Private consumption to drive growth this year — Fitch Solutions
Fitch Solutions
Business News
The Ghanaian economy will enter a recovery phase this year on the back of stronger private consumption according to a Fitch Solutions report released late in December.
It acknowledged the impact of soaring consumer price inflation over 2022 and last year in what is said was due to “the sharp sell-off of the Ghanaian cedi – weakened purchasing power of households and weighed on domestic consumption” and noted however, that price growth will moderate from an average of 40.3% in 2023 to 17.8% in 2024.
This, it said will be largely driven by statistical base effects and more favourable exchange rate dynamics.
“Indeed, we expect that the authorities will make progress regarding the restructuring of Ghana’s external debt under the G20 Common Framework in the coming quarters.
We anticipate that an agreement with bilateral creditors will be reached in early 2024 and a deal with commercial creditors by mid-2024, which will improve investor sentiment towards Ghanaian assets, improve capital inflows and provide support to the cedi, which we forecast to strengthen by an average of 0.2% against the USD over 2024.” The report noted.
Election threat
With 2024 being an election year in Ghana, many experts and international financial agencies have expressed concerns about the ability of the government to rein in expenditure to keep the International Monetary Fund (IMF) programme on course to revive an ailing economy saddled with huge debts which have reached unsustainable levels, the first time in decades.
Fitch says more expansionary fiscal stance will inject additional demand into the economy. It said while the authorities have confirmed their commitment to implementing fiscal reforms in line with Ghana’s IMF programme, “we anticipate significant public expenditure overruns ahead of the December 2024 general election, particularly given that the ruling New Patriotic Party (NPP) trails behind in the polls.
Indeed, since the start of the century, public expenditure as a share of GDP increased by an average of 3.0 percentage points during election years, reflecting the government's tendency to subsidise utilities and implement social welfare programs to garner public support.
We anticipate that such measures will be implemented again in 2024, improving disposable incomes and stimulating household spending. All told, we forecast private consumption growth to tick up to 3.8% in 2024 – from 3.2% in 2023 – contributing 2.9 percentage points (pp) to headline real GDP growth.”
Signals in budget
Government is hoping to spend a total of ¢226.7 billion in 2024, representing 21.6 percent of the GDP.
Much as the projection reflects a reduction of 6.1 percentage points of GDP in total expenditures on commitment basis, relative to the outturn in 2022, analysts doubt if that will be achieved in an election year where the ruling government intends to set a new record by breaking the two-term cycle.
The government, however hopes that the potential interest rate saving from the ongoing external debt operation will further bolster public finance sustainability.
Based on the estimates for total revenue and grants and total expenditure, which include arrears clearance, the overall budget balance to be financed according to Finance Minister Ken Ofori-Atta, is estimated at a fiscal deficit of ¢ 61.9 billion, equivalent to 5.9 percent of GDP.
Total revenue and grants is projected at ¢176.4 billion and is underpinned by permanent revenue measures largely tax revenue measures amounting to 0.9 percent of GDP.