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Ghana Risks Higher Prices, Debt as Budget Gap Set to Widen

Nov. 15 (Bloomberg) -- Ghana, West Africa’s second-largest economy, faces a widening budget deficit as the government ramps up spending in an election year at a faster pace than increases in oil, gold and cocoa revenue.

The budget deficit will probably widen to 6.5 percent of gross domestic product in 2012, according to the average estimate of three analysts surveyed by Bloomberg. Finance Minister Kwabena Duffuor, who will give his budget speech in the capital, Accra, tomorrow, had pledged a shortfall of 5.1 percent this year.

Duffuor is struggling to keep spending under control and avoid a repeat of 2008 when the then-ruling party boosted expenditure ahead of an election that it failed to win. The deficit soared to 24.2 percent of GDP at the time, sparking a slump in the cedi and pushing inflation to a five-year high. Standard & Poor’s said on Nov. 3 Ghana hasn’t yet demonstrated “firm” commitment to curb the deficit, undermining investors’ confidence.

“The government may have to borrow at higher cost to finance the deficit next year if spending is not aligned with budget revenue,” Ravi Bhatia, an analyst at Standard and Poor’s in London, said in a telephone interview from London yesterday. “Debt levels have already risen sharply since 2006,” when Ghana’s debt was written off and stood at 38 percent of GDP last year.

Spending Targets

Government expenditure in the first eight months of the year reached 7.5 billion cedis ($4.6 billion), which was 12.9 percent more than budgeted and 41 percent higher than recorded in the same period of 2010, according to the central bank. Revenue was 1.5 percent above target at 6.5 billion cedis.

The deficit is widening even as Ghana earned revenue from its first oil exports in December 2010, and gold and cocoa earnings increased. The gold price surged 25 percent this year, cocoa output is forecast to match last season’s record of 1 million metric tons and production from the Jubilee oil field is set to reach 120,000 barrels a day by early next year.

“We will consolidate economic gains with wise spending in 2012,” Duffuor said in an interview Nov. 3, declining to give a specific forecast. The government has pledged to focus spending on job-creation projects and providing essential services such as water and sanitation.

Duffuor may trim his estimate for the budget deficit this year to 2.1 percent of GDP, the Accra-based Daily Graphic reported today, citing unidentified people in the Finance Ministry.

Cedi Declines

The cedi has depreciated 6.5 percent against the dollar since July 14, when Duffuor boosted the 2011 deficit target to 5.1 percent of GDP from 4.1 percent, taking its slump this year to 8.4 percent against the dollar. The currency, which reached a record low of 1.6411 on Oct. 17, was trading at 1.6222 as of 10:35 a.m. in Accra.

Inflation will probably reach 12.1 percent at the end of 2012, compared with 8.6 percent in October, as spending increases, Yvonne Mhango, a sub-Saharan Africa economist at Renaissance Capital in Johannesburg, said in an e-mail yesterday. The inflation rate was 20.7 percent in June 2009.

Yields on Ghana’s 8.5 percent Eurobonds due 2017 gained 11 basis points to 6.2 percent since the supplementary budget on July 14. It reached 7.8 percent on Oct. 5, the highest level in more than a year.

Economic Growth

John Atta Mills will face Nana Akufo-Addo, the New Patriotic Party’s candidate, in a Dec. 7 presidential vote after defeating him by less than 1 percentage point in 2008. Akufo-Addo, a former foreign minister, is campaigning on a pledge to provide free high school education and create jobs.

Faster economic growth may help offset rising spending, said Razia Khan, head of Africa economic research at Standard Chartered Plc in London. Tullow Oil Plc started production at the Jubilee oil field in December 2010, helping to boost the economy an estimated 13.6 percent this year, according to the government.

“Elections due at the end of 2012 are expected to be close, so an increase in spending is almost a foregone conclusion,” Khan said in an e-mailed comment to clients. “Broadly positive trends in growth and revenue collection should allow authorities to announce a lower deficit to GDP ratio for 2012” of 4.5 percent.

The government estimates growth of between 8 percent and 12 percent in 2012, while the International Monetary Fund, which gave Ghana a $1 billion loan in 2009 to shore up its economy, projects 8 percent growth next year.

To contact the reporters on this story: Ekow Dontoh in Johannesburg at; Moses Mozart Dzawu in Accra at

To contact the editor responsible for this story: Emily Bowers at

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