GDP rebasing improves Ghana’s economic outlook

Ghana’s newly rebased GDP presents a larger and more diverse economy, with greater appeal for lenders and investors.

At the end of September the Ghana Statistical Service rebased its economic calculations from the base year of 2006 to 2013, determining GDP to be GHS257bn ($53bn) in 2017, a 26% increase from the GHS204bn ($42bn) the IMF calculated previously.

The rebasing process, which provides a more accurate depiction of a country’s overall wealth, is not uncommon in emerging economies: Nigeria notably rebased its economy in 2014 and became the country with the largest GDP in Africa.

According to Baah Wadieh, the acting government statistician, the revaluation was necessary to take into account the growth and shifts within Ghana’s economy, reflecting the rise of new sectors.

“Ghana, a major commodity exporter, recalculated its GDP based on measurements from 2013 instead of 2006 to more accurately reflect recent activity in its petroleum, communication technology and construction sectors,” he told local media.

Prior to the rebasing, the agriculture sector accounted for 18% of the economy, industry 25% and services 57%. The new rebased figures, however, reflect greater balance: agriculture now accounts for 27% of the economy; industry, 36%; and services, 41%.

In addition to giving government planners a more accurate picture of economic output, the rebased numbers are expected to improve the country’s credit ranking by shrinking its debt-to-GDP ratio, which was calculated to be 69.8% at the end of 2017. However, that figure falls to 55.5% when measuring that same debt to the rebased GDP.

This is a welcome development as Ghana’s debt-to-GDP ratio treaded around or above 70% for most of 2016 and 2017. By lowering this ratio, Ghana is positioning itself as a more reliable borrower, improving its attractiveness for international lending or sovereign issuance.

Greater stability improves credit rating

In a similarly positive signal for attracting international investment, Ghana’s economy was given a vote of confidence by ratings agency Standard & Poor’s (S&P), which in mid-September upgraded the country’s credit score from “B-” to “B”, with a stable outlook. 

The assessment balanced Ghana’s fairly robust growth prospects and decreasing inflation against risks from persistently elevated budget deficits and high amounts of public sector debt.

Inflation has remained within the range of 9.6% to 10.6% since the beginning of the year, a steady decline from its 19.2% high in March 2016. This is within or close to the central bank’s inflation target of 8% with a band of 2% on either side.

The possibility of further S&P upgrades was floated if Ghana continued to implement and adhere to measures that materially alleviate pressures on public finances, or if the current account deficit narrows at a more rapid pace, which in turn would reduce the requirement for external financing.

The agency did, however, warn that it could lower its rating if growth was to significantly slow or if fiscal discipline weakened.

In this regard, the government will be looking closely at tax revenue as a share of GDP, an indicator that has fallen in the wake of the rebasing exercise, given the larger headline GDP figure. Analysts therefore expect the government to move to further shore up tax revenue.

In early October the World Bank announced it would be working with the government to simplify the tax code to encourage voluntary compliance.

The bank also said it would help the government enact a modern company law, and approve implementing regulations to increase both domestic and foreign investment in sectors beyond oil – measures that could help offset tax revenue shortfalls in the energy market, and sustain broader economic growth and diversification.

Economic projections buck global growth trend

In early October the IMF released its latest “World Economic Outlook” report, in which it forecast a reduction in the pace of global economic growth, from 3.9% in earlier projections, to 3.7% for this year and the next.

For Ghana, however, the outlook was far brighter. While its projections are still based on 2006 prices, the fund expects GDP to expand by 6.3% in 2018 and 7.6% in 2019, before settling at a steadier 5% or higher for most of the coming four years.

The fund’s report also forecast a gradual narrowing of the current account deficit as well as a continued decrease in the inflation rate.

Nevertheless, this projected growth could be mitigated by several factors, from the price of oil to the strength of the US dollar, as well as the tax increases that will likely accompany the tax code reforms.