Ghana: The Storm Before The Calm
Ghana is one of my long-term favourites in Africa, but I can’t help worrying how the nation will fare over the coming months. With an oil boom in the pipeline and healthy democratic credentials, the country has looked like a diamond in the rough over the past year or so. Now, though, cracks are starting to appear and before long, they could turn into fissures.
My main worry is the budget balance. At a time when funding is in short supply, the authorities have indulged in a spending binge far beyond their means. Business Monitor International (BMI) estimates that the fiscal deficit ballooned to US$2.2bn (13.7% of GDP) in 2008 from US$770mn (5.1% of GDP) in 2007. The new administration under President John Atta Mills certainly has a job on its hands: it will struggle to rein in spending at a time when expectations are running high that a South Korea-like multi-decade expansion is just around the corner.
Sure, the domestic oil boom will be a major coup for Ghana. After all, fuel imports have long been the Achilles’ heel of the economy, weighing on the current account and the Ghanaian cedi. BMI forecasts growth edging into the double digits by 2011 as domestic oil production covers needs at home, leaving a healthy surplus to be exported. According to the latest estimates, 120,000 barrels per day of oil will be produced, starting in late 2010 – although I’m not holding my breath and wouldn’t be surprised to see this delayed. By 2013, annual oil export revenues should notch up to US$2.8bn if a second phase of production (250,000 barrels per day) kicks in. The cedi should reap the benefit, and enjoy some long-awaited appreciation, with BMI forecasting currency gains of 11.1% in 2010 and 20.0% in 2011. In all, I’m banking on a macroeconomic turnaround, with both the fiscal deficit and the current account deficit set to be wiped out by 2013.
But how will Ghana get from A to B? With difficulty, that’s how. The twin deficits are not going away any time soon, and BMI estimates that together, they will amount to a whopping US$3.2bn in 2009 and US$3.4bn in 2010. As I said, this is no time to be racking up debt – creditors are hardly queuing at the door. Which makes me think that a visit to the IMF may be in store over the coming months… provided there’s still room at the inn, of course. In short, Ghana is definitely one to watch for the long term, but things could get worse before they get better.