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.