Economic growth outlook unclear as two economic giants contrast on projections
Adnan Adams Mohammed
Ghana’s economy is experiencing an uncertain pattern of growth projections after post-coronavirus and post-elections as two global economic and finance giants, World Bank and Moody’s, have widely contrast on their projections.
World over, economies are projected to record slower to moderate growth, with Ghana expecting to record its slowest ever in about four decades between 1 to 4 percent. Last week, Moody’s, forecast a Gross Domestic Product (GDP) growth rate of 4.0% for Ghana this year a sharp contrast to the 1.4% projection by the World Bank’s 2021 Global Economic Prospects released a fortnight ago. Although, the WB’s 1.4% projection was a downwards projection from its earlier 4% projection in the latter part of last year.
Going by the Moody’s projection of expected growth rate of 4%, it will place Ghana 10th on the African continent and 3rd in West Africa in growth ranking for 2021 as against World Bank’s estimation that Ghana’s growth rate will be lower than the expected 2.7% rate for Sub Saharan Africa. Moody’s indicated that the shock from COVID-19 pandemic elevated liquidity threat as well as weaker institutions and governance are the three key issues to be keenly watched this year.
“Low domestic revenue mobilization will continue to plague Sub-Saharan Africa sovereigns particularly Nigeria, Ethiopia, Ghana (B3 negative), Tanzania and Zambia, many of which have revenue/GDP ratios well below 20%”, the international rating agency, Moody’s, noted in its newest report. “Lower revenue as a result of the shock [covid-19], coupled with spending pressures (both health-related and some fiscal stimulus) will lead to recurring deficits and will delay fiscal consolidation”, it emphasized.
According to Ministry of Finance data, Ghana’s revenue to GDP ratio is below 20%, confirming that, weak revenue mobilization is a major concern to consider if the economic managers wish to record better growth.
Although gold prices will likely support Ghana’s current account balance, boosting foreign inflows and stabilizing the cedi; the industrialization agenda, post-COVID-19 economic recovery policies, holistic agricultural sector development and better transport systems are needed to speed up growth prospects.
Focusing on the sub-regional outlook, Moody’s projected that, Niger will be the fastest growing nation on the continent with a projected 8% GDP, followed by Mauritius which is expected to grow at 7.8% and Ivory Coast with 6.4% growth rate with the collective Sub-Saharan Africa outlook expected to be lower than the over 5% consistent growth rate recorded over the last decade.
“Lower growth and rising debt costs will characterize growth in SSA in 2021.
“We expect SSA sovereigns to face severe challenges in grappling with the fallout from the coronavirus shock as lower overall economic growth and revenue coupled with higher government expenditure will lead to wider fiscal deficits and higher debt”, Moody’s said.
It further pointed out that “higher debt levels, weaker debt affordability (amid both lower revenue and higher interest payments) and low buffers will challenge SSA sovereigns’ institutional capacity to manage economies, public health, budget positions, financing strategies, reserves and social discontent, thus elevating event risk”.
Ghana’s economy entered into recession in the third quarter of 2020 for the first time in four decades to record -1.1% as against 5.6% the same period in 2019.
The Agriculture sector recorded the highest growth of 8.3%, whilst Industry and Services sectors contracted by -5.1% and -1.1% respectively.
The Agriculture sector, however, recorded the highest growth of 8.3%, whilst the Industry and Services sectors contracted by 5.1% and 1.1% respectively.
According to figures from the Ghana Statistical Service, the economy with oil contracted by 1.1%, but grew by -0.4% without oil.
Consequently, the World Bank in its latest Global Economic Prospects Report acknowledged that, the expected resilience in agriculture will not be sufficient to offset the COVID-19 pandemic’s lingering adverse impact on the oil and other sectors of the economy.
“In Ghana—the region’s fourth largest economy—the expected resilience in agriculture will not be sufficient to offset the pandemic’s lingering adverse impact on oil and other sectors. As a result, the growth forecast for 2021-22 has been downgraded”, it emphasized.
The World Bank also reviewed the country’s GDP for last year to 1.1% despite the economy entering into a mild recession in the third quarter of this year.
The economy is however expected to grow at a modest rate of 2.4% next year.
Additionally, the World Bank said the coronavirus pandemic caused an estimated 6.1% fall in per capita income last year in Ghana and many Sub Saharan Africa nations, and is expected to lead to a further 0.2% decline this year, before firming somewhat next year.
The resultant decline in per capita income is expected to set average living standards back by a decade or more in a quarter of Sub-Saharan African economies.
Output in Sub-Saharan Africa contracted by an estimated 3.7 percent—a per capita income decline of 6.1% and the deepest contraction on record—as the COVID-19 pandemic and associated lockdown measures disrupted activity through multiple channels.
The World Bank said “the hardest hit countries were those with large domestic outbreaks, those heavily dependent on travel and tourism—which virtually slowed to a near complete halt—as well as commodity exporters, particularly of oil. Although a few countries have managed to slow some large outbreaks (Ethiopia, Kenya, South Africa), outbreaks persisted in the second half of 2020 in several countries with little sign of abating.
Excluding Nigeria and South Africa, growth in these economies is forecast to average 2.8% in 2021-22, following 3.4% contraction last year.
“Although metals prices recovered somewhat in the second half of 2020, oil prices remain well below 2019 levels, weighing on the pace of recovery in oil-exporting economies (Angola, Chad, Republic of Congo, Equatorial Guinea, Gabon, Ghana)”, the report said.