Ghana Unlikely to Meet 2022 Growth Target Over Rising Inflation

Ghana’s economy grew at 5.4% last year, a strong comeback from a 37-year low rate of 0.5% in 2020, when the Covid-19 pandemic struck. But this year growth is likely to be hobbled by Finance Minister Ken Ofori-Atta’s proposed 30% cut to government spending.

Ofori-Atta deepened budget cuts last month to stem a sell-off in Ghana’s dollar bonds to assure wary investors it will meet fiscal targets, rein-in debt and regain market access it lost this year. Portfolio investors also exited cedi bonds, contributing to the currency’s 17.8% loss against the dollar this year and fueling inflation.

The central bank has responded by raising its benchmark interest rate 350 basis points since November to 17% in order to restrain inflation, which it targets in the range of 6% to 10%. The Bank of Ghana may raise rates by as much as 200 basis points to curb inflation, said Courage Boti, an economist with Accra-based Databank Group.

“That will make cost of credit more expensive for the private sector, thereby stifling growth,” he said. “Revenue may fall short significantly by mid-year and government may need to cut expenditure again.”

Databank raised its year-end inflation forecast to between 12.9% and 14.9%, from between 8.9% to 10.9%, on continued risks to supply chains from the war in Ukraine. “We perceive lingering upside risk to Ghana’s inflation through higher prices of food items, petroleum products and construction materials,” it said in a note to clients this week.

Ghana’s real private-sector credit growth, an indicator of private investment, posted positive growth for a second straight month in February at 1.2%, after contracting the past five months. But this will likely wane again as lending rates rise, said Victor Asante, managing director of FBN Bank Ghana Ltd.

“There are already signs of distress in industries that are dependent on a lot of imports,” Asante said. “Some have already asked to restructure of their existing facilities.”