The International Monetary Fund (IMF) expects Ghana’s current account balance to worsen over the next five years after reviewing developments in the local and global economies.
According to the IMF, the average current account deficit of 3.5 percent of GDP in the past five years will rise to 4.3 percent of GDP over the next five years.
The negative projections for the country’s current account is expected to be driven by high interest costs and expected fall in oil exports due to delayed investment.
“The current account is expected to worsen over the next five years due to mainly high interest costs. Despite the expected fall in oil exports due to delayed investment, the trade balance is expected to remain in surplus, averaging 0.5 percent of GDP over the next five years”.
IMF
Ghana’s current account was relatively stable last year due to the outbreak of the pandemic which caused a shut down in the global supply chains.
The current account deficit widened by 0.3 percentage points to 3.1 percent of GDP. However, the disruptions last year resulted in mix developments in the prices of major commodities- Gold, Cocoa, and Crude oil. The movement of the prices of these key commodities in opposite directions coupled with a contraction in imports offset the fall in exports.
Mix developments in external sector
According to the IMF, imports of goods and services fell from 40.2 percent to 35.8 percent of GDP in 2020.
According to the Fund, the weaker demand more than offset the increase in COVID-19 related imports and the effect of the fiscal stimulus. The lower demand experienced last year also emerged from lower Foreign Direct Investment inflows and private sector investment.
Moreover, the sharp fall in oil export prices and volumes was partly offset by the rise of gold prices. However, Cocoa exports were broadly flat, as the harvest for the year was sold before the pandemic. In contrast, tourism receipts fell sharply last year due to the international travel restrictions.
Despite the mixed developments in the external accounts, the IMF highlighted that the current account has steadily improved over the past five years. The major contributory factors, according to the Fund, are the growing volume of exports and remittances.
Remittances continue to improve over the years, even in the midst of the pandemic. Data from the Ministry of Finance show that private inward remittances (net) improved to US$3.56 billion in 2020, compared with US$3.39 billion in 2019.
Reduction in trade surplus
The IMF indicated that imports of goods and services fell from 42.4 percent to 40.2 percent of GDP between 2015-2019, despite persistent primary deficits and robust FDI.
Overall, the COVID-19 pandemic has affected the external sector performance through the trade and financial channels. The trade account recorded a lower surplus of US$2.02 billion compared with US$2.26 billion in 2019.
The decline in the surplus was driven largely by a 7.8 percent contraction in total export receipts, especially from crude oil exports, which declined sharply by 35.2 percent. In addition, the value of total imports contracted by 7.3 percent, reflecting a slowdown in import demand due to the pandemic.
Based on the recent review of the external sector, the IMF urged the government to pursue structural measures aimed at improving the investment climate especially in leading export sectors. This, the Fund said, would help to further strengthen the external position by reducing dependence on debt financing.
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