2022 Growth rate of 3.7% achievable — Deloitte
Deloitte Ghana is optimistic that the government will achieve its end-year growth target of 3.7 per cent.
The international audit and accounting firm premised its projection on the 3.5 per cent growth rate the country attained in September of this year.
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“Considering the overall real Gross Domestic Product (GDP) growth of 3.5 per cent recorded as of September 2022, the revised real GDP growth of 3.7 per cent appears reasonable and achievable,” it said in its analysis of the 2023 budget and economic policy of the government.
For next year, the government has targeted a further decline in real GDP growth rate to 2.8 per cent.
According to Deloitte, indications are that the decline in real GDP growth rate will be occasioned largely by a focus on debt restructuring and implementation of expenditure cutting measures in 2023.
It explained that; “Typically, expenditure cutting measures will be expected to limit government’s ability to roll out some of its key policies and programmes, which, in the short term, is likely to hamper economic growth, hence the projected decline in real GDP growth in 2023.”
In spite of the lowered real GDP projection for the year 2023, the Economist Intelligence Unit (EIU) has projected a 1.9 per cent GDP growth for the period which is lower than government’s projection of 2.8 per cent.
Inflation
Regarding inflation, Deloitte said the 37.2 per cent period-end inflation recorded as of September 2022 was largely occasioned by the rapid depreciation of the local currency against its major trading currencies.
The BoG has estimated the depreciation of the local currency against the US dollar at 54.2 per cent as of November 2022, relative to the beginning of the year.
“Considering that Ghana’s economy is still largely import-dependent, the rapid depreciation of the local currency has translated directly into an increase in the cost of goods and services over the last few months,” it said.
In spite of that, Deloitte expects the local currency to enjoy some stability in the last quarter of 2022 as evidenced by the largely stable exchange rates between October and November 2022.
Based on this expectation, the accounting firm strongly held the belief that the revised inflation target of 28.5 per cent by end of 2022 as achievable.
Budget deficit
Budget Deficit as a percentage of GDP as of September 2022 was 7.4 per cent. This was driven by shortfalls in revenue performances relative to expenditures incurred. GoG revised its end of year budget deficit target to 6.6 per cent.
GoG missed its primary balance deficit target as a percentage of GDP with an actual deficit of 2.0 per cent as at September 2022. The government has revised its primary balance deficit target as a percentage of GDP to 0.4 per cent by the end of 2022, up from 0.1per cent set in the 2022 budget.
Going forward, the target inflation of 18.9 per cent should be achievable based on the expected outcome of current negotiations with the IMF, plus other measures intended to boost our international reserves and reduce FX-induced inflationary pressures in 2022. While the credit support from IMF will result in FX inflows, other measures such as the ‘Gold-for-oil’ programme and BoG’s decision to cut FX support for importation of certain goods and services are also expected to strengthen our international reserves and reduce inflationary pressures.
The budget deficit, since 2020, has remained above the five per cent limit prescribed by the Fiscal Responsibility Act, with the main reason being COVID-19 related upsurge in expenditure and reduction in revenues, which persisted and left the deficit at about 12 per cent of GDP as of 2021. Although the Government has managed to bring down the deficit to 7.4 per cent of GDP as at September 2022, it is projected to remain above the five per cent limit by end of 2022 and 2023, largely due to projected declines in GDP growth in 2022 and 2023, relative to previous years.
Lastly, the revised primary balance target of 0.4 per cent surplus by end of 2022 may appear aggressive considering the deficit of 2.0 per cent that was recorded as at September 2022.
However, the target primary surplus of 0.7 per cent in 2023 is achievable considering that the government has been able to reduce the deficit of 4.0 per cent in 2021 to a deficit of 2.0 per cent as of September 2022, despite the very challenging economic conditions in 2022.
To achieve, sustain and grow the primary surplus into the future, pursuing export promotion through the African Continental Free Trade Area (AfCFTA) agreement and effective import substitution policies will be key for the government.
Side bar
The government revised its real GDP growth target to 3.7 per cent by end of 2022.
The government has begun the implementation of its fiscal consolidation programme including pursuing Additional Oil Entitlement (AEO) in relation to the Jubilee Field, and a revised income tax.
This is expected to take effect by the end of this year as part of medium-term measures to improve the economy, restore investor confidence and promote debt sustainability.
The government recorded a 37.2 per cent inflation rate as at September 2022 compared to its revised target of 28.5 per cent by the end of 2022.
This increase in inflation is mainly driven by high cost of food and energy, and transport fare hikes.