
2,000
Services 12
10
1,500
8
6
4
500
2
0 0
2010 2012 2014 2016 2018 2020 2022F 2024F
Q2 Q4 Q2
Source: Oxford Economics Africa
Globally, the cost-of-living crisis and the hefty
rise in interest rates in most advanced economies
are expected to lower global economic growth
for the foreseeable future. In fact, the likelihood
of a recession in the US, UK, and eurozone has
increased in recent months. This could lower local
production as international demand for Ghanaian
goods wanes.
PMI paints bleak picture for Q3
The S&P Global PMI fell from 45.9 in August to
45.6 in September. The latest reading is the
lowest level since April 2020 when the index
dropped sharply as a result of the Covid-19
pandemic. It is also the eighth-consecutive
reading below the 50-mark, indicating that
business conditions are still deteriorating. The
latest deterioration was driven by a fall in output
– the rate of which was the third-fastest in its
history – and a decrease in new orders. Firms in
the private sector responded to the economic
quagmire by cutting jobs for the third month in a
Debt restructuring talks a linchpin to unlocking aid
row. Interestingly, firms remain upbeat about
their longer-term output expectations.
Chart 7: Private sector economic activity
deteriorated in Q3
Ghana S&P Global PMI
60
55
50
45 >50 indicates improvement over the previous
month
40
35
30
Oct-19 Mar-20 Aug-20 Jan-21 Jun-21
Source: S&P Global
Respondents to the survey cited elevated prices
as one of the main reasons for the drop in
demand, which, in turn, resulted in a fall in
output. What made the slump in output more
concerning is the fact that the pace of decline is
the third-fastest since the start of the series and
only bested by drops in March and April 2020 –
periods of extreme volatility and uncertainty. New
orders fell further with more than 25% of
respondents noting a fall in new demand. The
consistent fall in both output and new orders
means that spare capacity increased even more in
September. Taking the aforementioned into
account, firms had to reduce costs and did so by
lowering headcounts. Lower work inflows allowed
firms to shorten delivery times and with demand
falling, firms scaled back on purchasing activity.
Inflation remained one of the main concerns for
the private sector. Firms passed the increase in
input costs on to clients with selling prices rising
the second quickest in the survey’s history. Even
so, firms remain optimistic that output will return
to growth over the next 12 months.
Inflation burning a hole in pockets
The latest CPI report from the GSS showed that
inflation rose by another 1.2 ppts to 33.9% y-o-y
in August. Despite reaching such elevated levels,
we expect price pressures will intensify over the
coming months and peak in Q4. On a monthly
basis, inflation rose by 1.9% m-o-m in August,
down from 3.2% m-o-m in the previous month.
Technically, food inflation remains the biggest
driver behind overall inflation. Admittedly,
though, the gap between food and non-food
inflation has narrowed and become negligible.
Food inflation rose to 34.4% y-o-y in August,
from 32.3% y-o-y in the previous month. Delving
Page 5 Pieter du Preez - pdupreez@oxfordeconomics.com
deeper into the food component sub-indices,
upward pressure stemmed from oils & fats
(+74.0% y-o-y), fruits & nuts (+49.4% y-o-y) and
fish & other seafood (+46.4% y-o-y). The
magnitude of the rise in oils & fats prices is likely
a direct consequence of the increase in sunflower
oil prices as a result of the war in Ukraine and the
rapid depreciation in the cedi.
Non-food inflation reached 33.6% y-o-y in
August, up from 31.3% y-o-y in July. Non-food
inflationary pressures stemmed from housing,
water, electricity gas & other fuels (+46.7% y-o-y)
and transport (+45.7% y-o-y). Similar to the rise
Nov-21 Apr-22 Sep-22
in food prices, the extent of the increase is
directly related to the increase in the global
energy prices and the slide of the local currency.
These have also resulted in imported inflation
increasing to 35.2% y-o-y in August, while local
inflationary pressures were lower, albeit
marginally, at 33.4% y-o-y.
Chart 8: Both food and non-food inflation have
converged at elevated levels
Inflation in Ghana
%
40 CPI (y-o-y) Food (y-o-y)
Non-food (y-o-y) Policy Rate
35
30
25
20
15
10
5 Inflation target range
0
Oct-20 Feb-21 Jun-21 Oct-21 Feb-22 Jun-22 Oct-22
Source: GSS
CPI inflation averaged 24.5% y-o-y during the
first eight months of the year. Given our outlook
for the next couple of months, we expect inflation
to average close to 30% in 2022. This is
underpinned by our expectation that inflation will
continue to rise, peaking at 37.0% y-o-y in
October, but then start to recede. Apart from the
current high global food and energy prices, the
main drivers behind the increase in inflationary
pressures over the immediate term will be a
weakened exchange rate and higher local utility
prices. More specifically, the Public Utilities
Regulatory Commission (PURC) announced last
month that it had approved a 27.15% tariff
increase for water and a 21.55% rise for
electricity, which kicked in from the start of
September.
Debt restructuring talks a linchpin to unlocking aid
Chart 9: Inflation will remain well above the
central bank's target over the medium term
Consumer price inflation
% year
35
30
25
20
15
10
5 5.9
0 4.7
2010 2012 2014 2016 2018 2020
Source: Oxford Economics Africa
Central bank had to react to soaring
inflation
The MPC of the BoG opted to increase the
monetary policy rate by 250 bps to 24.5% upon
conclusion of its meeting on October 6. The
magnitude of yet another hike surprised many
and shows that the central bank is serious about
getting inflation under control. However,
tempering Ghana's inflation will not happen
overnight. The accompanying press release noted
that global economic conditions have worsened
since the last meeting with global economic
growth easing quicker than anticipated and
international price pressures being more
persistent. The focus of the meeting was very
much on the local front given the economic
environment and developments on home soil
over the past 12 months.
On the domestic front, the central bank noted
that economic activity remained solid during H1,
but even the BoG's own Composite Index of
Economic Activity (CIEA) is showing signs of a
slowdown. Banks have tightened credit
conditions to both households and businesses in
August, while sentiment among these entities
deteriorated further. The apex bank also stated
that inflationary pressures had intensified with
inflation rising to 33.9% y-o-y in August and core
inflation jumping to 32.6% y-o-y during the same
month. According to the BoG, the cedi
depreciated by 37.5% in the year ending
September 2022. The bank ascribed the loss in
value to higher global commodity prices, non-
rollover of maturing bonds by foreign investors,
portfolio reversals and international investors'
sudden withdrawal from the bond market, and
Page 6 Pieter du Preez - pdupreez@oxfordeconomics.com
the country being locked out from international
capital markets. In turn, greenback strength has
worsened the cedi’s slide.
Chart 10: The cedi is one of the worst-
performing currencies in the world this year
Exchange rate
LCU/US$
12
10.6
10.2
10
8.6
8 8.6
8.1
7.5
6 5.7
5.4
5.7 5.9
5.4
2022F 2024F 4.7
4
2 Jun-22
Oct-22 Update
0
2018 2019 2020 2021E 2022F 2023F 2024F
Source: Oxford Economics Africa
We had forecast interest rates to rise by another
200 bps this year and to peak at 24.0%. So, the
latest 250 bps increase was somewhat surprising,
but we believe that the hiking cycle has now run
its course in Ghana. The dynamics that were
responsible for the sharp rise in inflation have
mostly eased now. Nevertheless, we don’t expect
inflation to ease quickly – the effects of the
aforementioned factors will linger and result in
inflation moderating slowly.
Rating agencies are deeply worried
On September 23, Fitch opted to lower Ghana’s
sovereign long-term local and foreign currency
ratings to CC, from CCC. This means that the
country is now just two notches above default.
No outlook was assigned to Ghana’s ratings, as
Fitch usually does not assign an outlook to
countries with ratings of CCC or lower. The
decision to downgrade the sovereign is
underpinned by several factors, including: (i)
increased probability of debt restructuring; (ii)
high debt service; (iii) limited access to external
financing; (iv) pending IMF programme; and (v)
limited space for fiscal consolidation. The cut in
September followed another Fitch downgrade in
August, when the ratings agency lowered the
country’s credit rating to CCC, from B-.
On September 30, Moody’s Investors Service
followed in the footsteps of other ratings
agencies and downgraded Ghana’s sovereign
credit rating. Moody’s downgraded Ghana’s
sovereign credit rating to Caa2, from Caa1, and
placed the rating under review for downgrade.
Debt restructuring talks a linchpin to unlocking aid

The ratings agency said the decision to cut the Ofori-Atta to commence formal engagements
rating was underpinned by the country’s with the Fund.
macroeconomic deterioration, which worsens
Chart 12: Public debt-to-GDP to reach close to
Ghana’s liquidity and debt sustainability
90% over the forecast period
problems and, in turn, raises the risk of default. In
fact, the government’s challenges have been Public debt
% of GDP
worsened by soaring inflation, increasing interest 100

rates, and a rapidly weakening currency. 90 87.7

80.7 79.8
80 78.0
75.5

Chart 11: Ghana's sovereign credit rating has 70 75.1

77.3
73.6 73.8 75.5
62.0
been slashed by several notches 60 56.2
61.8
50 56.1

Ghana's sovereign credit rating 40

BB- Ba3
30
B+ B1
20
Jun-22
B B2
10 Oct-22 Update
B- B3
0
CCC+ Caa1 2018 2019 2020 2021E 2022F 2023F 2024F

CCC Fitch (lhs) Caa2

CCC- S&P (lhs) Caa3

CC+ Moody's (rhs)
CC
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Sources: Fitch Ratings, S&P Global Ratings, Moody's
Investors Service
S&P downgraded the country’s credit rating to
CCC+, from B-. S&P’s decision to downgrade is
not that much different from Fitch’s. But in
addition to the downgrade, S&P added a
negative outlook to the rating. The negative
outlook is underpinned by Ghana's deteriorating
fiscal, monetary, and reserve buffers against the
backdrop of several external shocks, while
domestic fiscal and financing challenges continue
to mount. The negative outlook means another
rating downgrade is very much on the cards and
could be triggered if external pressures continue
to intensify. In turn, the outlook could potentially
be changed to stable if external pressures ease,
economic growth accelerates, fiscal consolidation
efforts improve, and the country regains access
to international financial markets.
Source: Oxford Economics Africa
Ca
N/R
The Covid-19 pandemic exacerbated the
country's public debt position, with government
debt reaching 78.0% of GDP in 2021. Meanwhile,
crisis spending saw the fiscal deficit widen to
11.0% of GDP in 2020 before narrowing
somewhat to 9.3% of GDP last year. This large
deficit, coupled with the high level of public debt,
caused a sell-off in hard currency paper earlier
this year as investors' fears regarding debt
sustainability intensified. This effectively cut
government off from tapping external markets
further, and it was unclear where government
would get the funds necessary to service its debt
and finance its deficit. To this end, authorities
managed to secure $1bn in syndicated loans
from international banks in mid-June. Meanwhile,
rising price pressures sparked demonstrations on
June 28, as government has, so far, failed to stem
the rise in inflation caused by increasing food,
fuel, and energy costs and a weakening local
currency.

Ghana has turned to the IMF for help IMF wants to see debt sustainability

On July 1, the Ghanaian government confirmed
that it had engaged in talks with the IMF to
develop a support package. The country, which
has effectively been severed from international
capital markets earlier in the year due to concerns
of debt distress, previously dismissed any
suggestions of seeking support from the Fund,
despite growing discontent among Ghanaians
over deteriorating living conditions.
After a phone call between President Akufo-Addo
and IMF Managing Director Kristalina Georgieva,
the president authorised Finance Minister Ken
Media reports and credit rating downgrades have
refocused the attention on Ghana's debt
restructuring risks. We believe a strong argument
can be made for a domestic debt restructuring,
provided sufficient policy support exists to
counter systemic risk to the banking sector. While
the balance of payments does not pose an
imminent risk, we are of the opinion that Ghana
may be barrelling towards a funding crisis by
2026. Mindful of the heavy redemption schedule
over 2026-32, we think that a pre-emptive debt
restructuring of public external debt in addition

Page 7 Pieter du Preez - pdupreez@oxfordeconomics.com

Debt restructuring talks a linchpin to unlocking aid

to domestic debt reorganisation may be on the Chart 14: Ghana's government bonds have
cards. performed relatively poorly against its peers
Chart 13: Ghana's bond yields have skyrocketed Relative Sovereign Bond Performance (indexed)
during the past 12 months 130
Ghana Côte d'Ivoire Nigeria Angola
Ghana Eurobond Bid Yields (%) Morocco Kenya Egypt

2023 in USD, Coupon = 7.875% 2025 in USD, Coupon = 0%

50 100
2026 in USD, Coupon = 8.125% 2027 in USD, Coupon = 7.875%
45 2029 in USD, Coupon = 7.75% 2035 in USD, Coupon = 7.875%

40
70
35

30

25
40
20

15

10 10
5 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22

0
Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22
Source: Refinitiv

Source: Refinitiv Earlier this year, we envisioned the exploitation of

central bank deficit funding and financial
For most African countries currently considered
repression as primary avenues to manage the
to be at high risk of debt distress, the primary
large public debt burden. Broad spectrum policy
channel of exposure is the balance of payments.
tightening implemented since March, coupled
Reorganising the hard-currency (HC) debt
with Ghana's invitation to the IMF, has lessened
component, primarily through a Eurobond
the probability of this scenario materialising. The
exchange agreement, should be sufficient to
limited debt architecture for DDR introduces tail
lower external funding requirements and restore
risks, but we think Ghana will utilise a
debt sustainability. In the case of Ghana, the
combination of FX reform, monetary policy tools,
balance of payments position and HC debt
and financial support from the IMF to re-value
redemption schedule do not pose an imminent
local-currency (LC) debt and lower the effective
threat to debt sustainability. Rather, the challenge
interest rate on public debt. While the balance of
is to create fiscal space by addressing the large
payments does not pose an impending threat, we
interest cost burden. As mentioned, domestic
think that a pre-emptive rescheduling of FX
debt interest costs are the dominant factor here,
public and publicly guaranteed (PPG) debt will
and hence support a case for a domestic debt
support the restoration of fiscal and debt
restructuring (DDR) exercise. One of the
sustainability to augment a potential DDR.
challenges related to a large debt servicing
burden is fiscal fatigue. Earlier this year, Ghana Economic data and key facts
unveiled plans for an aggressive front-loaded
fiscal adjustment, but our baseline scenarios An overview of Ghana's current economic data is
show that the risk of fiscal fatigue remains at included as an appendix in the online version of
exorbitant levels. While Ghana has announced a this report, where you can also learn some other
slew of consolidation measures, which interesting facts about the country.
encompass efforts to broaden the tax base and
rein in expenditure, implementation challenges
persist. Our core narrative on Ghana has changed
substantially since the beginning of the year, but
the main challenges remain intact. Ghana is
caught in a debt trap, and domestic debt
servicing costs are particularly burdensome.

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Political Developments
The domestic political environment in Ghana has been relatively subdued in recent months, especially when
compared to the significant number of protest actions witnessed this time last year. Two conditions are still
causing concern for political risk in the country: civil unrest driven by the rising cost of living and violent
extremist movements in the wider West Africa region. We maintain our overall political risk assessment at
low, with the risk trending stable.

Citizens' discontent with high cost of living

The second quarter of this year ended with hundreds of demonstrators taking to the streets of Accra for
two consecutive days – June 28 and 29 – to denounce spiralling inflation, the e-levy, and other economic
woes. Protests got off to a rough start on the first day when police used teargas and water cannons to
disperse crowds of demonstrators and arrested 29 protestors for alleged "violent attacks on the police and
some members of the public". It was organised by Arise Ghana, a newly formed amalgamation of activists
from various political parties and civil society organisations, including the ruling New Patriotic Party (NPP)
and the main opposition party, the National Democratic Congress (NDC). The purpose of the movement is
to mobilise Ghanaians to speak up against tough economic circumstances and demand government action.
Anti-government sentiment has grown substantially over the past year, as ordinary citizens witness a
deterioration in their purchasing power. However, the government is not in a financial position to grant
citizens a reprieve. While President Nana Akufo-Addo's administration has been preoccupied with dealing
with the depreciating cedi and unsustainable debt, the latest Afrobarometer surveys illustrate how general
sentiment towards it has sunk. Survey results published in July 2022 say that 87% of respondents believe
that the country is headed in the "wrong direction", while only 11% feel that the country is headed the
opposite way – the split between responses was 50/50 in 2017, the year Mr Akufo-Addo assumed office.
Another survey, on the e-levy, shows that 75% of Ghanaians disapprove of the new tax, and very few of
them are either "somewhat confident" (15%) or "very confident" (9%) that the government will use revenue
from the e-levy to fund development. The government's deteriorating reputation among citizens
makes it likely that civil society will continue to demand more accountable governance for the
remainder of Mr Akufo-Addo's term. Although civil unrest has subsided this past quarter, the
unwavering rise in the cost of living may fuel further discontent in coming months.

Sahel extremist groups are seeking to expand to West Africa's coast

The security situation in the Sahel has vastly deteriorated over the past decade, mainly due to
violent extremist movements gaining a strong foothold in the region. According to the Global
Terrorism Index (GTI), three Sahel countries – Burkina Faso, Mali, and Niger – were among the ten countries
worst-affected by terrorism globally in 2021. The tri-border area where the national boundaries of these
states meet continues to be a hot spot for attacks. Many attacks are directed at the military and anti-terror
vigilante groups, but civilians make up most of the casualties. According to the latest GTI report, the total
death tolls of terror attacks between 2020 and 2021 in Burkina Faso (1,390), Mali (967), and Niger (845) are
among the highest in the world, representing 22% of the global total of 14,370. Radical movements in the
Sahel have expanded their presence in West Africa, notably in the coastal nations of Benin and Côte d'Ivoire
during the past three years, while Ghana, Guinea, and Togo are at high risk of infiltration. A Small Arms
Survey shows that Ghana and Côte d'Ivoire serve mainly as transit countries for illicit weapons headed
further north. The porous border between the two countries which joins up with Burkina Faso is used by
traffickers to transport illicit firearms and other goods further inland.
On May 10 this year, jihadists carried out their first attack in Togo (Ghana's neighbour to the east), killing
eight Togolese soldiers. The attack targeted the northern town of Kpekankandi and has been reportedly
claimed by Jama’at Nasr Al-Islam wal Muslimin (JNIM), a coalition of extremist groups, some of which have
links with Al-Qaeda. Another extremist group with international links that operates in the region is the
Islamic State in the Greater Sahara (ISGS). Insurgent groups are able to exploit local socioeconomic
grievances for recruiting fighters. This makes the marginalised population in the northern regions of
Ghana most at risk of forging alliances with regional terror groups. The existing illicit goods trade route

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Debt restructuring talks a linchpin to unlocking aid

running through the northern area also adds to the risk of it being used for an attack, but Accra's efforts to
ramp up security and surveillance have contributed to its ability to avoid an attack on its soil up until now.
The Ministry of National Security has set up counter-terrorism mechanisms in the area and, more recently, it
has launched a citizen awareness campaign called "See something, say something". Along with domestic
efforts, Ghana has increased security cooperation with its coastal neighbours through the Accra Initiative
which was established in 2017. Although security efforts have largely slowed down the penetration of
extremist movements into coastal nations, the strategy has done little to eliminate the terror threat or stifle
the growth of these movements. Should Accra ramp up its social cohesion efforts to disincentivise the
population from joining extremist groups, it will decrease the risk of an attack.
Chart 15: Ghana is located in the tumultuous West African region

Source: Oxford Economics Africa

Outlook: terrorism and civil unrest will drive political risk

Discontent with the government is growing among the Ghanaian population and the risk of civil unrest due
to the rising cost of living and other economic woes will add pressure on the Akufo-Addo administration in
coming months. At the same time, regional extremist groups pose a significant security threat in the
country. In the short- to medium term, a deterioration in the political risk environment will likely
stem from the infiltration of regional extremist groups and potential attacks. Accra's security efforts
to prevent this have been effective thus far, but the country's geographic proximity to the Sahel makes it
high risk, particularly the northern region.
Table 2: Political stability and risk trends for Ghana

Source: Oxford Economics Africa

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Economic and Political Risk Comparison

Macroeconomic fundamentals
Ghana, when compared with some of its peers, performed well historically, but the tides have turned, and
the country now performs less favourably. When looking at economic growth – graphically in particular – it
looks as though the country is recording healthy economic expansions relative to some of its Western and
North African peers. Ghana recorded a compounded annual growth rate (CAGR) of 5.3% during the 2016-
20 period, bested only by Côte d’Ivoire. However, the country has found itself in a debt trap and is forecast
to record a CAGR of only 3.7% over the 2021-25 period. Although Ghana still ranks above quite a few of its
peers, it remains well below its potential.
Chart 16: Ghana's economic growth prospects have worsened
Economic growth comparison
%
6.0

Senegal
5.0
Côte d’Ivoire
CAGR 2021-2025

Ghana
4.0
Nigeria
Cameroon
3.0
Morocco Egypt
Tunisia
2.0
Algeria

1.0

0.0
-2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 %
CAGR 2016-2020

Source: Oxford Economics Africa

On the consumer price front the country performs particularly poorly. Ghana registered a compounded
annual inflation rate (CAIR) of 9.3% during the 2016-20 period, which was one of the highest in the region.
But this was less worrisome, as it is in the central bank’s target range of 6% to 10%. However, inflation has
spiralled out of control in 2022 and the outlook is for price pressures to ease only slowly, keeping overall
inflationary pressures elevated. As such, Ghana is forecast to record a CAIR of 17.1% over the 2021-25
period. This is the highest among its peers in the region.
Chart 17: Consumer price pressures have intensified and are forecast to average more than 17% p.a.

CPI inflation comparison

%
18
16 Ghana
14 Nigeria
CAIR 2021-2025

12
10 Tunisia
Morocco Egypt
8 Algeria
6 Senegal
4
2 Cameroon
Côte d’Ivoire
0
0 5 10 15
CAIR 2016-2020 %

Source: Oxford Economics Africa

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Debt restructuring talks a linchpin to unlocking aid

Risk score comparison

As expected, Ghana’s economic and political risk score increased during the past three months. The rise in
risk was driven by deteriorations in economic structure and liquidity risks, while political risk remained
unchanged. There was a slight reprieve in economic policy risk. Starting with the positive, economic policy
risk improved marginally due to an improved outlook for the fiscal deficit. However, this is only technical, as
the economic model sees the fiscal deficit narrowing this year as a net positive; yet the deficit remains high
and concerning. Economic policy risk did feel some pressure from higher inflation, though.
Chart 18: Ghana's economic risk increased significantly when compared to a year ago

Ghana: Risk Profile

Political Risk
100
Liquidity Market Demand
50
Financial Sector
Balance of Payment 0
Soundness

Fiscal Finances Exchange Rate

Market Cost

Ghana 1 year ago Ghana

Africa* Best 10 Africa* Worst 10

* Refers to all other African economies covered by Oxford Economics Africa

Source: Oxford Economics Africa

Economic structure risk rose during Q3, as a result of weaker outlooks for economic growth and the current
account and the fact that the West African nation has become more multilateral-aid dependent. Economic
headwinds intensifying both on home soil and on the global front prompted us to lower Ghana’s medium-
term economic growth forecast. Macroeconomic instability and the prospects of debt restructuring have
lowered the country’s economic growth potential for the foreseeable future. The current account deficit is
expected to widen in both H2 and the next couple of years, because of a weakened exchange rate putting
upward pressure on the import bill. Liquidity risks have heightened, as the country has been locked out of
global debt markets, and foreign exchange reserves have started to dwindle.
Chart 19: Despite the increase in risk, the country's risk score remains below the African median score
Overall country risk scores ranked
Points (higher score = higher risk)

90 Q3 2022 Africa median

80

70

60

50

40

30

20

10

0
Morocco

Kenya
Gabon

Tanzania
Egypt

Ethiopia
Sudan
Botswana
Mauritius

Namibia
South Africa
Algeria

Senegal
Rwanda
Ghana
Lesotho

Eswatini
Cameroon

Tunisia
Angola
Uganda
Nigeria
Zambia
DRC
Libya
Malawi

Zimbabwe
Mozambique
Côte d’Ivoire

Source: Oxford Economics Africa

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Background
Economic developments
The economy expanded at an impressive pace during 2008-13, with GDP growth averaging 9.5% p.a. over
this period. Unfortunately, years of reckless fiscal spending finally started to take its toll in 2014, when GDP
growth slowed to 2.8%, down from 11.6% in 2013. Weak fiscal finances contributed to a widening current
account deficit, increasing levels of inflation, high interest rates, and sovereign credit rating downgrades. In
2015, concerns regarding debt sustainability finally persuaded Accra to agree on an IMF support
programme aimed at aggressive fiscal consolidation. The adverse effects of the consolidation efforts placed
the economy under even more pressure and dragged GDP growth down to 2.2% in 2015. GDP growth then
rebounded to 3.4% in 2016. Oil output rising sharply due to new projects coming online pushed GDP
growth up to 8.2% in 2017. The economy was also found to be 25% larger in nominal terms in 2017
following a rebasing exercise. GDP growth subsequently came in at 6.2% and 6.5% in 2018 and 2019,
respectively, before falling to 0.3% in 2020 due to the Covid-19 pandemic.

Structure of the economy

Agriculture is a key sector of the economy, providing livelihoods to a large portion of the population and
contributing an estimated 21.8% to GVA in 2021. Cocoa is the country’s chief agricultural commodity and
accounted for roughly 19.3% of total exports last year. The services sector is expanding rapidly and is well
diversified, becoming increasingly important to the economy with a contribution of around 40.9% to GVA in
2021. The significance of the industrial sector has increased since the start of oil production, with the
industry amounting to 35.7% of GVA over the same period. Along with cocoa, gold and crude oil are
Ghana’s main export commodities and, as a result, the country’s external balances are especially vulnerable
to fluctuations in the prices of these commodities.

Balance of payments
Ghana consistently records large deficits on its external accounts, which are typically influenced by
commodity price developments, especially that of gold, oil, and cocoa. The external shortfall widened
sharply to 9.5% of GDP in 2013. This was mainly ascribed to developments in the invisible accounts, namely
a widening of the services deficit and a decline in the current transfers surplus. The latter was caused by the
sharp GDP upgrade, which made it more difficult for the country to obtain external grants. Meanwhile, the
services deficit widened due to a sharp increase in payments, with the rise in receipts not being able to
keep pace. The current account deficit narrowed sharply to 5.8% of GDP in 2015 despite the fall in
commodity prices, with developments in the invisible accounts again representing the main drivers. A sharp
increase in gold exports dragged the current account deficit narrower still to 5.1% of GDP in 2016 and to
3.1% of GDP in 2017. Rising oil output and prices then resulted in the current account deficit contracting to
2.7% of GDP in 2019. The deficit widened to 3.1% of GDP in 2020 and 3.2% of GDP in 2021 as Covid-19-
induced supply chain disruptions hampered the country’s export potential.

Policy and politics

The transition to democracy took place in 2000 when John Kufuor won the election on the platform of the
New Patriotic Party (NPP). He served two terms before the National Democratic Congress (NDC) won the
presidency in 2008, with the election of John Atta Mills. The latter died in office and was replaced by Vice-
President John Dramani Mahama, who won the 2012 election by a narrow margin in the first round. The
2016 election, with the NPP’s Nana Akufo-Addo now at the helm, again witnessed a smooth handover in
power and showed why Ghana is one of the most admired democracies on the continent. Mr Akufo-Addo
was re-elected for another term in office in the 2020 elections, with a narrow victory margin against his
predecessor, Mr Mahama. Policy improvements since 2000 have led to better relations with the IMF and aid
donors. The challenge now is to shift the economy away from a reliance on concessionary finance and to
attract more FDI in the coming years, both of which will be helped by increased oil production and related
infrastructure.

Page 13 Pieter du Preez - pdupreez@oxfordeconomics.com