ghanaMacroeconomic updateStrategy

13 June 2022

Ghana’s 1Q2022 Fiscal Performance: Twisting in the Wind

In brief

  • Turbulent waters lie ahead for Ghana’s economy, but the government of Ghana (GoG) has set a course to sail through them.
  • While the GoG remains resolute in its decision to not broker a deal with the International Monetary Fund (IMF) to ease some of its near-term funding pressures, it is exhibiting spending restraint – amid headwinds to its revenues – to gain a foothold on its fiscals. As expected, capital expenditure is being rationalised to curtail expenditure growth.
  • But do Ghana’s investors want the substance or the form?
  • We expect Ghana’s financial markets to be very volatile over the next couple of months as they try to find a bottom, amid a double whammy of rising interest rates and higher inflation.
  • Inflation may ease the GoG’s burden of old cedi-denominated debt by making it less valuable in real terms and easier to pay off – especially with fuller government coffers. But Ghana cannot inflate its way out of debt without some pretty serious consequences, no thanks to its foreign debt overhang.
  • As such, the Bank of Ghana (BoG) will be facing a very difficult balancing act.
  • As Ghana’s investors continue to weigh the impact of the global tightening cycle on their portfolios, the mid-year budget will be an avenue to assess if the GoG has been more fiscally responsible.