Oil to drive economy in 2018 - World Bank projects 8.3% growth

The World Bank is projecting a bright economic outlook for Ghana as it has predicted that the country’s economy will grow by 8.3 per cent this year.

The growth is to be largely driven by increased production in oil and gas which is expected to lift the country’s exports.

The bank’s World Economic Prospects report for 2018, which was released on Tuesday, forecasted a slightly higher figure than the government’s target of 7.9 per cent for the 2018 fiscal year.

Crude oil production for 2018 is projected at 53.25 million barrels (145,887 barrels of oil per day), up from the original forecast of 51.18 million barrels.

The increase in the output projection for 2018 is due primarily to a revised 2017 TEN projection from 50,000 bopd to approximately 54,000 bopd, and the 2018 Sankofa Gye Nyame (SGN) projection from 35,441 bopd to 43,000 bopd.

This is expected to rake in US$669.41 million for the country.

The projection was based on the benchmark crude oil price for 2018, which was calculated as a seven-year moving average of Brent prices for 2013 to 2019.

The benchmark prices yielded a projection of US$65.85 per barrel. Similarly, the gas price for 2018 is projected at US$$3.94 per MMBtu, up from the 2017 estimate of 3.0433 per MMBtu.

Royalties from crude oil and gas are also projected to amount to US$183.61 million, while Carried and Participating Interest (oil and gas) will earn the nation US$484.20 million.

Gas production from the SGN field is also expected to commence in the second quarter of 2018.

All these are expected to bring additional revenues to the country and it is based on these figures that the World Bank is predicting a brighter economic outlook for the country.

Projections for Sub-Saharan Africa

Touching on the sub-Saharan region, the report predicted a growth of 3.2 percent in 2018.

“A modest recovery is underway in Sub-Saharan Africa (SSA), supported by an improvement in commodity prices,” the report indicated.

“Although growth rebounded in Angola, Nigeria and South Africa—the region’s largest economies—it remained low. Metals exporters in the region experienced a moderate rebound, partly reflecting an uptick in mining output amid rising metals prices,” it added.

The region is also projected to see a pickup in activity over the forecast horizon, on the back of firming commodity prices and gradually strengthening domestic demand.

However, given demographic and investment trends, structural reforms will be needed to boost potential growth over the next decade.

The report also indicated that downside risks would continue to predominate, including the possibilities that commodity prices would remain weak, global financing conditions would tighten disorderly, and regional political uncertainty and security tensions would intensify.

On the upside, a stronger-than-expected pickup in global activity could further boost exports, investment and growth in the region.

Recent developments

Growth in SSA is estimated to have rebounded to 2.4 percent in 2017, after slowing sharply to 1.3 percent in 2016. As commodity prices recovered, global financing conditions remained favourable, and slowing inflation lifted household demand.

However, the recovery was slightly weaker than forecast in June, and was marked by still-negative per capita income growth, low investment and a decline in productivity growth.

A recovery in the oil sector, partly due to a decline in militants’ attacks on oil pipelines, helped bring Nigeria back to positive gross domestic product (GDP) growth.

The performance of the agricultural sector was also relatively solid; however, activities remained weak in the non-oil industrial sector, as inadequate power generation hurt the manufacturing and construction industries.

Exchange rates and inflation

Currencies in the region stabilised in real effective terms. For oil exporters, exchange rate pressures eased due to higher oil prices, increased oil production and a weaker dollar.

Headline inflation also declined across the region, reflecting the confluence of stable exchange rates and slowing food price inflation.

A continued moderation of food price inflation and exchange rate stability are expected to push headline inflation down further, which could provide room for further easing of monetary policy in the region.

Fiscal balance and government debt

Fiscal deficits in the region narrowed slightly as large spending cuts reduced the overall deficit in Central African Economic and Monetary Community (CEMAC) countries.

However, in some oil exporters, fiscal policy was loosened in response to higher oil revenues. Fiscal deficits declined in non-resource-intensive countries but remained at high levels, partly reflecting infrastructure investment.

Deficits also narrowed moderately in metals exporters as they continued to struggle to mobilise domestic revenue.