1. Trends in Ghana’s macro economy and the outlook Norway-Ghana Business Forum, November 5, 2015 Johnson P. Asiama (Dr.) 0243480665

2. Background Global food and energy price shocks and the excesses in 2008 ECF program from 2009 helped to mitigate the accumulated impact of these earlier shocks by 2011. Fiscal and external current account imbalances were reduced, growth strengthened, inflation declined to single digits, and international reserves recovered. Unfortunately, the economy began to experience a combination of exogenous shocks again from end-2012. This resulted from developments in the global environment as well as the domestic scene.

3. Background The weakening of commodity prices and the increased uncertainty in the financial markets impacted on the balance of payments. On the domestic side, the combination of a severe energy crisis and the resumption of fiscal and external pressures impacted significantly on the economy. These resulted in heightened inflation and exchange rate expectations in spite of cumulative increases in the monetary policy rate, and these were further re-enforced by the pass-through effects of petroleum and utility tariff adjustments as headline inflation trended away from target band.

4. Background Currently, we are managing the effects of petroleum and utility price adjustments as well as exchange rate shocks that continue to impact on inflation and inflation expectations. Again, thanks to the ongoing ECF-supported program, fiscal consolidation is on course as measures are being taken to ensure strict expenditure control and to restore macroeconomic stability.

5. Inflation Since beginning of the year, inflation pressures have persisted due to uncertainties in the foreign exchange market, with implications for petroleum pricing and other tradable goods and services. Inflation and inflation expectations are still elevated and outside the medium term target band of 8±2 percent.

6. Inflation From 16.9 percent in May, CPI inflation increased sharply to 17.9 percent in July, mainly reflecting the upward adjustments in petroleum and transport prices. Some moderation occurred in August with inflation declining to 17.3 percent, still higher than the June reading of 17.1 percent. Core inflation (CPI excluding energy and utilities), however, continued to rise, suggesting persistent underlying inflation pressures. Inflation increase marginally to 17.4 percent in September, with prospects to rise further if utility tariffs are increased.

7. Inflation Forecasts suggest that attainment of the medium term inflation target by the end of 2016 would require maintaining tightening in the monetary policy stance else the target horizon will shift into 2017. Potential upward risks to the inflation forecast include the planned increases in utility tariffs. Also, the usual cedi liquidity during the fourth quarter could engender elevated inflation expectations. However, it is expected that inflation pressures may reduce later due to continued fiscal consolidation and improved energy supply.

8. Inflation

9. Also, the usual cedi liquidity during the fourth quarter could engender elevated inflation expectations. However, it is expected that inflation pressures may reduce later due to continued fiscal consolidation and improved energy supply.

10. Economic Growth Near-term growth conditions continued to be adversely impacted by challenges in the energy sector, ongoing fiscal consolidation, as well as bearish external conditions. Provisional Real GDP growth (including Oil and Gas) for the 2015Q2 was 3.9 per cent (year-on-year), compared to the revised estimate of 2.6% recorded in the same period of 2014Q2. Industry recorded the highest growth of 15.3%. Followed by the services sector with 5.3% and Agriculture sector - 0.1%. The latest AGI business barometer survey suggests business confidence has improved. Broadly, economic growth projected to rebound in the medium term as the economy rebalances, supported by increased production of oil and gas.

11. Fiscal developments Fiscal consolidation has been on track in 2015. For the first 7 months of the year, revenues exceeded target while expenditures remained within targets. These resulted in a fiscal deficit of 3 percent of GDP compared to program target of 4 percent. Maintaining the pace of fiscal consolidation over the medium term necessary.

12. External sector External sector developments continue to pose significant risks to the domestic economy. Continues to show signs of weakening, with pressures on forex reserves. Increased volatility in international financial markets, uncertainty as to the timing and impact of expected tightening in the Fed’s monetary policy, and declining commodity prices on the balance of payments and in turn the inflation outlook.

13. External sector Export receipts have been impacted by lower commodity prices, mainly gold and oil. E.g. for the first seven months of 2015, merchandise export receipts amounted to US$6.3 billion down from US$8.1 billion in the same period last year. Merchandise imports also amounted to US$7.8 billion, from US$8.4 billion in the corresponding period in 2014 leading to a worsening in the trade deficit. However, the current account deficit improved as a result of favourable movements in the Services and Income accounts.

14. Exchange rates Cedi volatility significant in 2015 but currently muted... Weakened in 2015H1 (close to 30% against the dollar) but recovered in July. On month-on-month basis, the cedi appreciated vrs the US dollar (in July), by 25.5%, although it depreciated in August, by 14.8 percent.

15. Exchange rates Uncertainty in the forex market related to current account dynamics, but also driven by speculative activities. Inflation expectations Cedi volatility has since moderated due to tight monetary policy stance and the impact of inflows from the Eurobond issue and the cocoa syndicated pre-export finance facility.

16. Outlook There is emphasis on preserving macroeconomic stability in spite of exogenous shocks that continue to confront the economy. Medium term economic prospects remain strong, with expectations of a significant increase in oil and gas production. Energy shortages are also expected to be addressed shortly. Fiscal consolidation remains on track... Monetary policy will continue to focus on stemming inflationary pressures