Ghana Increases 2016 Growth Forecast After Earlier ‘Mistake’

  • Previous projection didn’t capture critical figures: Terkper
  • Central bank kept benchmark interest rate unchanged at 26%

Ghana’s finance ministry increased its economic growth forecast for 2016 two weeks after projecting the slowest expansion in more than three decades due to a “mistake” in its calculations.

West Africa’s largest economy after Nigeria will grow between 4.1 percent and 4.3 percent this year compared with 3.9 percent in 2015, Finance Minister Seth Terkper said in an interview in the capital, Accra, on Monday. The Bank of Ghana’s Monetary Policy Committee kept its benchmark rate unchanged at 26 percent Monday.

The revision in the growth outlook comes two weeks after the government cut its forecast to 3.2 percent from 5.4 percent. That would’ve been the slowest expansion since the economy contracted in 1983. Ghana’s economy will receive a boost when the second project from the Tweneboa, Enyenra and Ntomme oil field pours its first crude next month, Terkper said.

“The 3.2 percent growth target was a mistake,” he said. “That data didn’t capture some critical aspects of the growth and deficit figures. Now we have corrected it.”

While Ghana’s growth prospects for the rest of the year would be affected positively by the stability in the cedi, improvement in business and consumer sentiment and new oil and gas production, tight credit conditions and electricity shortages could moderate expansion, Bank of Ghana Governor Abdul Nashiru Issahaku told reporters in Accra on Monday. The central bank left its benchmark rate unchanged even as inflation slowed to 18.4 percent in June from 18.9 percent a month before.

“Until the disinflation process is really well-grounded it will be too soon to start reducing policy rates,” Issahaku said. Risks to the inflation outlook include increases to gasoline, transport and utility costs and “the potential second round effects from such adjustments on prices,” he said.

The cedi weakened 0.6 percent to 3.96 per dollar by 1:06 p.m. in Accra on Monday, taking its decline for the year to 2.5 percent.

The Bank of Ghana forecasts inflation will return to its 6 percent to 10 percent target by the third quarter of next year, Issahaku said.

The government of President John Dramani Mahama turned to the International Monetary Fund in April last year for a loan of almost $1 billion to help rein in the deficit and arrest declines in the currency as lower prices for its gold, cocoa and oil exports and regular power cuts weighed on the economy.

“Ghana’s need to reinforce the credibility of its reform effort under the IMF program may be one factor” behind keeping borrowing costs unchanged, Razia Khan, head of Africa macro research at Standard Chartered in London, said in an e-mailed note to clients. “Provided that the reform momentum is kept intact, it is only a matter of time before economic conditions allow for a more sustained easing cycle.”

Gross domestic product will expand by 4.1 percent this year, 7.8 percent in 2017 and 6.7 percent in 2018, according to an updated 2017-19 budget guidelines document posted on the finance ministry’s website on Monday.

The ratio of Ghana’s debt to GDP dropped to 66 percent in May, from 71 percent at the end of last year, Terkper said.

“This is good news for the economy,” he said. “Ghana will see more positive growth.”

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