Fuel imports dip 12%, thanks to local gas

Gross Domestic Product (GDP) could now be valued as high as GH¢300billion after the expected rebasing this month, which is the second in less than 10 years according to an in-depth analysis of Ghana’s Public Debt Management in 2017 by Databank Research.

The economic and policy analysis, which is predicting a 30-45 percent increase in nominal GDP, points out that the economy’s size should move from the GH¢205.91billion recorded in December 2017, to GH¢300billion or US$63.4billion after the rebasing or revision of the methods and base data used to calculate GDP.

Government is expected to announce the rebasing in the last week of the month.

“Overall, the outlook for Ghana’s fiscal and debt situation points to an improved position in the medium-term, supported by opportunities for enhanced revenue mobilisation and anticipated re-basing of Ghana’s nominal GDP,” noted the analysis done by Courage Martey, an analyst at Databank Research.

With experts and analysts hoping to see a dramatic increment compared to the last rebasing in 2010, which expanded the nominal GDP due to oil and gas by 60 percent, the report noted that this one will produce a lesser expansion but positive outcomes for indicators such as the debt-to-GDP ratio and negative impact on tax revenue to GDP ratio.

The higher nominal GDP is expected to suppress the debt-to-GDP ratio to between 50–60 percent in 2018 from the high of 68 percent recorded in 2017, according to the latest data from the Bank of Ghana – which could catalyse the potential for positive reviews of Ghana’s credit ratings.

With a lower debt to GDP ratio, government might be tempted to increase its rate of borrowing, while the tax revenue-to-GDP ratio could drift further below government’s medium-term target of between 20–25 percent.

This could see development partners exert more pressure on government to increase tax revenues to acceptable levels.

“We therefore expect government to exploit the revenue opportunities afforded by the higher nominal GDP, rather than the borrowing space a higher GDP would equally generate,” Databank Research said.

Outlook

Despite the overwhelmingly positive outcomes expected from the re-basing, the outlook is however subject to potential fiscal shocks which could occur around the election cycles.

“Government’s decision to extend the zero-financing of budget deficit by the central bank to include the 2020 election year – along with anticipated inclusion of a 5 percent fiscal deficit limit in the Public Financial Management (PFM) Act – should minimise the fiscal risks ahead,” the analysis said.

Out of the recently issued US$2billion Eurobond, US$1.25billion has been earmarked for swapping the 2022 maturity into a 10-year tenor as well as for liability management.

This strategy, according to Databank Research, will effectively postpone Ghana’s earliest refinancing risk to the year 2023 instead of the 2020 start date for amortisation of the 2022 Eurobond.

“Against the backdrop of sustained fiscal efficiency and re-basing of the GDP, we believe Ghana is on track to achieve debt sustainability in the next three years,” he added.

Why rebase?

The economy’s rebasing, which started in 2016, will see the Ghana Statistical Service (GSS) move the current base year for calculating GDP estimates from 2006 to 2013. While at it, the service is also reviewing inflation rate calculation and will have a base year of 2017.

According to various international rules, every country must review the way it measures its GDP growth rate at least every 10 years. In Ghana, however, the move has been influenced by some significant changes in the country which needed to be captured when measuring the economy.

Courage Martey told the B&FT in an interview that the recalculation exercise was necessary, as the old national accounting system did not take into account important emerging sectors of the economy: such as communications, oil-sector activities and other important elements of the services sector.

“In oil and gas, for example, over the period the value addition component of this sector was not being accounted for, but the new method will capture it. That is a platform to tax that wasn’t available in the old system,” he said.

The new system, he noted, reflects more current economic trends and includes more up-to-date compilation methodologies, and uses international standards for the definition of industrial activities.

“When the base year is shifted from 2006 to 2013, because the new 2013 base year is closer to current years, the price-quantity combination is more likely to reflect current consumption and production patterns in the economy than the 2006 base year,” he added.

When the economy was rebased in 2010, it became third-largest in the ranking of GDP per person in the ECOWAS sub-region behind Cape Verde and Nigeria, and 21st in Africa, according to the Economist Intelligence Unit.