2015 In retrospect, and looking forward into 2016
The government of Ghana plans to sustain economic growth in the short to medium term. Real GDP (including oil) is projected to grow at about 5.4 per cent in 2016 above the 2015 outturn of 4.1 per cent.
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End of period inflation for 2016 is set to decline to 10.1 per cent, lower than the 2015 target of 13.7 per cent and the 17.4 per cent recorded in the period to September 2015.
The 2016 Budget Statement aims to sustain Government’s Fiscal Consolidation Programme. In order to avoid fiscal shocks and sustain the fiscal consolidation agenda, the government must ensure the following:
contain overall expenditure in the midst of pressures from pre-election spending in 2016, particularly compensation related overruns;ensure effective tax administration to optimise revenue inflows; and tackle the mounting public debt stock by focusing on maximising concessional borrowing where available, while limiting non-concessional borrowing to commercially viable projects.
Summary of sectoral performance
The services sector has over the past years contributed the largest share of GDP.
A key concern with the structure of the economy has been that the services sector employs more skilled labour and as such lacks the capacity to generate as many jobs as the agricultural sector would. Expansion and growth in the agriculture sector would contribute significantly to reducing youth unemployment and ensure sustainable economic growth.
Agriculture Sector
The agriculture sector was expected to register a minimal growth of 0.04 per cent by the end of 2015, against a target growth of 3.6 per cent. With the population growth rate of about 2.5 per cent per annum, the almost 0 per cent growth rate in the agriculture sector in 2015 suggests that agriculture GDP per capita has declined substantially, raising concerns about long-term food security, agricultural employment and sustainable development.
There is a need to improve the enabling environment for agriculture, for example access to suitable finance and continued efforts to reduce importation of food and food products such as rice and palm oil.
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Industry Sector
The industry sector growth in 2015 was largely driven by strong growth performances in the construction and water and sewerage sub-sectors. The provisional growth rates for these sub-sectors were 30.6 per cent and 15.6 per cent respectively by the end of 2015.
The manufacturing sub-sector was affected by challenges with regard to unreliable power supply coupled with rising prices of inputs due to depreciation of the local currency. The power challenges continue to inhibit the growth of the economy, especially the industry sector. Government must expedite action to fully implement the proposed generation, transmission and distribution programmes to ensure reliable power supply to boost productivity.
Services Sector
This sector’s growth can be attributed to the Information and Communications sub-sector growth due to sustained demand for telecommunication and data. In 2015, the government completed the fibre optic project along the Eastern Corridor, improving coverage and connectivity. In 2016, the government plans to deploy e-Government applications through the e-Transform project, creating further demand for ICT services. The government anticipates that these projects should drive modernisation and improve efficiency in the public sector.
Government’s goal to reduce the fiscal deficit to three per cent of GDP by 2018 may seem rather ambitious given our recent history with fiscal slippages in election years and cascading effects in subsequent years. As the 2016 election approaches, the government’s economic policy should be guided by its commitment to maintain fiscal discipline and macro-economic stability.
Credit to the Private Sector
Total credit to the public and private sectors stood at GH¢28,730.7 million at the end of September 2015. In real terms, credit from banks declined from 26.6 per cent year-on-year in September 2014 to 3.7 per cent in September 2015.
Credit provided to the private sector continues to be more expensive as the government continues to source funding from Open Market Operations (OMO). This could lead to ‘crowding out’ of the private sector, making otherwise profitable businesses and projects cost-prohibitive.
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You can contact me by sending an email to vish.ashiagbor@gh.pwc.com and copy in Yaw Appiah-Lartey (yaw.appiah-lartey@gh.pwc.com)