Ghana’s Current account deficit is expected to deteriorate marginally this year by a 0.3 percentage points as Fitch Solutions forecast the country’s current account deficit to widen from an estimated 2.6% of GDP in 2021 to 2.9% in 2022.

According to Fitch Solutions, this will be driven primarily by sluggish oil and cocoa production alongside a ramp up in domestic demand, which will narrow the country’s goods trade surplus.

“At Fitch Solutions, we forecast that Ghana’s current account deficit will widen, albeit modestly, from an estimated 2.6% of GDP in 2021 to 2.9% in 2022 as rising vaccination rates boost household confidence and demand for imports, narrowing the country’s goods trade surplus. That said, this will be partially offset by an uptick in remittances, increasing the secondary income account surplus, while stronger tourism will see the country’s services trade deficit narrow”.
Fitch Solutions

That said, Fitch Solutions stated that by historic standards, the country’s current account deficit will remain small, and a gradual rebound in foreign capital inflows will help to cover Ghana’s external financing needs over the coming quarters.

“Indeed, our forecast implies that while the country’s current account deficit will expand in 2022, it will remain small compared to Ghana’s five (-3.4% of GDP) and 10-year (-5.8%) pre-pandemic averages. Meanwhile, we expect increased financial account inflows as a result of increased investment in gold mining, and an uptick in portfolio inflows, will continue to cover the widening of the current account deficit in the coming quarters, ensuring Ghana’s external position remains stable in the years ahead”.
Fitch Solutions

Stagnating Production To Weigh On Oil and Cocoa Exports

Fitch solutions expect oil production to decline this year as a result of low exploration activity and that will keep production below pre-pandemic levels.

“We expect the goods trade surplus to shrink in 2022 to USD1.0bn from USD1.8bn in 2021, on the back of rising consumer-driven import growth while falling oil and cocoa production will tamper export growth.

“Our Oil & Gas team forecast a 1.9% decline in oil production volumes in 2022, as a result of recent low exploration activity and continued investor uncertainty following very low prices in 2020 stemming from the Covid-19 pandemic. This will keep production below pre-pandemic levels, and which will subsequently weigh on goods exports – oil represented 23.2% of total exports in 2020”.
Fitch Solutions

Likewise, Fitch Solutions stated in the recent forecast that its Agribusiness team forecast a 3.5% decline in cocoa production, largely as a result of base effects, as well as structural issues such as such as labour problems and fragmentation, with cocoa swollen shoot virus presenting a further downside risk to the forecast.

“As cocoa exports made up 16.6% of exports in 2020, this will also weigh on export growth. Although we anticipate stronger gold production and prices in the coming year, this will not be enough to offset the aforementioned factors. Indeed, we forecast export growth will come in at 9.4% in 2022, below the 2010-19 average of 12.4%”.
Fitch Solutions

Projected rise in imports

On the contrary, Fitch Solutions projects import growth to surpass its pre-crisis 10-year average. The leading provider of credit intelligence and the primary distributor of Fitch Ratings content, underscored in the report that Ghana’s vaccine rollout remains slow and only 9.9% of the population have been fully vaccinated.

However, it noted that as Ghana obtains more vaccines through COVAX and the African Vaccine Acquisition Trust, “we expect that Covid-19 related social distancing restrictions will be loosened”.

In turn, this will result in a rebound in domestic demand, and increase demand for consumer imports as Fitch Solutions expect private consumption growth to rebound strongly at 4.7% in 2022, up from 3.8% in 2021.

Fitch Solutions’ infrastructure team also expects construction industry growth at 7.2% in 2022, which will increase demand for imports of capital goods. Subsequently, it expects goods imports to rise by 16.5% in 2022, which will more than offset the forecast rise in exports, widening the current account deficit.