Ghana Facing Rising Budgetary Pressures From Oil, Elections, S&P Forecasts
Ghana, Africa’s newest oil exporter, faces budget pressure from spending prompted by elections and crude sales and may run a deficit of as much as 7 percent of gross domestic product this year, Standard & Poor’s said.
“They will benefit from the oil-related revenue, but we still believe their fiscal expenditure pressures are significant,” Christian Esters, a Frankfurt-based credit analyst at S&P, said in a phone interview yesterday.
Ghana raised its budget deficit target to 5.1 percent of GDP for 2011 from 4.1 percent, Finance Minister Kwabena Duffuor said last month. The fiscal gap will narrow from 6.5 percent of GDP in 2010 as oil earnings boost revenue. Ghana’s economy will grow 14.4 percent this year, the fastest in Africa, and the revised budget boosts government spending on roads, schools and agricultural production by 1.5 billion cedis ($989 million), Duffuor said.
“The expectations from the oil revenue are fairly high and have created spending demands,” Esters said. “Ghana has also implemented wage increases for their public sector employees which will also weigh on the fiscal performance.”
London-based Tullow Oil Plc operates Ghana’s Jubilee oil field, West Africa’s biggest discovery of crude from an offshore field in a decade. Daily output from the field is expected to climb to 120,000 barrels per day by August or September from 80,000 barrels now, according to Tullow.
Incumbent President John Evans Atta Mills faces elections next year after winning 96.9 percent of the nation’s ruling National Democratic Congress party vote last month. Mills will face Nana Akufo-Addo of the opposition New Patriotic Party in the election after beating him 50.23 percent to 49.77 percent in a run-off vote in December 2008.
“They are going to have presidential elections in 2012 which in the run up may lead to some fiscal slippage,” Esters said.
Ghana’s first-quarter government wage bill rose 24 percent to 869.6 million cedis after a new payment policy was implemented for state workers, the Bank of Ghana said June 1.
The $750 million of 8.5 percent Eurobonds due 2017 of Africa’s second-biggest cocoa and gold producer was little changed at 110.81 cents on the dollar, heading for a 1.7 percent weekly drop, the biggest five-day decline since January, as of 4:46 p.m. in London. The yield was 6.342 percent, according to prices compiled by Bloomberg.
“Their level of fiscal debt is high, we expect Ghana’s general government debt to come to 44 percent of GDP at the year-end of 2011,” Esters said.
The West African nation, which began production of crude for export in December, was downgraded by S&P to B, five steps below investment grade, with a “stable” outlook on Aug. 27, 2010. The rating service said the government’s then fiscal deficit target of 2.1 percent in 2011 and 1.6 percent in 2012 was “unrealistic.”
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