2017 Budget...‘Sowing the Seeds for Growth and Jobs’ (2)
The WEO January 2017 Update estimates that the average inflation rate in advanced economies will be 1.7 per cent in 2017 and 1.9 per cent in 2018.
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For EMDEs, average inflation is expected to peak at 4.5 per cent in 2017 and decrease marginally to 4.4 per cent in 2018.
Ghana on the other hand recorded one of the highest inflation rates in West Africa in 2016, at 15.4 per cent, while the ECOWAS region recorded an average inflation of 12.1 per cent.
Global inflation continues to be low, with forecasts pointing to single digit inflation rates in 2017 and beyond. Ghana’s inflation remains in the double digits due to factors such as increasing fuel prices and the depreciation of the cedi against major trading currencies. This, coupled with other sources of external inflationary pressure such as the anticipated expansion of the US economy and expected rate hikes by the US Federal reserve, poses a challenge to Ghana’s year-end inflation target of 11.2 per cent.
World Bank Report
The World Bank Global Economic report forecasts continuing strong gains for key industrial commodities such as energy and metals in 2017 largely due to tightening supply and strengthening demand of these commodities.
According to the World Bank Commodity Markets Outlook, October 2016, the price of crude oil is forecast to remain steady for the year 2017 at US$56.14 per barrel – approximately 28 per cent increase over the 2016 price of US$43.3 per barrel. The predicted price increase, according to the World Bank, is attributable mainly to supply contractions, arising from the November 2016 agreement among members of the Organisation of Petroleum Exporting Countries (OPEC) to cut output by 1.2 million barrels per day from January to June 2017, and an increase in demand from non-OECD economies.
In spite of the projected upward tick in the price of crude oil in 2017, it is still unlikely that crude oil prices will reach the US$73.2 per barrel price set by the PRMA formula due mainly to the increasing activity in the United States’ shale oil fields.
Crude oil prices are forecast to average US$56.0 per barrel in 2017 from an average price of US$43.3 per barrel in 2016, significantly short of the US$73.2 benchmark revenue price set in accordance with the formula stipulated by the Petroleum Revenue Management Act (PRMA) for 2016. The benchmark revenue price for the 2017 has, therefore, been set at US$56.142 per barrel to reflect the predicted market developments.
In spite of plans by OPEC to cut production and instigate an increase in crude oil prices, the market is still likely to be affected by some degree of uncertainty in the short term. The proposal in the budget to use an average market price of US$56.14 per barrel instead of the result of the PRMA formula for planning purposes is therefore prudent and carefully balances the competing forces putting both upward and downward pressures on crude oil prices in the near term.
Gold Prices
According to figure 2, Gold prices are expected to decline from an average of US$1,249 per fine ounce in 2016 to US$1,219 in 2017, due largely to an expected strengthening of the US dollar.
Gold prices are normally affected by movements in interest rate as investors switch their investments to higher yield-bearing assets. Physical gold demand was very weak in 2016, particularly in the two largest consuming countries, India and China, and is expected to remain unchanged in the interim due to the anticipated rates increase by the US Federal Reserve and continuing strong performance among equities.
Since Ghana ranks high amongst the major gold producing countries, it is worth noting that such risk also has the potential to negatively impact its revenue potential.
From figure 3, according to the World Bank Commodity Markets Outlook, cocoa price is projected to average US$2,940 per tonne in 2017, up from US$2,850 in 2016 due to an estimated supply drop in cocoa.
Cocoa prices fell to US$2,300 per tonne in December 2016 marking the sixth straight monthly decline and a 3.5 year low, according to the January 2017 World Commodity Markets Outlook. The declining prices are a result of an increase in the global cocoa output of approximately 11 per cent to an estimated record of 4.4 million metric tonnes during 2016-17.
Most cocoa producing countries are expected to contribute to the expected output rise with Côte d’Ivoire and Ghana – the world’s leading suppliers – contributing significantly to this growth. Should supply continue to increase, and prices fall below the average target of US$2,940 per tonne as a result, the projected government revenue of GH¢331.10 million in 2017 from cocoa will likely not be achieved.
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