Ghana’s real GDP growth is expected to moderate in 2022, with growth forecast of 4.8 per cent, down from an estimated 5.0 per cent in 2021, largely driven by elevated inflation alongside monetary tightening, according to Fitch Solutions.

After real GDP growth of just 0.4 per cent in 2020– a multi-decade long low, the new growth forecast, however, lies below the historical five and 10-year pre-Covid averages of 5.3 per cent and 6.8 per cent respectively.

Though in the previous year, the prolonged impact of the Covid-19 pandemic threatened the growth of the economy; the impact of the pandemic is gradually fading, although the country is not immune to a further outbreak, given the low vaccination rates.

Fitch Solutions expect private consumption to slow even as the country benefits from a speeding vaccine rollout. As of March 3, 2022, 15.4 per cent of the Ghanaian population were fully vaccinated and 24.9% had received one dose, up from 8.5 per cent and 5.0 per cent on December 15, 2021.

consumer spending — Vegetables on display in a supermarket

“We expect vaccination rates to rise further, following regulations put in place in January 2022 mandating vaccinations for public employees and for entry into stadiums, restaurants and bars.”
Fitch

This trajectory will allow space for further loosening of social distancing rules restrictions, which is expected to boost demand as Ghanaians return to more normal patterns of economic activity, Fitch stated.

“We also expect robust remittance inflows, on the back of strong growth in 2021 in key source market such as the US and the UK, which will offer further tailwinds in consumer spending.”
Fitch

Downside Risks Remain Elevated

However, a number of headwinds are likely to weigh on household demand. This includes the rising public sector debt- expected to reach 83.0 per cent in 2022- which the government has announced a number of measures to narrow the country’s fiscal deficits. With these measures in place, “we believe could offer headwinds to household consumption,” Fitch stated.

One of the main proposals set out in the 2022 budget is a levy of 1.75 per cent on all electronic transactions over GHS100.0 (US$16.00), including mobile payments, bank transfers and inward remittances.

Nonetheless, the e-levy is pending approval by the legislature, but given sharply rising borrowing costs, Fitch believes there will be increased pressure on policymakers to push through some version of the tax.

Fitch forecasts inflation of 12.8 per cent in 2022, driven higher by elevated global commodity prices. It is likely inflation is already starting to affect consumer spending, with consumer confidence easing to 88.1 in December 2021, which is the lowest level since April 2020. As a result of this, private consumption growth is expected to reach 4.3 per cent in 2022, from an estimated 4.7 per cent growth in 2021.

Also, Fitch expects robust import growth will weigh on net exports, forecasting that net exports will add 0.4pp to headline growth, from 0.5pp in 2021. Imports will be buoyed by the growing construction sector as a large pipeline of delayed projects restarts. In addition, high commodity prices will bolster investment into natural resource extraction, boosting capital imports.

Meanwhile, export growth will be comparatively sluggish on the back of a short-term decline in two of the country’s largest commodity exports– gold (which accounts for 49.8% of exports) and oil (21.5%).

Despite higher global energy prices, Fitch’s Oil & Gas team forecast a 1.9 per cent decline in oil production in 2022, largely on the back of underinvestment in the sector during the pandemic and natural declines at existing fields, namely the Tweneboa Enyenra Ntomme (TEN) oil field.

Moreover, on the back of Agribusiness, Fitch forecasts a 3.5 per cent decline in cocoa production as the cocoa swollen shoot virus is likely to weigh on yields. These headwinds to exports will be somewhat tempered by stronger gold production alongside a gradual increase in services exports.

This is buoyed by the gradual rise in tourist arrivals as the impact of the pandemic gradually eases. That said, given the country’s still relatively low vaccination rate, tourist arrival numbers are unlikely to return to pre-crisis highs.

Fixed Investment to Grow

Fixed investment growth is also expected to accelerate, with a growth forecast of 4.5 per cent in 2021 to 5.0 per cent in 2022. This will add a 1.1 percentage points to real GDP growth. This is above the pre-pandemic level of 2.7 per cent in 2015-2019.

According to Fitch, higher global gold prices will spur investment into Ghana’s large precious metals sector. In January 2022, gold mining firm Gold Fields announced plans to invest $500 million in Ghana mines over the coming years. Asante Gold also planned to invest $100 million in February 2022.

“We see scope for further investment in the sector in the coming quarters bolstered by a favourable regulatory environment and rising international precious metals prices, with our Mining team forecasting gold prices at US$1,700/oz in 2022, well above the 20-year historical price level.”
Fitch

Aside the investment in precious metals, Fitch believes investment in other sectors will begin to accelerate as the effects of the pandemic ease and projects that were earlier put on hold are resumed.

Business confidence has been on the upside, rising to 98.4 in December 2021, its highest level since December 2020. Meanwhile, rising interest rates could offer some headwinds, the country’s comparatively stronger operating environment will likely encourage foreign investment, Fitch stated. The country’s interest rate ranks first out of 16 West African countries in Fitch’s Operational Risk Index and 7th out of 48 countries in SSA.

Fitch’s forecasts are largely skewed to the downside including vulnerability to further Covid-19 outbreaks, considering the still low national vaccination rates and its attendant impact on tourist arrivals and dampen business confidence, high debt burden which could force authorities to raise taxes as well as rising inflation, which is likely to be exacerbated by the Ukraine-Russia crisis.