Ghana Economic Update, October 2014

This report is the most recent in a series aimed at monitoring economic developments in Ghana and has two sections. The first section summarizes the recent macroeconomic developments in the country while the second section presents the main findings on poverty and employment published recently by the Ghana statistical service. Ghana’s overall macroeconomic conditions have deteriorated further in 2014 with large twin-deficits lingering, fueling government debt and inflation, a sharp depreciation of its currency, and a weaker pace of economic growth. The fiscal deficit remains the biggest source of vulnerability in the Ghanaian economy. Preliminary figures show the fiscal deficit was 9.2 percent of GDP in the first half of 2014, driven by the high wage bill and rising interest costs. The wage bill grew 25.7 percent (y-o-y) during the first half of 2014 despite promised measures to contain it, while interest payments reached 5% of GDP. Total domestic revenue collections were dragged down by a contraction in non-tax revenue while tax revenue only increased slightly to 15.6 percent of GDP. With large expenditures planned for the second half of the year, the deficit is projected to be around 10% of GDP, above the government’s 8.8 percent target for 2014. A careful analysis of the determinants of poverty and inequality, and their interaction with labor market variables is just beginning, as the 2013 surveys were just released. However, these preliminary findings highlight how critical are Ghana’s policy decisions over the next 12 months to pursue more inclusive and stable growth. Urgent efforts are needed to build a more predictable policy environment that facilitates diversification from capital intensive activities in extractive industries towards more labor and land intensive activities in the agriculture and service sectors.