Early April 2015, Ghana was forced to seek IMF support worth USD 1 billion following a fiscal crisis and unsustainable debt accumulation, caused by government overspending, poor public management and consecutive price falls in Ghana’s three major export commodities (first cocoa, then gold and ultimately oil). On 30 June, the IMF published the first review mission of Ghana’s performance under the programme that mandates fiscal consolidation and structural reforms. With most performance criteria met, the programme was said to be on track, paving the way for a second trench disbursement. In brief, petroleum subsidies were scrapped, no arrears were accumulated and a successful deal over public sector wages was struck keeping pay raises well below inflation. The outlook is cautiously turning more positive, despite serious doubts about the government’s dedication to certain expenditure requirements right after the deal was signed.

Impact on country risk

The review mission carefully improved confidence, which translated into a rebound of the cedi’s exchange rate in July with about 30% since the end of June. The appreciation might persist as liquidity is likely to be bolstered by improving cocoa revenues, a planned USD 1.5 billion Eurobond in Q3 and a resumption of budgetary donor support (after foreign donors pulled out when Ghana reached the middle-income country status following the 2011 oil rush). However, growth will slow in 2015 to 3.5% as a result of a devastating power crisis impeding domestic activity. By 2016, new gas-fired power plants should come on stream and help lift growth together with new oil and gas fields. Henceforth, great challenges remain with high financing costs and inflation still at 17%. Moreover, commodity dependence still exposes Ghana to global market shocks and fiscal discipline might be at risk during next year’s election period.

Analyst: Louise Van Cauwenbergh, l.vancauwenbergh@credendogroup.com