Overview of the Ghanaian Economy [First Quarter 2023]

The Ghanaian economy opened the year with mixed reactions among the populace as hopes that Ghana will be able to secure an International Monetary Fund (IMF) deal to put the economy back on track grew thin following the fierce opposition to the government’s proposed Domestic Debt Exchange Programme (DDEP) by various interest groups. Difficulties that the domestic economy was subjected to resulting from the aftermath of the twin effect of COVID and spillovers from the Russia-Ukraine war plunged the Ghanaian economy into protracted periods of intense difficulties last year characterized by rising consumer prices, sluggish growth, and fast deterioration of the Cedi. These events coupled with revenue underperformance mounted pressures on the government to seek an IMF bailout after the much-anticipated E-Levy failed to meet its intended targets. The present year, notwithstanding, presents opportunities for a turnaround as Ghana is sure of attaining the IMF bailout after the government sailed through with a domestic restructuring of its debts and as most macroeconomic variables began to improve. Presently, Ghana is seeking to reach an agreement with its external multilateral creditors which when successful could draw Ghana closer to securing the USD 3.0 billion Extended Credit Facility from the IMF.

Provisional Gross Domestic Product (GDP) numbers released by the Ghana Statistical Service this year revealed that the local economy grew by 3.1% (year-on-year) in 2022, worse than the growth rate of 5.1% in the preceding year. Quarterly growth, however, printed higher at 3.7% as at the close of the last quarter of the year. Difficulties encountered last year which further extended into the present year will be expected to keep the growth rate subdued in the first quarter of 2023. This notwithstanding, the domestic economy is anticipated to close 2023 better than last year on the back of fiscal prudence after Ghana secures the IMF bailout and as the government adopts enhanced strategies to boost its revenue. The fiscal authorities, however, took a pessimist stance as they projected to achieve an overall GDP growth rate of 2.8% in 2023 per its budget statement.

Quarter one provisional budget execution data published by the central bank has revealed that the economy is on the path of fiscal prudence as the data seems to project that Ghana may end the year with a budget deficit not larger than 5.0% in line with the Fiscal Responsibility Act after COVID-related issues led to the suspension of the Act. The data revealed that as of the close of the first quarter of the year, total government revenue and grants stood at 3.0% of GDP with total expenditure at 3.7%, resulting in a fiscal deficit of 0.7% of GDP at March-end. Key revenue measures to be implemented in the year to address the government’s continuous revenue underperformance include; an amendment of the income tax regime to introduce an additional income tax bracket of 35%, an amendment of the withholding tax rate on capital gains, revision of the excise tax regime to include narcotics, an adjustment in the VAT rate from 12.5% to 15.0% among others. The rate charged on electronic transfers (E-Levy) was however slashed down to 1.0%. These coupled with expenditure cuts would be expected to keep the budget deficit in check.

After a sustained and steady rise in the consumer price index as the inflation rate rose to peak at a record high of 54.1% at the close of 2022, the pressures on consumer prices began to cool off in the first three months of 2023. This came on the back of a slowdown in the rate of the depreciation of the local unit supported by a drastic fall in the prices of petroleum products leading to stable transport prices. Accordingly, the inflation rate eased down from 54.1% to begin the year at 53.6%. The rate further registered some declines to 52.8% in February and further dipped down to end the first quarter at 45.0%. Although the inflation rate seems to be embarking on a downward trajectory, the prevalence of upward price pressures buoyed by external developments amid portfolio outflows will be expected to derail the government’s hopes of achieving an end-of-year inflation target of 18.9%.

The slowdown in January’s inflation rate lacked the impetus to force a monetary policy rate hike reversal as the central bank continued its tougher stance against inflation by announcing a 100 bps increase in the policy rate to 28.0% at its first sitting in the year. The prevalence of risks to the inflation outlook coupled with global central banks’ cycle of hikes pushed Ghana’s central bank again at its second sitting in March to hand down another policy rate hike to close the quarter at 29.5%. The central bank further warned that it will continue to monitor the space and would not hesitate to take the appropriate policy actions in accordance with price movements.

The Ghanaian equities market posted an impressive performance in the first quarter of the year with the GSE-Composite Index rising to a near one-year high on the back of improving investor confidence and as the market expressed concern over the diminished returns on the government’s restructured local bonds. The Index experienced a sharp increase in March after the conclusion of the DDEP. Volumes traded accordingly more than doubled in the first quarter of 2023 compared to Q4 2022. The GSE-CI ended the quarter with 2745.33 points representing a year-to-date (YTD) gain of 10.8% compared with a YTD gain of 0.45% over the same period last year.

The primary Treasury market was widely mixed in the first quarter of the year as moves by the government to push down rates persisted only for a short while. In line with efforts by the government to achieve debt sustainability, the government made significant strides towards this course by slashing down the yields on its short-term assets by an average of 10 percentage points. This, however, began to reverse course as the Treasury market remains a significant financing avenue for the government to meet it's maturing debt obligations. The yields on the 91, 182 & 364 tenors cleared at 18.88%, 21.44% & 25.66% at the quarter’s close haven begun the year at 35.36%, 35.98%, & 35.89% representing YTD losses of 46.62%, 40.41%, and 28.50% respectively. There was no fresh issue of Treasury notes and bonds in Q1 2023.

The Cedi steadied against its three major trading partner currencies on the retail market following the president’s assurance at the State of the Nation Address to parliament that Ghana was on course to reach an agreement with its bilateral lenders in the sovereign’s quest to secure a USD 3.0 billion IMF bailout. The Cedi’s performance in the first three months of the year was supported by a number of developments including easing corporate forex demand, the policy rate hikes, the Gold-for-Oil policy, and the central bank’s intervention in the spot and forex markets for bulk oil distributors. It is expected that the Cedi will continue to remain firm as Ghana inches closer to an IMF deal. Cedi was exchanged for GHS 11.02, GHS 13.63, and GHS 11.97 at the close of the quarter against the Dollar, the Pound, and the Euro respectively after it was quoted at GHS 8.59, GHS 10.33, and GHS 9.08 on the first official trading day of the year on the central bank’s inter-bank market.