Ghana: New government facing elevated debt and deficit

31 May 2017

Sovereign credit risks are elevated in Ghana in 2017, following the announcement of a larger than previously disclosed budget deficit. However, the country has good relations with external creditors, allowing continued access to financial inflows. The recently elected New Patriotic Party (NPP) is expected to pursue fiscal consolidation, although strategically important port development projects are unlikely to be affected by budget cuts.

Security Environment

A maritime territorial dispute with Côte D’Ivoire moderately elevates the risk of interstate war, which could impact Ghana’s oil and gas sector. The dispute stems from an undefined maritime border between the two states, with the affected area also holding significant crude oil and natural gas reserves. This includes the Jubilee Field and the Tweneboa-Enyenra-Ntomme (TEN) fields.

The situation is unlikely to escalate into an active conflict, as both countries are keen to protect their image as stable Sub-Saharan African states. Moreover, Ghana and Côte D’Ivoire are pursuing international arbitration through the International Tribunal for the Law of the Sea, with a final ruling due in September 2017. An interim ruling in 2015 allowed Ghana to develop an offshore project in the affected area, but banned any new drilling. The tribunal will likely rule in favour of Ghana, but both countries are expected to abide by the final decision.

Trading Environment

Sovereign credit risks in Ghana are weighted to the downside, given a growth slowdown in 2016, elevated debt burden and a recent announcement of a larger than previously disclosed budget deficit. In January 2017, the newly elected NPP announced a USD 1.6 billion gap in the 2016 budget, administered by the previous National Democratic Congress (NDC) government. The government debt ratio has increased by nearly 30% in the last 5 years, with total debt standing at over 74% of GDP in February 2017. 

In March 2017, the government released its 2017 budget statement, which aims to reduce the deficit from 8.7% of GDP in 2016 to 6.5%. The government is seeking to achieve this through a 1.1% reduction in capital expenditures. On the whole, economic growth is forecasted to rebound in 2017, reaching 6.3% from 3.8% in 2016.

Ghana’s stable political environment has allowed it to maintain positive relationships with external creditors. This enabled robust financial inflows in 2016, even as macroeconomic performance worsened. These relationships will continue to support short-term liquidity in 2017. In 2016, Ghana was able to attract hard-currency flows including a USD 750 million Eurobond, a USD 1.8 billion cocoa pre-export loan and a USD 94.64 million domestic bond. In 2017, Ghana will be able to access around half of its USD 918 million International Monetary Fund financial package.

Investment Environment

Despite weakened debt fundamentals, the Ghanaian government will continue to prioritise investment in infrastructure development, supporting construction sector growth of 4.2% in 2017.

Investment in infrastructure is central to Ghana’s future growth prospects, and is therefore likely to be shielded from major budget cuts. Investment in ports will be of particular importance, as Ghana looks to establish itself as a transport and logistics hub in West Africa, offering maritime access to landlocked neighbours including Burkina Faso and Mali. A USD 334 million expansion of Takoradi port is currently underway, and expected to be completed in 2019, whilst Ghana Oil Company is also financing a new oil and gas tank terminal at Takoradi.

Contracts signed by the previous administration may face an elevated risk of review, amendment or cancellation in 2017. The NPP have signalled their intention to review contracts on a case-by-case basis to ensure cost-effectiveness under its fiscal consolidation programme. Contracts in the telecommunications sector will be at particular risk. The introduction of the Electronic Communications (Amendment) Bill in March 2016 allows the government to alter contracts with a view to reducing fraud and ensuring value-for-money in the sector.

Ghana: New government facing elevated debt and deficit

** There are notable capacity constraints in the market, and it can be challenging to obtain underwriter support for Ghana non-payment risks. 

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Bangladesh, Venezuela, Chile and Rwanda, all of which have been the subject of recent enquiries from JLT's client base.

Ghana: New government facing elevated debt and deficit

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email