Ghana’s current account to expand to 5% of GDP, but gold exports to remain buoyant – EIU

Despite achieving three consecutive years of trade surplus, Ghana’s current account deficit is forecast to expand to 5% of GDP in 2020.

This is before shrinking slightly to 4.3% of Gross Domestic Product in 2021.

The current account is a country's trade balance plus net income and direct payments.

According to the Economist Intelligence Unit (EIU), the deficit will continue to narrow over the remainder of the forecast period, falling to 0.3% of GDP in 2024, helped by rising exports,

In its analysis of the Ghanaian economy amid the Coronavirus pandemic, the UK-based organisation said the economic fallout from the coronavirus will place significant additional pressure on Ghana's external accounts, particularly as a result of a near-halving in global oil prices.

At the same time, cocoa production will also decline, as the industry is constrained by poor weather conditions and crop disease, but this will be partly compensated by higher international prices.

Meanwhile, revenue from gold exports will expand sharply, helped by both rising production and prices.

Together with lower imports on the back of a contracting economy, this will help to limit the deterioration in the trade balance in 2020-21.

“We expect export revenue to recover over the remainder of the forecast period, owing primarily to rising oil production from new fields and steadily increasing prices (albeit with a small dip forecast in 2024).

“In addition, government efforts to formalise small-scale mining and provide large mines with better protection from illegal incursions will—along with new investment—support gold production volumes.

“Structural weaknesses will continue to constrain cocoa output, although revenue will increase gradually as conditions improve slowly and investment arrives (following a loan to support long-term growth from the African Development Bank in November 2019)”, the EIU said.

Also, goods imports will expand in 2022­24, driven by strong growth in the domestic economy and—because of low levels of domestic tertiary manufacturing—demand for capital goods imports to develop the downstream oil industry.

Further, the EIU said the services deficit will remain large as it will rise to an average of 5% of GDP in 2020-21, reflecting a fall in tourist receipts.

“As visitor arrivals recover, it will then decline to an average of 3.9% of GDP in 2022-24, despite sustained expenditure on technical services for oil and gas projects”, it noted.

Unfortunately, the primary income deficit will also remain large, owing to interest payments on external debt and profit repatriation.

Also, the secondary income account will continue to post large surpluses, underpinned by inflows of workers' remittances.