Ghana has rebased its national accounts, changing the base year from 1993 to 2006. According to the national authorities, following the rebasing, the size of the economy in real gross domestic product (GDP) terms has been raised threefold and placed Ghana among the lower middle income group of countries. The rebasing has also suggested greater fiscal space for Ghana with a reduced revenue-to-GDP ratio. While questions on the international acceptability of the new numbers remain, one point is clear: they confirm what most observers have often suggested, namely that the size of the Ghanaian economy has hitherto been grossly under-estimated.

Economic growth has remained strong with real GDP growth reaching an estimated 5.9% in 2010 compared to 4.7% in 2009. Growth prospects are even brighter as real GDP growth of 12.0% and about 11.0% are projected for 2011 and 2012 respectively, largely on account of the start of oil production in commercial quantities in December 2010. In addition, the country’s increasingly democratic settlement and social stability have served to boost the confidence of investors, leading to rising investment.

The country’s strong growth has been achieved within a sound macroeconomic environment. Prudence in fiscal and monetary management has contributed to the easing of inflationary pressures with declining interest rates. The private sector has responded positively to the government’s development programmes and the improved business environment. The rise in bank lending and capital inflows suggests increasing investor confidence. New partnerships between Ghana and emerging economies such as China and South Korea are providing additional sources of financing and expertise for development.

Nevertheless, challenges remain, such as a very weak fiscal stance and fragile external balances. Growing fiscal challenges include large domestic payment arrears. Also, the government’s new public sector pay policy – the Single Spine salary (SSS) policy – requires a huge budgetary outlay, which could threaten macroeconomic stability unless renewed efforts are made to enhance domestic resource mobilisation. Ghana should also adopt a sustainable debt management strategy to avoid post-HIPC (Highly Indebted Poor Countries) debt overhang. In addition, strong and sustainable growth over the next decade will require continued high levels of investment; this will be conditional on prudence in the management of the oil revenues. Besides, unemployment and underemployment are key challenges that require the government to enhance the job-relevant skills of the workforce, especially in the large informal sector of the economy.

Table 2: GDP by sector (in percentage)

Source:Data from Ghana Statistical Service (GSS).

Figures for 2010 are estimates; for 2011 and later are projections.

Table 3: Demand composition

Source: Data from Ghana Statistical Service (GSS) and Bank of Ghana; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Fiscal Policy

Ghana has a good record in macroeconomic management underpinned by anti-inflationary monetary policies and fiscal consolidation anchored on the elimination of wasteful expenditures. However, fiscal stability has recently been strained by rising budget deficits. The government’s priority has therefore been on fiscal restraint through both revenue enhancing and expenditure rationalisation policies. The government’s effort to reduce its fiscal deficits is also made more urgent by its commitment to meeting the basic primary convergence criteria of the West Africa Monetary Zone (WAMZ). The convergence criteria require the government to meet a fiscal deficit target not exceeding 4% of GDP.

While some success has been achieved in expenditure rationalisation through removal of fuel subsidies with the smooth operation of the automatic petroleum pricing regime, domestic revenue mobilisation has not improved much, largely as a result of the lack of new measures aimed at increasing the tax effort.  As a result, the government continues to accumulate large domestic payment arrears. In 2010 these payment arrears were estimated at 12% of GDP.

The payment arrears have a significant negative impact on the economy. They constrain private sector activities, thereby slowing down growth and employment creation. Indeed, many private entrepreneurs, especially in the construction sector, complain of an inability to revamp their businesses because of the government’s failure to honour its payment obligations to them. In 2010 lower private capital formation was largely attributed to these arrears. Also, government arrears in transfers to statutory funds delay the provision of the economic infrastructure required to support growth and deliver much needed social services.

In 2010 both government revenue and expenditure fell. Government expenditure dropped from 41.5% of GDP in 2009 to 39.7% in 2010 reflecting a decline in recurrent expenditure.  At the same time, all the revenue components declined in 2010. The overall budget deficit increased marginally in 2010 to 7.9% of GDP from 7.6% of GDP in 2009.

The government has made a more determined effort to enhance revenue mobilisation in 2011 with a number of proposed tax policies including review of exemptions, widening the tax base and increasing the marginal tax rate. Improving revenue mobilisation in 2011 is indeed critical to the implementation of the government’s new wage policy – the Single Spine Salary (SSS) policy. This pay policy is a unified salary structure that places all public sector employees in one vertical structure and ensures that jobs within the same job category are paid within the same pay range. The SSS replaces the system of over 90 different salary structures as well as over 65 different types of allowances that has been in existence in the Ghana public service. Although, the implementation of this new wage policy is spread over a period of five years, the wage bill for fiscal 2011 is estimated to be one of the highest in sub-Saharan Africa. Also, over 75% of the total wage bill and the associated increases resulting from the salary structure go to employees in only three ministries, departments and agencies (MDAs), namely education, health and local government. Thus, implementing the new pay policy could result in reducing social spending on a sustainable basis if no new additional resources are mobilised.

In spite of the new tax initiatives and the expectations of oil revenues the government’s total revenue position is expected to stagnate in 2011 and 2012. Indeed, oil revenue is expected to contribute at least 6% of total revenue. Fiscal revenues from crude oil exports are forecast at USD 700 million in 2010 rising to USD 3 billion by 2013. Overall, available estimates indicate that crude oil exports will be in the range of USD 2 billion to USD 3.2 billion between 2010 and 2030. The overall budget deficit is projected to fall to around 7.7% of GDP in 2011 and further down to about 5.0% in 2012 as government revenues benefit from oil receipts.

Table 4: Public finances (percentage of GDP)

Table 5: Current account (percentage of GDP)

Source:Data from Bank of Ghana; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Figure 2: Stock of total external debt (percentage of GDP) and debt service (percentage of exports of goods and services)

Ghana’s economic relations with the rest of the world have seen a remarkable shift in recent times from close ties with advanced economies to growing links with emerging ones in the areas of trade, aid and foreign direct investment (FDI). Between 2003 and 2009, the value of Ghana’s exports to advanced economies dropped from 65% to 50% against an increase from 25% to 36% in those to emerging and developing economies. Similarly, the value of Ghana’s imports from emerging economies has witnessed a significant increase from 50% to 59% and a drop of 8 percentage points to 40% in those from advanced economies during the same period. The share of imports from countries in Africa averages 25%.

During the past decade the destination of Ghana’s exports has increasingly shifted away from countries such as the United States, Belgium, France, Germany and Japan to India, Malaysia, Mongolia and Ukraine. At the same time, imports from India, China, Brazil, Nigeria and Côte d’Ivoire have risen considerably while those from the  United Kingdom, the United States, Belgium and France have either stagnated or declined. The major increase in imports value from emerging economies came from China which saw an increase in exports to Ghana from USD 354.2 million in 2003 to USD 1.78 billion in 2009 resulting in a rise in China’s share of total import value to Ghana from 9% to 17%.

In the area of investment, Britain remains the main source of FDI inflows (excluding mining) in terms of value of investment, accounting for about 37% of total FDI to Ghana between 1994 and 2009, followed by the United States, the United Arab Emirates, Nigeria, Malaysia and China in that order. China, however, leads in the number of registered projects with 415 projects mainly in manufacturing and general trade. India comes next with 388 projects, mainly in the area of manufacturing, followed by Lebanon with 291 projects. In 2007 China ranked second to Britain in terms of value of FDI, indicating the increasing presence of China in Ghana’s FDI.

Ghana’s economic co-operation with the East, particularly China, has grown remarkably in recent times. Over the past decade aid inflows to Ghana from China have increased considerably. The largest single aid inflow has been in the energy sector and involved USD 562 million for the construction of the Bui hydroelectric dam. This project will add 400 megawatts (MW) of electricity to the national grid. Other significant aid from China includes a USD 99 million interest-free loan for the construction of landing sites for fishing communities and a USD 30 million concessional loan for the first phase of a national fibre optic and e-government project extended in 2007 and 2008.

In 2009 China and Ghana also signed an agreement of economic and technical co-operation under which China would provide Ghana with a grant and interest-free loan of USD 3.6 million in 2010. In 2010 the two countries signed agreements totalling USD 13 billion with the China Development Bank and the China Exim Bank for the development of infrastructure in the areas of road, rail, energy, water and education. A USD 1.5 billion housing deal with the South Korean government in 2010 is a major step in expanding economic co-operation and partnership with emerging economies.

India is one of the top five foreign direct investors in Ghana. In 2010 Indian investments in Ghana included over 46 projects with an estimated total value of USD 277 million. Indian investments are found mostly in the agricultural and manufacturing sectors of the economy. In addition, within the health sector, Ghanaian pharmaceutical companies manufacture drugs in collaboration with Indian firms. Recently, Ghana’s financial sector has attracted Indian investment. In 2010 the Indian Bank of Baroda opened a branch in Ghana. Ghana’s information and communications technology (ICT) sector also has a significant Indian presence. The Electronic and Computer Software Export Promotion Council of India regularly invites Ghanaians to its exhibitions in India to share ideas on new technologies. Furthermore, under its Technical and Economic Cooperation (ITEC) programme, India awards annual scholarships to Ghanaians for both graduate and post-graduate programmes in ICT.

The Atta Mills Administration marked its second year in power in 2010 in a continuing stable and calm political environment. While political stability remains a hallmark of the country’s democratic settlement, frequent outbursts by supporters of both the ruling National Democratic Congress (NDC) and the largest opposition party, the New Patriotic Party (NPP), often create anxiety and have the potential to foment trouble.

In 2010 the government set up a Constitutional Review Commission to review the 1992 constitution. The commission is expected to solicit and articulate the concerns of the public on amendments that may be required for a comprehensive review of the 1992 constitution, make recommendations to government for consideration and provide a draft bill for possible amendments. In 2010 public forums were held across the country on the public’s views on the 1992 constitution. It is expected that a bill will be tabled in Parliament on the constitutional amendments in 2011.

The government’s current health policy objectives aim at increasing access to, and improving the quality of, health care and nutrition services and establishing fees that cover costs while protecting the poor. The government also aims to improve health infrastructure and enhance efficiency in service delivery. Increased coverage under the National Health Insurance Scheme (NHIS) has contributed to increased health-care utilisation in hospitals. The NHIS is designed to offer affordable medical care, especially to the poor and the vulnerable. Under the scheme, adult Ghanaians pay a monthly subscription of about USD 0.66 and the government caters for the health needs of the aged, the poor and children of parents who both subscribe to the scheme.

Available government figures indicate considerable progress in health service delivery in the country. Ghana has already achieved the Millennium Development Goal (MDG) target ofreducing by half the proportion of children who are underweight. Also, there has been a significant reduction in child mortality, with the under-5 mortality rate falling from 111 per 1 000 live births in 2003 to 80 per 1 000 live births in 2008. Over the same period the infant mortality rate has fallen from 43 per 1 000 live births to 30 per 1 000 live births. Immunisation of children aged under 1 year old has also improved. According to government records in the past eight years, Ghana has not recorded any measles deaths and the number of children who are affected by the disease has reduced considerably. Attended deliveries have also improved from 39.3% in 2008 to 45.6% in 2009. However, HIV/AIDs continues to pose significant challenges. In 2009, the prevalence rate in urban communities remained higher at 3.6% compared with 2.2% in rural communities. Also, HIV prevalence among pregnant women witnessed an upsurge to 2.9% in 2009 after a period of decline.

Other grave health problems include infestations of guinea worm. Although the government is making efforts to subsidise the provision of safe water in endemic areas, guinea worm infestation continues to rise and progress in controlling malaria remains very slow. This is particularly the case with children aged under 5 who are the most vulnerable. For this age group of children, the malaria fatality rate has stagnated since 2004. Malaria is also considered the major cause of mortality and morbidity among pregnant women. It is estimated that at least 40% of total outpatient cases and 61% and 8% of hospital admissions of children under 5 and pregnant women respectively are malaria cases. The government’s main strategy for combating the high incidence of malaria has been the use of insecticide-treated nets particularly for children and pregnant women. However, the fight against malaria should also focus attention on ensuring good sanitation.

The government has continued its efforts to increase access, improve quality and raise gender parity in education. The government’s main education objective is universal primary education and over the years a number of policies have been pursued towards this end. Under the current Education Strategy Plan (2003-15) the government provides free and compulsory basic education aimed at achieving universal primary education by 2015.  The government provides funds to all public schools on a per-pupil basis to cover costs, including sports, school development and feeding programmes. Other strategies that have been pursued in support of the plan include expansion of early childhood development services. These measures have resulted in the improvement in various key education indicators. According to government figures, net enrolment and primary school completion rates stood at 83.6% and 87.1% in 2009, showing a marginal drop from 2008 at 88.5% and 88.7% respectively. The primary school gross enrolment rate remained unchanged at 94.9% in both years. Also, gender parity at primary and junior high school has remained unchanged at 0.96 and 0.92 respectively since 2007.

Unemployment and underemployment remain major problems, reflecting the failure of past economic growth to generate substantial formal employment in the private sector, and the lack of job-relevant skills of the majority of the workforce.  Ghana’s labour market is still characterised by the dominance of employment in agriculture and a large informal economy. Government figures indicate that currently two out of three working adults are employed. The national unemployment rate is estimated at only 3% by government sources. The low rate of unemployment in the country disguises the high levels of unemployment and underemployment inherent in the large informal sector.

Indeed, the government’s definition of unemployment excludes the large numbers of jobless people who may be available for work but do not necessarily seek work, for various reasons. Given the large informal sector where the genuine unemployed are engaging in any economic activity simply to survive, concerted effort is needed to reduce the numbers in employment that may be considered as vulnerable, as well as the “working poor”.