4th GHANA ECONOMIC UPDATE Enhancing Financial Inclusion Africa Region June 2019 4TH GHANA ECONOMIC UPDATE ENHANCING FINANCIAL INCLUSION Africa Region June 2019 iii TABLE OF CONTENTS ACKNOWLEDGEMENTS.................................................................................................................................. v ABBREVIATIONS AND ACRONYMS............................................................................................................ vii EXECUTIVE SUMMARY................................................................................................................................IX Recent Economic Developments...............................................................................................................................ix Macroeconomic Outlook and Economic Policy Challenges........................................................................................x Financial Sector Development and Financial Inclusion..............................................................................................xi Enhancing Financial Inclusion..................................................................................................................................xii GLOBAL AND REGIONAL ECONOMIC CONTEXT..................................................................................1 RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK......................................................................5 Real Sector.................................................................................................................................................................5 Financial and Monetary Sector...................................................................................................................................6 Fiscal Sector..............................................................................................................................................................10 External Sector.........................................................................................................................................................13 Macroeconomic Outlook and Economic Policy Challenges......................................................................................16 FINANCIAL SECTOR DEVELOPMENT AND FINANCIAL INCLUSION...............................................23 The State of the Financial Sector in Ghana...............................................................................................................23 A Case for Financial Inclusion..................................................................................................................................25 Digital Financial Services and Payments...................................................................................................................29 Opportunities to Improve Financial Inclusion..........................................................................................................32 REFERENCES.................................................................................................................................................... 37 ANNEXES Annex 1: Selected Fiscal Indicators...........................................................................................................................39 Annex 2: Balance of Payment Statistics.....................................................................................................................41 Annex 3: Gross Domestic Expenditure.....................................................................................................................43 Annex 4: Non-Performing Loans..............................................................................................................................45 iv 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION LIST OF FIGURES Figure 2.1: Real Sector.................................................................................................................................................7 Figure 2.2: Monetary Sector.........................................................................................................................................9 Figure 2.3: Fiscal Sector.............................................................................................................................................14 Figure 2.4: External Sector.........................................................................................................................................16 Figure 2.5: Economic Outlook...................................................................................................................................17 Figure 3.1: Financial Inclusion in Ghana....................................................................................................................27 Figure 3.2: Voice Subscriptions and Mobile Money Statistics.....................................................................................30 LIST OF TABLES Table 2.1: 2018 Quarterly GDP growth.....................................................................................................................6 Table 2.2: Government of Ghana International Bond Issuance.................................................................................13 Table 2.3: Comparison of Debt Risk Indicators, 2016 and 2017..............................................................................15 LIST OF BOXES Box 2.1: Procyclicality, the Election Cycle and the Fiscal Responsibility Law..........................................................19 v ACKNOWLEDGEMENTS T his edition of the Ghana Economic Update is (Financial Sector Consultant), and Nana Yaa Boakye the fourth in the bi-annual series on Ghana’s Adjei (Financial Sector Consultant). Beatrix Allah- economic development and prospects. Every Mensah (Senior Operations Officer) and Kennedy Fosu edition includes both a broad overview of the coun- (Communication Specialist) reviewed the report and try’s macroeconomic and structural dynamics, and a advised on the public outreach. The report was prepared special topic dedicated to one theme. In this update, under the overall guidance of Abebe Adugna (Practice the focus is on financial sector development and finan- Manager), Henry Kerali (Country Director), and Errol cial inclusion. The report was prepared by Michael Graham (Program Leader and Lead Economist). The Geiger (Senior Economist), Kwabena Gyan Kwakye peer reviewers were: Chandana Kularatne (Senior (Economist), Carlos Leonardo Vicente (Senior Economist), Yoko Doi (Senior Financial Sector Financial Sector Economist), Barbara Monica Wiafe Specialist), and Bledi Celiku (Economist). vii ABBREVIATIONS AND ACRONYMS AMA Accra Metropolitan Assembly IMF International Monetary Fund API Application Program Interface IPP Independent Power Producer AQR Asset Quality Review MCC Micro Credit Companies BoG Bank of Ghana MDA Ministries, Departments, and BTCA Better Than Cash Alliance Agencies CAR Capital Adequacy Ratio MFC Microfinance Companies CGAP Consultative Group to Assist the MFI Microfinance Institutions Poor MNO Mobile Network Operator CBG Consolidated Bank of Ghana MoF Ministry of Finance DFI Development Finance Institutions NBFI Non-bank Financial Institutions DFS Digital Financial Service NFIDS National Financial Inclusion and ECG Electricity Company of Ghana Development Strategy ELA Emergency Liquidity Assistance NPL Non-performing Loan EMDE Emerging Markets and Developing PFMA Public Financial Management Act Economies PMI Purchasing Manager’s Indices ESRP Energy Sector Recovery Program PPA Power Purchase Agreements FDI Foreign Direct Investment RCB Rural and Community Banks FH Finance House S&L Savings and Loans Company GCMS Ghana Customs management SCD Systematic Country Diagnostic Systems SDI Specialized Deposit-taking GEMS-TA Ghana Economic Management Financial Institutions Strengthening Technical Assistance TRIP Total Revenue Integrated Processing GEP Global Economic Prospects System GEPP Ghana E-Payment Portal USSD Unstructured Supplementary GH¢ Ghanaian Cedi Service Data GhIPSS Ghana Interbank Payment VRA Volta River Authority Settlement System VSLA Village Savings and Loans GoG Government of Ghana Associations GRA Ghana Revenue Authority ix EXECUTIVE SUMMARY Recent Economic Developments Ghana’s real GDP expanded in 2018, albeit at a slower rate than in 2017; the expansion was spurred by the mineral component of the industry sector. Official data released in April 2019 indicate an overall growth rate of 6.3 percent in 2018. In terms of sectoral growth dynamics, industry continued its lead with 10.5 percent. The second-highest sectoral growth rate was recorded in agriculture with 4.8 percent; sustained increases in the forestry and logging, crops, and livestock sub-sectors drove agriculture growth in 2018. The services sector grew by only 2.8 percent in 2018. Non-oil GDP reached 6.5 percent growth in 2018. Ghana’s average inflation rate for 2018 was the lowest in five years. Inflation fell from its peak of 19.2 percent in March 2016 to 9.4 percent in December 2018. Inflation continued to be in single digits in the first four months of 2019; but it gradually rose from 9 percent in January to 9.5 percent in April 2019. The favorable price developments in 2018 reflected continued monetary restraints by the Bank of Ghana (BoG), fiscal consolidation and the sharp reductions in non-food inflation. The lower non-food inflation reflected lower costs of health, education, and communications services. As inflation eased, the BoG reduced its policy rate from 21.5 percent at its peak in 2016 to 16 percent in January 2019, in an effort to spur non-oil growth. Heightened vulnerabilities in the financial sector in 2018 triggered a swift response from the authorities. Between August 2017 and December 2018, nine domestically owned universal banks were closed. The assets and liabilities of two banks were transferred to a state-owned universal bank while those of the remaining seven banks were transferred to a bridge bank (Consolidated Bank Ghana [CBG]). The CBG was capitalized by the Government of Ghana (GoG) in the amount of about US$100 million (0.2 percent of GDP). The Government also issued a domestic bond equivalent to US$1.65 billion (2.5 percent of GDP) to cover the gap between the liabilities and the good assets assumed by the CBG. The total fiscal cost of the interventions was equivalent to around 3.4 percent of GDP in 2018. The government sustained its fiscal consolidation efforts in 2018 despite challenges. Shortfalls in Value Added Tax (VAT) and “other revenues” and overruns in expenditure on goods and services (altogether equivalent to 1.5 percent of GDP) were largely offset by overperformance in corporate income taxes relative to target (due to improvements in compliance); and cuts in capital spending. As a result, the 2018 fiscal deficit target was met with 3.8 percent of GDP (provisional outturn data), excluding the financial sector clean-up cost. With the inclusion of the one-off financial sector cost, the fiscal deficit would be 7.2 percent of GDP in 2018. Fiscal data for early 2019 is not yet publicly available. The current account deficit narrowed further in 2018 but portfolio capital outflows put pressure on reserves. The current account deficit narrowed to an estimated 3.1 percent of GDP, relative to 3.4 percent of GDP in 2017. The current account deficit was primarily financed by Foreign Direct Investment (FDI), which in 2018 stood at 5.6 percent of GDP (same as 2017). However, lower-than-expected foreign capital x 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION inflows reduced the capital and financial account net inflows to only 1.7 percent of GDP, compared with percent of GDP in 2017. This reflected the rapid decline in portfolio investments, which was 1.2 percent of GDP in 2018 (down from 4.4 percent of GDP in 2017). As a result, imports coverage of gross international reserves fell to 2.6 months from 2.8 months in 2017. The Ghanaian cedi came under considerable pressure in the second half of 2018 and in the first quarter of 2019. At the end of 2018, the cedi had depreciated against the dollar by 8.9 percent, cumula- tively. The BoG intervened in 2018 to slowdown the depreciation, and as a result, gross international reserves declined by US$250 million. This policy was discontinued in an effort to stop the loss of reserves. As a result, first quarter 2019 depreciation of the Ghanaian cedi intensified. The cedi depreciation reached its lowest point on March 15, 2019 when year-to-date depreciation reached 11.1 percent. With the successful issu- ance of three Eurobonds totaling US$3 billion on March 19, 2019, the increased foreign exchange reserves provided enough buffer to reverse the downward trend. As a result, the Ghanaian cedi bounced back and by mid-April it had appreciated by 6 percent over the March 15 low-point. Still, the cedi was down by 7.1 percent year-to-April. Macroeconomic Outlook and Economic Policy Challenges Economic growth is expected to be stronger in 2019; but over the medium term a more diversi- fied economy is an imperative. Growth is projected to increase to 7.6 percent in 2019, driven by both the oil and non-oil sectors. Growth in the non-oil sector is expected to remain high at 6.2 percent, as policy interventions in agriculture and industry are expected revitalize the productive sectors. These interventions would be important in diversifying the economy and bringing about a more broad-based sustainable economic growth over the medium to long-term. But to facilitate the transition toward a more diversified economy, there is a need to invest Ghana’s current natural resource wealth in non- natural resource sectors for sustainable growth in the medium-to-long-term. The Government needs to improve on the economy’s competitiveness for private sector-led investments in the non-oil sector for growth. Without that, total factor productivity is projected to remain stagnant or decline marginally over the medium term. Fiscal consolidation is expected to slow in 2019; the overall stance will likely remain intact over the medium term, but domestic revenue mobilization is an imperative. The overall fiscal deficit in 2019, excluding financial sector clean-up cost (expected to be about 1.6 percent of GDP), is expected to be 4.0 percent of GDP, rising to 4.5 percent of GDP in 2021. The deficit, inclusive of expected clean-up costs, would reach 5.6 percent in 2019. An effective domestic resource mobilization strategy is an urgent imperative for the Government as the reduction of expenditures, including public investment, in response to revenue underperformances may not be sustainable. Any new tax measures should be reviewed against their social and economic objectives to allow prioritization of the tax regime. The next election cycle in 2020 will be an important test of fiscal sustainability. Ghana’s fiscal and debt dynamics could be adversely affected by possible fiscal slippages due to: revenue underperformance and higher, election-related spending leading up to the 2020 elections; further negative developments in the already vulnerable financial sector, despite interventions made in 2018; and unfavorable external financing conditions. On the upside, the adoption of the fiscal responsibility law and the establishment of the fiscal council in December 2018, with the statutory ceiling on the fiscal deficit of 5 percent, provide an opportunity Executive Summary xi to overcome the legacy of election-cycle-driven fiscal slippages in 2020. With the next election falling within a boom phase, the economy does not need any additional fiscal stimulus. Addressing the vulnerabilities in the financial sector is urgent and will require additional efforts in 2019, and over the medium term. In 2019, the government will need to spend an additional GH¢5.5 billion (equivalent to 1.6 percent of GDP) to solve all challenges related to microfinance institutions MFIs; Savings and Loans; and the introduction of another resolution bond for the CBG to support the closure of two additional banks that took place in January 2019. To help strengthen resilience and stability of the banking system, the authorities increased the minimum capital for banks to GH¢400 million (US$83 mil- lion) effective in December 2018 (up from GH¢120 million) and are strengthening supervision, includ- ing through enforcement of prudential standards, implementation of a new capital requirements directive, introduction of risk management and corporate governance directives, among others. Financial Sector Development and Financial Inclusion The financial sector in Ghana has grown rapidly since 2010, and with it the share of Ghanaians with access to formal financial services, which is a measure of financial inclusion. Total financial sector assets grew from 53 percent of GDP in 2010 to 78 percent in 2017. Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs. But access to financial services across regions and by key demographics is still low. Rural access to formal financial accounts is still low, but almost doubled between 2011 and 2017, due to a rising market share of non-bank financial institutions (NBFI), including mobile money providers. Women are less finan- cially included than men in Ghana. Yet, excluding women from access to financial services means wide- spread lost opportunity for their households and the economy as a whole. Not surprisingly, the poor have significantly lower access to formal financial services than the non-poor. Insufficient financial literacy is an important long-term factor for low savings rates in Ghana, and more broadly, financial illiteracy suppresses consumers’ demand for financial services. In addition, persistently high interest rates in Ghana are a major barrier to affordable access. Despite all the challenges in building a more financially inclusive economy, there has been a sig- nificant growth in the number of financial access points over the past five years. This growth has been primarily related to the spread of mobile money. The total number of mobile voice subscriptions grew 39 percent from 25.6 to 37.4 million between 2012 and 2017. Mobile phone penetration has created oppor- tunities for the expansion of financial services and increased the role of non-financial institutions as much as e-money issuers, positioning Ghana as the fastest growing mobile money market in Africa. This dynamic development indicates the potential of digital financial services and payments to further enhance financial inclusion in Ghana. The expansion of the agent distribution network was critical to the success of mobile money. The number of active agents increased from around 6,000 in 2012 to more than 150,000 in 2017—a 25-fold increase. This expansion of agents offered users more cash-in and cash-out opportunities and increased the overall convenience of using mobile money. The government has facilitated interoperability across payment instruments by establishing a mobile money switching solution. In May 2018, the Ghana Interbank Payment Settlement System (GhIPSS) went live with one of the first interoperable mobile money switch in Africa. Interoperability has increased the xii 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION convenience and value proposition of digital financial services (DFS) for many financial consumers. Another notable government initiative was the introduction of the E-zwich biometric card in 2018. E-zwich cards can be used at any E-zwich enabled point of sale terminal or ATM, at any bank, and also for payments, including salaries and pensions, which can be loaded onto a cardholders account. But more can be done to leverage innovative digital technology, as is recognized in the Government’s National Financial Inclusion and Development Strategy (NFIDS). As a compliment to the NFIDS, the Government has also developed its DFS Policy, which establishes a three-year roadmap (2018–2020). The roadmap aims to build on technological advances and ecosystem evolutions to create a resilient, inclusive, and innovative DFS ecosystem in Ghana that bolsters social development and a robust economy that sup- ports a thriving private sector. Enhancing Financial Inclusion In support of the Government’s efforts, the financial sector analysis in this Economic Update concludes with five specific recommendations for enhancing financial inclusion in Ghana:  Digitize government and utility payments. There remain significant opportunities in the payments space for driving financial inclusion, specifically in the area of government collections and utility payments;  Link informal channels with formal financial services. Since informal groups, which are largely organized, play a critical role in the provisions of financial services in Ghana, there is an opportunity to increase formal financial inclusion by linking them for formal financial services providers;  Promote agent banking. Many banks and non-bank financial institutions are yet to take advantage of agent banking and other low-cost models to increase their footprint throughout the country;  Improve financial capability. Improved financial literacy programs could stimulate demand for services as it would arm the financial consumers with the information needed to identify the benefits and risks of financial products; and  Leverage data to improve access to finance. The Government should take the lead in developing sound policies and/or legal frameworks to mandate data-sharing. 1 GLOBAL AND REGIONAL ECONOMIC CONTEXT 1 developing economies, particularly low-income coun- In the face of global economic headwinds, Ghana’s economy continued its rapid expansion in 2018 with an tries, have increased. More frequent severe weather estimated 6.3 percent annual growth. The country’s average events would raise the possibility of large swings in inflation rate reached single-digit levels in 2018 and was international food prices, which could deepen poverty. the lowest in five years. However, financial stability was tested by tighter financing conditions as some banks came In this difficult environment, it is of paramount impor- under pressure. Heightened vulnerabilities in the financial tance for emerging market and developing economies sector triggered a swift response from the authorities. The to rebuild policy buffers while laying a stronger foun- Government sustained its fiscal consolidation efforts in 2018 despite challenges, and the current account deficit dation for future growth by boosting human capital, narrowed further. The Ghanaian cedi was stable for the first promoting trade integration, and addressing the chal- half of 2018 but came under considerable pressure in the lenges associated with informality (World Bank 2019). second half of the year, and the pressure continued in the Financial and exchange rate market volatility first quarter of 2019. Medium-term growth prospects remain strong at 6–7 percent. Fiscal consolidation is expected to has increased, which led to an appreciation of the slow in 2019 but the overall stance will likely remain intact U.S. dollar in 2018. Investor concerns about soften- over the medium term. Further reducing the vulnerabilities ing growth prospects and a search for higher-yielding in the financial sector is an urgent agenda and will require additional efforts in 2019, and over the medium term. Key safe assets have led to a further compression of the U.S. downside risks to the outlook include fiscal slippages in the yield curve, despite higher inflation and ballooning lead up to the 2020 elections, financial sector vulnerabilities, U.S. government deficits driven by fiscal stimulus and unfavorable external financing conditions. measures. Global equity markets dropped in the final quarter of 2018, partly reflecting a deterioration in market sentiment regarding global activity and trade Global growth slowed in 2018 and the outlook is policy shifts. Divergent monetary policy among major weak. According to the latest World Bank, Global economies also contributed to a significant apprecia- Economic Prospects Report (January 2019), global tion of the U.S. dollar in 2018. financing conditions have tightened, industrial pro- Emerging markets and developing economies duction has moderated, trade tensions remain elevated, (EMDE), experienced significant capital outflows and some large emerging market and developing in 2018. The appreciation of the U.S. dollar, together economies have experienced significant financial mar- with increased investor risk aversion and renewed ket stress. As a result, global growth in 2018 was at a attention to external vulnerabilities, contributed to low 3 percent, and is expected to remain subdued at significant capital outflows in many EMDEs. Since 2.9 percent in 2019, and 2.8 percent over the 2020 to the U.S. dollar started strengthening in April 2018, 2021 period. Faced with these headwinds, the recov- EMDE currencies fell by an average of about 10 ery in emerging market and developing economies percent—the most significant episode of sustained has lost momentum. Downside risks have become depreciation since early 2016. Cumulative portfolio more acute and include the possibility of disorderly outflows from EMDEs also surpassed those seen after financial market movements and an escalation of trade the 2013 “Taper Tantrum”, reflecting a broad-based disputes. Debt vulnerabilities in emerging market and sell-off in both equity and bond funds. 2 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION While financial market stress was most pro- exporters with lower productions resulting from vola- nounced in Turkey and Argentina, many other tile oil prices on the world market. The sub-Saharan EMDEs, including Ghana, also suffered from dete- African economies continues to face challenging con- riorating market sentiment. Countries with current ditions as prospects of the advanced economies and account deficits financed by volatile capital flows, as EMDEs also continue to be downgraded. Preliminary well as countries with large short-term external debt, data suggest that sub-Saharan growth continued to were most severely impacted, pointing to heightened moderate in the first quarter of 2019 reinforcing the investor focus on external vulnerabilities. Elevated weak conditions that ended 2018 in Nigeria, Angola domestic debt, above-target inflation, and idiosyn- and South Africa. Manufacturing and mining sectors cratic factors such as policy uncertainty played a role continued to remain flat in South Africa as the coun- as well. As in previous episodes, EMDEs with more try’s power crises continues unabated, while regulatory liquid currency and equity markets were particularly uncertainty and maturing oil fields in Nigeria and affected by shifting market sentiment and contagion Angola pose greater constraints to oil production. effects. EMDEs sovereign credit ratings have contin- On the demand side, Purchasing Manager’s Indices ued to deteriorate, with some falling below invest- (PMI) in Ghana, Kenya, Nigeria, Zambia and Uganda ment grade, reflecting concerns about rising debt and showed some moderation in the first quarter of 2019. deteriorating growth prospects. Yields on EMDEs Despite the slow start, growth is expected to recover debt issued in international bond markets rose by 140 from the 2.3 percent level in 2018 to 2.8 percent in basis points in 2018—the third largest increase over 2019, supported by exports and private consumption, the last two decades. on the demand side, while expected rebound in agri- As a result, growth in EMDE is expected to culture, mining and services will spearhead the supply slow in 2019. With softening global trade and tighter side growth. The regional GDP growth is expected to financing conditions EMDEs growth is expected to reach 3.3 percent in 2020 (World Bank 2019b). slow to 4.2 percent in 2019—0.5 percentage point Meanwhile, commodity prices are expected to below previous World Bank Global Economics stabilize in 2019 after marked volatility over most Prospects (GEP) forecasts, partly reflecting the lin- of 2018. Global price developments are particularly gering effects of recent financial stress in some large important for Ghana in three areas: crude oil, gold, economies (e.g., Argentina, Turkey), with a sharply and cocoa. weaker-than-expected pickup in commodity export- ers accompanied by a deceleration in commodity  Crude oil prices fluctuated markedly in the sec- importers. EMDEs growth is projected to plateau at an ond half of 2018, mainly due to supply factors, average of 4.6 percent in 2020–21, as the recovery in with sharp declines toward the end of the year. commodity exporters levels off. Per capita growth rates Prices for crude oil averaged US$68 per barrel will remain anemic in several EMDE regions—most (bbl), slightly lower than initial 2018 forecasts, notably, in those with a large number of commodity but about 30 percent higher than in 2017. While exporters—likely impeding further poverty alleviation robust global oil consumption contributed to (World Bank 2019). this increase, supply-side factors were the main In the same vein, sub-Saharan growth is esti- drivers of price movements throughout the year. mated to have decelerated from 2.5 percent in Oil prices are expected to average $67/bbl in 2017 to 2.3 percent in 2018; below the regional 2019 and 2020, $2/bbl lower than initial projec- population growth rate for the fourth consecutive tions; however, uncertainty around the forecast year (World Bank 2019b). The slowdown of growth is is high. While growth in oil demand is expected attributed to weaker exports from the region’s larger oil to remain robust in 2019, the expected loss in Global and Regional Economic Context 3 growth momentum across EMDEs could have a Supply, on the other hand, increased in 2018, greater impact on oil demand than expected. The supported by stronger-than-expected mine pro- outlook for supply is uncertain and depends to duction. Looking forward, strengthening supply a large extent on production decisions by OPEC and weak demand are expected to push gold prices and its non-OPEC partners (World Bank 2019). marginally lower in 2019 (World Bank 2018a).  Prices for precious metals declined by 2 percent  Cocoa prices plunged nearly 13 percent in the in 2018 and are projected to decline by another 1 third quarter (quarter-on-quarter) of 2018 in percent in 2019, primarily driven by weakening response to upwardly revised estimates of global demand. Gold demand, which experienced the output. Most of the growth in cocoa production largest decline since 2009 over the first half of is expected to come from West Africa, includ- 2018, has been weak both for use as a production ing Ghana and Côte d’Ivoire, the world’s largest input and for investment purposes. The apprecia- producers. Despite the recent weakness, cocoa tion of the U.S. dollar and tightening monetary prices are expected to gain 2 percent in 2019 as policy in some advanced economies has reduced consumption is expected to outpace production the attractiveness of gold as an investment asset. (World Bank 2018a and Figure 2.1.2). 5 RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK 2 quarrying subsector (which grew by 23.3 percent) was Ghana is one of the fastest growing also a major determinant of industry sector and overall economies in Africa driven by mining and oil growth in 2018. The strong growth of the mining sector sectors is attributed to the recent increase in investments in the sector (which led to higher production in 2018). For Real Sector instance, in 2017, the year-on-year growth in invest- ment within the mining sector was over 17 percent Ghana was the second-fastest growing economy in representing an increase from US$907 million in 2016 Africa in 2017, with growth of 8.1 percent, driven to $US1.09 billion. The good developments in 2018 by the mining and oil sectors. Oil production rose were also partly attributed to favorable price develop- strongly because the Offshore Turret Remediation ments in 2018 in some key commodity markets. Project was deferred from 2017 to 2018 and new Agriculture growth was high in 2018 and a key oil fields were added. In addition to this one-off supportive sector to overall growth. The second sec- effect in the oil sector, gold output was high, while tor in terms of growth performance was agriculture, cocoa production levels remained stable. Overall, the supported by sustained expansion in the forestry and industry sector growth was the highest in 2017 at logging, crops, and livestock sub-sectors. The services 15.7 percent, followed by agriculture growth of 6.1 sector on the average, grew by 1.8 percent in the first percent and services with an outturn of 3.3 percent. three quarters of 2018 but improved to 2.8 at the Non-oil growth remained at 4.6 percent, same as end of the year. The financial and insurance subsec- in 2016, as marginal expansions in the services and tors experienced a continuous contraction since the agriculture sectors offset slower growth in non-oil first quarter of 2017 ending the year at –7.9 percent industry in 2017 (Figure 2.1.1). The decline in the in 2018, attributed to the uncertainty in the sector growth of the non-oil industry sector was attributed with regards to undercapitalized banks and vulnerable to contractions in mining and quarrying, as well as special deposit institutions. The non-oil sector grew by construction activities. 4 percent in the first quarter, 5 percent in the second Real GDP continued to expand in 2018, albeit quarter and ended the year at an overall growth of 6.5 at a slower rate than in 2017; the expansion was percent (Table 2.1). largely spurred by the mineral component of the Still, the services sector remains the dominant industry sector. Growth estimates released by the sector in Ghana’s economy. In 2018 the services sec- Ghana Statistical Service (GSS) in April 2019 indicate tor accounted for 46.3 percent of GDP, slightly above that Ghana’s economy grew by 6.3 percent in 2018, the 46 percent of GDP in 2017. Industry, the second 0.1 percentage point above the world bank’s projec- largest sector continued to consolidate its position tion. (Figures 2.1.2–2.1.4). The industry sector, which with its share increasing from 32.7 percent in 2017 has a GDP share of 34.0 percent, recorded the highest to 34 percent in 2018, attributed to increased mining growth of 10.5 percent in 2018, compared to 15.7 per- activities. Agriculture’s share of GDP at 19.7 percent, cent in 2017 (Figures 2.1.1 to 2.1.4). The mining and was at the lowest since 2013. (Figure 2.1.5). 6 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION TABLE 2.1: 2018 Quarterly GDP Growth in 2017 (12.4 percent) and within the medium-term Q1 Q2 Q3 Q4 Q1–Q4 target range set by the BoG of 6–10 percent. Although inflation rates for the first quarter were marginally above GDP Growth 5.4 5.4 7.4 6.8 6.3 the central bank’s target range, those for the subsequent Agriculture 4.7 4.8 5.5 4.4 4.8 quarters were within the BoG limits ending the year Industry 10.4 11.1 11.7 8.9 10.5 at 9.4 percent—the first time this was achieved in the Services 1.4 0.5 3.5 5.4 2.8 last five years (Figure 2.1.6). The favorable price devel- Non-oil GDP 4.0 5.0 8.5 8.4 6.5 opments in 2018 were driven by continued monetary Source: Ghana Statistical Service. restraint by the BoG and the reductions in non-food inflation. Lower services costs for health, education, and communications, accounted for the lower non-food On the expenditure side of GDP, exports have inflation path. On an annual basis, both non-food and driven overall growth in 2018. Exports growth for food inflation declined in 2018. Inflation continues to 2018 remained high at 10.3 percent in 2018, even be in single digits in the first four months of 2019; grad- though this was lower than the 2017 levels of 16.5 per- ually rising from 9 percent in January to 9.5 percent in cent (which benefitted from one-off effects of increased April 2019 on the back of rise in non-food inflation. oil exports); imports growth remained relatively high at 4.6 percent in 2018 compared to the 2014–2016 aver- Financial and Monetary Sector age of 0.1 percent. Government consumption expanded significantly in 2018 (by more than 70 percent), after a The Ghanaian cedi came under pressure of 35.5 percent contraction in 2017. This was primar- in 2018 as portfolio flows reversed … ily due to the base effect of steep expenditure cuts in 2017 and a gradual easing of the government’s stance The BoG monetary policy remained focused on on fiscal consolidation in 2018. Overall consumption keeping inflation in the targeted range of 6 to 10 growth for 2018 was 4.9 percent compared with 5.8 percent over the medium term. The moderation percent in 2017, as household consumption weakened in inflation created room for monetary policy eas- in 2018. Total investment continued to decline for the ing1. Consequently, the Central Bank cut its policy second successive year in 2018, with negative growth rate from 21.5 percent in July 2017 to 20 percent in of –5.5 percent, as major investments recorded in both September 2017, and further to 17 percent in March the oil and the mining sectors in 2016 could not be 2018. In January 2019, the central bank further replicated in 2017 and 2018. Overall domestic demand reduced the rate to 16 percent—the lowest rate since (including investments and consumption) grew by 2.4 2013. The weighted average interbank rate, the interest percent in 2018, representing a slowdown from the rate on short-term loans made between commercial 2017 levels of 4.1 percent. banks, eased further to 16.2 percent in October 2018 from 20.9 percent a year ago, in line with the mon- Inflation has fallen to a single digit in line etary policy rate. The average lending rates of banks with the medium-term target also declined to 26.9 percent in October 2018 from Ghana’s average inflation rate for 2018 was the 1 The effectiveness of the monetary policy framework on the inflation rate lowest in five years. Inflation fell from its peak of 19.2 is mixed in Ghana. Available data show a good correlation between the percent in March 2016 to 9.4 percent in December policy rate and inflation. However, due to lingering structural difficulties, such as over-dependence of the economy on a variety of imports and the 2018. On annual basis, Ghana’s average inflation rate inability for the economy to rapidly diversify, the exchange rate tends in 2018 was 9.8 percent, which is lower than the level also to be a strong determinant of domestic prices. Recent Economic Developments and Outlook 7 FIGURE 2.1: Real Sector 1) Economic growth by sector 2) First quarter GDP growth (% change, y-o-y): 2014–2018 (% change, y-o-y): 2014–2018 16 25 39 20 14 42 34 15 12 32 24 10 Percent Percent Percent Percent 10 19 22 5 8 14 0 12 9 6 –5 2 2 4 –10 –2 –1 –8 –15 2014 2015 2016 2017 2018 2014_Q1 2015_Q1 2016_Q1 2017_Q1 Agriculture Industry Service Agriculture Industry Service GDP growth (RHS) Non-oil GDP growth (RHS) GDP growth (RHS) Non-oil GDP growth (RHS) 3) Second quarter GDP growth 4) Third quarter GDP growth (% change, y-o-y): 2014–2018 (% change, y-o-y): 2014–2018 25 46 20 47 36 15 37 26 10 Percent 16 27 Percent Percent 6 0 –5 17 –4 –14 –10 7 –24 –15 –3 2014_Q2 2015_Q2 2016_Q2 2016_Q2 2017_Q2 2018_Q2 –13 2014_Q3 2015_Q3 2016_Q3 2017_Q3 2018_Q3 Agriculture Industry Service Agriculture Industry Service GDP growth (RHS) Non-oil GDP growth (RHS) GDP growth (RHS) Non-oil GDP growth (RHS) 5) Sectoral contribution to GDP (%): 2014–2018 6) Inflation rate (% change, y-o-y): 2014–2019 (April) 30 89 25 74 20 Percent Percent 59 15 44 10 29 5 14 0 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 –2 2014 2015 2016 2017 2018 Agriculture Industry Service Food Non-food Headline Source: 2.1–5: Ghana Statistical Service; 2.6: Bank of Ghana. 8 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION 29.1 percent a year ago, consistent with the increase and gross reserves reflects the anticipated short-term in credit to the private sector. foreign exchange outflows associated with the 2019 The Ghanaian cedi remained stable in the bond redemption cycle. Closing the gap between first half of 2018 but came under considerable the market and official exchange rates and limiting pressure in the second half of the year and in the the foreign exchange market interventions would be first quarter of 2019. Between January and May important steps to prevent further decline of interna- 2018, the cedi depreciated (cumulatively) only by tional reserves. With the issuance of the US$3 billion 1.3 percent but the pressure on the cedi remained Eurobond in March 2019, the international reserves relatively strong after May as external financing have significantly improved in 2019 (Figure 2.2.2). pressures rose, and the US dollar strengthened and Gross International Reserves improved from US$ 6.7 yields on US treasury instruments increased, causing billion (equivalent to 3.4 months import cover) in investors to rebalance their portfolios. As a result, at January 2019 to US$9.9 billion (equivalent to 5.1 the end of 2018, the cedi had depreciated against the months of imports) in March. This, however, mar- dollar by 8.9 percent. The BoG intervened in 2018 ginally decreased to US$9.3 billion (equivalent to to slowdown the depreciation, and as a result, gross 4.7 months of imports) in April 2019, as the BoG international reserves declined by US$250 million. responded to pressures on the cedi. This policy was discontinued in an effort to stop the loss of reserves. As a result, 2019 first quarter depre- The financial sector came under stress in ciation of the Ghanaian cedi intensified. The cedi 2018 … depreciation reached its lowest point on March 15, when year-to-date depreciation reached 11.1 percent. Heightened financial sector vulnerabilities With the successful issuance of three Eurobonds in a resulted in the resolution of five domestically total value of US$3 billion on March 19, 2019, the owned banks in 2018, with substantial fiscal increased foreign exchange reserves signaled enough costs to the government. The government closed buffer to reverse the downward trend. As a result, five domestically owned universal banks—uniBank, the Ghanaian cedi bounced back and by mid-April Royal Bank, Beige Bank, Sovereign Bank, and it had appreciated by 6 percent over the March 15 Construction Bank, in August 2018, and transferred low-point. Nevertheless, the cedi is still down by 7.1 their assets and liabilities to a bridge bank (the CBG). percent on a year-to-date basis in 2019. The CBG was capitalized by the Government in the amount of US$100 million (0.15 percent of GDP). … and international reserves have declined The Government also issued a domestic bond in an amount equivalent to US$1.65 billion (2.5 percent International reserve buffers have been rebuilt of GDP) to cover the gap between the liabilities and since 2016, but both gross and net international the good assets assumed by the CBG. In early 2018, reserves declined in 2018. The stock of Ghana’s the Government also issued a bond to capitalize both gross international reserves at the end of 2018 the UT Bank and Capital Bank in an amount equiva- was US$5.3 billion (equivalent to 2.7 months of lent to US$500 million (0.75 percent of GDP) that imports), down from US$5.5 billion (equivalent to allowed the GCB to take over all depositors formerly 2.8 months of imports) at the end of 2017. Over with the two banks. The total fiscal cost of these the same period, net international reserves declined interventions amounted to 3.4 percent of GDP in from US$4.6 billion (equivalent to 2.4 months of 2018. The fiscal deficit including the financial sec- imports) to US$3.9 billion (equivalent to 2.0 months tor clean-up in 2018 reached 7.2 percent of GDP of imports) (Figure 2.2.2). The large gap between net (compared to 3.8 percent without the financial sector Recent Economic Developments and Outlook 9 FIGURE 2.2: Monetary Sector 1) Nominal exchange rate, period average and 2) International reserves (millions of US$ and 45 cumulative depreciation: 2014 to 2019 (April) 6 12,000 months of imports): 2014–2019 (Q1) 6 5.1 5 10,000 5 Percent change (green line) Cedis per 1 US$ (red line) 35 27.3 4 8,000 4 Millions US$ 25 2.8 2.7 3 6,000 3 12.4 2.0 15 10.4 2.8 8.9 2 4,000 2 5.3 3.3 5 2,000 1 1 –1.3 3.9 0 0 –5 –1.6 0 2014 2015 2016 2017 2018 2019 Q1 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 US$–Cedi nominal exchange Yearly cummulative GR-LHS NIR-LHS rate (RHS) depreciation (LHS) GR (Months of imports) RHS NIR (Months of imports) RHS 3) Bank credit growth (% change, y-o-y): 2014-2019 (Q1)8 4) Currency denomination of Ghana’s debt: 2014–2018 60 70 50 60 40 50 30 Percent 40 Percent 20 30 10 0 20 –10 10 –20 0 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 2014 2015 2016 2017 2018 Special Drawing Rights (SDR) United States Dollar (USD) Credit growth (y-o-y %) Real credit growth (y-o-y %) Others Euro (EUR) Sources: 3.1–3: Bank of Ghana; 3.4: Ministry of Finance. clean-up). As the clean-up cost extends to 2019, the and settlement by the Government of some energy 2019 fiscal deficit (including the financial sector sector SOEs’ debt. Average after-tax profitability–mea- clean-up) is projected to reach 5.6 percent of GDP sured by the return on equity–stood at 18.5 percent in (compared to 4.0 percent of GDP without the finan- December 2018. The bank-wide capital adequacy ratio cial sector clean-up) (Annex 1). (CAR) stood at 20 percent in December 2018—well above the regulatory minimum of 10 percent and the … and financing conditions have tightened BoG’s recommended level of 13 percent. However, some banks remain vulnerable to high NPLs. All commercial The BoG has increased the minimum capital banks were required to meet the new minimum capital requirement to strengthen the banking sector, but of GH¢400 million by end 2018, raised from GH¢120 areas of vulnerabilities remain. The average gross million. An additional area of vulnerability in the finan- NPL ratio declined from 21.6 percent in December cial sector comes from specialized deposit-taking institu- 2017 to 18.2 percent in December 2018, in part due tions (SDIs). The liberal licensing of financial institutions to the closure of problem banks, write-offs of NPLs, over the years, often without thorough due diligence, 10 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION allowed lightly capitalized institutions and unfit owners from 6.1 percent in 20162 to 4.8 percent of GDP in to operate deposit-taking businesses, putting small savers 2017 (Annex 1), achieved primarily through spending at risk. The Government—through the BoG—has put cuts (1.1 percent of GDP) imposed on both recur- in place resolution and recovery plans for these SDIs and rent and capital expenditures. The Government also revoked the licenses of 386 institutions. amended the law to cap transfers to Earmarked Funds In a marked shift from 2017, tight financing at 25 percent (compared to 33.5 percent in 2016) of conditions affected the local bond market in 2018. tax revenues to bring about more discretion for fiscal Yields on short-term securities increased, while auc- adjustments in times of need. The sizable reduction tions for longer maturities were either canceled or in the fiscal deficit was achieved despite the fact that went largely undersubscribed, reflecting the authori- revenue (including grants) underperformed by 0.9 ties’ reluctance to accept higher yields. For instance, percent of GDP in 2017. As the primary balance while the 5-year GoG bond yield declined between shifted from a deficit of 1.1 percent of GDP in 2016 October 2017 and October 2018 by 175 bps to 16.5 to a surplus of 0.5 percent of GDP (–0.4 percent with- percent, rates on the 2-year and 3-year GoG bonds out oil revenue) in 2017, the debt-to-GDP ratio fell both increased by 250 and 125 basis points respec- from 56.8 percent in 2016 to 55.5 percent in 2017. tively to settle at 19.5 percent. Rates on the secondary The Government sustained its fiscal consolida- bond market also increased, reflecting tight financing tion efforts in 2018, although achieving revenue conditions. As a result, issuances of existing long-dated targets remains a challenge. The total Revenue and instruments with relatively shorter remaining maturi- Grants outturn for the 2018 fiscal year were estimated ties were opportunistically used to cover financing at 15.7 percent of GDP—4.6 percentage points below needs—with the downside of clustering redemptions the revised annual target (Annex 1 and Figure 2.3.1). into the next 18 months (IMF 2019). Private sector This weaker-than-expected outturn reflects two key credit growth increased by 10.6 percent in 2018 over factors: first, most revenue categories performed below the 2017 levels (Figure 2.2.3), reflecting the decline in their targets;3 and second, there were no receipts from the average lending rate from 29.2 percent in 2017 to gas, contrary to initial projections because the Volta 26.9 percent in 2018. The main recipients, in terms of River Authority (VRA) was unable to settle their bills the total share of credit were: services (20.7 percent); commerce and finance (17.9 percent); and construction 2 The Government finalized and published the results of a GDP rebasing (10.3 percent). Developments in credit growth in the exercise in October 2018. Accordingly, the size of the economy increased first four months of 2019 show even a further expan- by about one quarter, compared to the previous GDP measure. This document uses rebased GDP figures, unless otherwise noted. Given the sion in credit growth as credit expanded from 10.4 increase in nominal GDP, many figures expressed as a share of GDP percent year-on-year growth to 22.1 percent in March have decreased. 3 In July 2018, when it became clear that the revenue underperformance and slightly dipped to a growth of 19.8 percent in April and insufficient constraint on expenditure over the first 5 months of 2019. The 2019 April credit growth compares favor- the year was insufficient to maintain fiscal targets, the Government an- nounced a series of measures to address the situation through the mid-year ably with the 5.6 percent growth recorded a year ago. budget review: The revenue measures to be implemented after the review included conversion of the Ghana Education Trust Fund value added tax rate of 2.5 percent to a straight levy of 2.5 percent; imposition of Fiscal Sector luxury vehicle tax on vehicles with capacity of 3.0 liters and above; and introduction of an additional band of GH¢10,000 and above per month at a rate of 35 percent on personal income tax. On the expenditure side, Fiscal consolidation has gained traction … there were reductions in Domestically Financed CAPEX (0.3 percent GDP) and increases in Wages and Salaries (0.1 percent of GDP), Goods and Services (0.1 percent of GDP), and Domestic Interest Payments (0.1 In 2017, the government launched a concerted percent GDP). The net effect of the expenditure adjustments resulted in downward revision of total Expenditure (including arrears clearance) by fiscal consolidation effort aimed at reducing the 0.1 percent of GDP—from GH¢62,010 million (25.7 percent GDP) to large fiscal deficits. The fiscal deficit was reduced GH¢61,657 million (25.5 percent GDP). Recent Economic Developments and Outlook 11 with Ghana Gas, and as a result, Ghana Gas has not decision by the previous Government to fast-track IPP paid the Government its participation interests. In contracting (through noncompetitive processes) led response to the low revenue, the Government made to power purchase agreements (PPAs), well in excess cuts to both the recurrent and capital expenditures, a of demand. If no corrective measures are taken, the strategy it also implemented in 2017. As a result, the capacity charge for the excess capacity, could rise to as total expenditure (including arrears clearance) was 19.9 high as US$680 million per year (1 percent of GDP). percent of GDP, 3.2 percentage points below the revised This represents a sector-wide unsustainable financial annual budgeted amount, significantly offsetting the situation that needs to be urgently addressed to avoid revenue underperformance. Consequently, the 2018 a large negative fiscal impact. The Government’s com- fiscal deficit on a cash basis (excluding financial sector mitment to develop a comprehensive Energy Sector clean-up and bank capitalization) narrowed to 3.8 per- Recovery Program (ESRP), is an important first step cent of GDP (Figure 2.3.2; and Annex 1), in line with to bring the sector back to financial sustainability. the target set under the IMF program. The primary balance (excluding the financial sector cost) further … and domestic resource mobilization improved from the 2017 level to 1.9 percent of GDP remains weak. but this reduces to 0.5 percent of GDP without oil revenue. The trend continued in 2018 as the primary There is an urgent need to fundamentally balance further increased to a surplus of 1.9 percent of improve revenue mobilization, through tax compli- GDP (however, the primary balance including financial ance and broaden the tax base. An effective domestic services cost and excluding oil revenue was a deficit of resource mobilization strategy is an urgent imperative 2.6 percent of GDP [Annex 1]). 2019 fiscal data has for the Government as the reduction of expenditures, not been released by the time of writing this report. including public investment, in response to revenue underperformances may not be sustainable given the … but contingent liabilities are building up pressures to implement election promises (World in SOEs … Bank 2018b). Better use of taxpayer information through the integration of data and analytical report- A number of State-Owned Enterprises ing could help the Ghana Revenue Authority improve (SOEs) build up liabilities that are not separately tax compliance. In addition, accelerating the process accounted for in the budget. The market value of all of bringing together the Total Revenue Integrated Government stakes in SOEs was estimated at US$9.1 Processing System (TRIPS) and the Ghana Customs billion (in 2016), equivalent to about 20 percent of Management Systems (GCMS) into an Integrated GDP (GoG-Deloitte 2018). The state’s investment Data Warehouse could substantially improve the performance varies and returns on invested capital in effectiveness of tax administration. Furthermore, SOEs are not always positive; in fact, between 2012 streamlining tax incentives as recommended in the and 2016, they were positive on average only in one 2017 World Bank’s Public Expenditure Review could year (with 1.3 percent ROIC in 2014). In addition, reduce tax expenditures, which have a considerable due to lack of proper oversight, SOEs are building up fiscal cost (5.2 percent of GDP; World Bank 2017). liabilities that are not accounted for in the budget. For New tax measures should be reviewed against their instance, the Energy sector accumulated approximately social and economic objectives to allow prioritization US$2.7 billion of arrears in 2018 (about 4.2 percent of of the tax regime. For instance, zero-rating tends to GDP) and the amount is expected to grow, due to a sig- reduce prices more than outright VAT exemptions and nificant revenue shortfall, which was US$789 million hence, zero-rating may serve as a policy option in a (about 1.2 percent of GDP) in 2018. In addition, the case where Government intends to reduce tax burden 12 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION on consumers. On the other hand, tax expenditures fact that the external debt indicators have significantly targeting consumer goods that produce no positive improved relative to the previous DSA on account of a social or economic spillovers should be rationalized. rebased GDP, but vulnerabilities associated with debt service remain. Two out of four indicators–debt service The rebasing of the GDP has helped the to exports and debt service to revenue—are in breach debt situation … of the thresholds under the baseline. The debt outlook remains sensitive to standard shocks under the DSA. Fiscal policy outcomes over the past years have The standard stress tests suggest that Ghana is particu- had a clear and real impact on debt levels in Ghana. larly vulnerable to a decline in exports, confirming the While Ghana was one of the first countries to benefit need to diversify the economy and increase resilience from HIPC/MDRI debt relief, recent macro-fiscal to external shocks (Figures 2.3.4–2.3.5). dynamics have resulted in a marked increase in debt Ghana issued its seventh, three-tranche (7-years, levels. Prior to the debt relief, Ghana’s debt averaged 12-years and 31-years) Eurobond on March 20th, 145.8 percent of GDP on average between 2000 and 2019, which amounted to US$3 billion. The cou- 2003. Debt relief reduced Ghana’s public debt-to-GDP pon rates were 7.85 percent for the 7-year (US$750 ratio to 78.5 percent by 2005 and to 26.2 percent by million) bond; 8.13 percent for the 12-year (US$1.25 2006. However, Debt-to-GDP (rebased GDP) reached billion) bond and 8.95 percent for the 31-year (US$1 57.2 percent in 2018;4 and the ratio is expected to peak billion) bond (See Table 2.3). Out of the US$3 bil- at 58.9 percent in 2019 despite the nearly 25 percent lion total bond issued, US$2 billion will be used for increase in GDP due to the rebasing in September budgetary financing while US$1 billion for liability 2018. (Figure 2.3.6). Contingent liabilities from management operations. It is anticipated that the energy SOEs represent a material risk to debt sustain- Eurobond issuance will not significantly raise the for- ability as shown in the latest 2019 IMF/World Bank eign currency-related debt (which fell in the second Debt Sustainability Analysis (DSA). The downward half of 2018 due to exit of non-residents from the trend in the debt-to-GDP ratio was interrupted in market). Furthermore, it is expected to contribute 2018, reflecting the realization of significant contin- to higher reserves, thus, also mitigating public-sector gent liabilities in the banking sectors. exchange rate risk. And indeed, the downward trend of the exchange rate halted in the same week that the …but Ghana remains at high risk of debt issuance took place. Bids submitted exceeded US$21 distress billion (six times)—compared to just over US$8 bil- lion in bids recorded in 2018. This reflects how well The latest 2019 IMF/World Bank DSA main- Ghana has performed on the international capital mar- tains Ghana’s high risk of debt distress. The baseline ket since the country’s debut Eurobond issue in 2007. assumes real GDP growth of about 5.5 percent over the At US$21 billion demand, this was the highest ever medium term and 4.3 percent over the long term; mod- order-book for bonds issued in Sub-Saharan Africa. eration of inflation in line with the authorities’ target of Also, the 31-year bond has the longest-ever tenor for 8 ± 2 percent; sustainable fiscal position with an average bonds issued by an African sovereign. The particularly primary surplus of 1.6 percent of GDP and a long-term high demand is likely related to the interest rate; Benin, surplus of 0.4 percent of GDP; and a current account for instance, issued a EUR328 million 7-year bond on deficit of about 5 percent over the medium term, the same day with a rate of 5.75 percent (Table 2.2). eventually falling to around 4 percent of GDP over the long term. Under these assumptions, Ghana will 4 The December 2018 stock comprises external debt of GH¢86.2 billion remain at a high risk of debt distress. This is despite the (US$ 18.0 billion) and domestic debt of GH¢ 86.9 billion (US$ 17.9 billion). Recent Economic Developments and Outlook 13 TABLE 2.2: Government of Ghana International Bond Issuance Eurobond Issue Year Amount (US$ Million) Yield Maturity First 2007 750 8.50% 10 years Second 2013 1000 7.88% 10 years Third 2014 1000 8.13% 12 years Fourth 2015 1000 10.75% 15 years Fifth 2016 750 9.25% 6 years Sixth 2018 2000 1000 7.63% 10 years 1000 8.63% 30 years Seventh 2019 3000 750 7.85% 7 years 1250 8.13% 12 years 1000 8.95% 31 years Source: Ministry of Finance and Bloomberg. Interest rate risks are a still a concern for both 2019, with issuance of the US$3 billion Eurobond in external and domestic debt with mixed develop- March 2019 (Table 2.3). In 2018, like all other years, ments in recent times. While the weighted average the main exposure is to the U.S. dollar (57 percent of interest rates for domestic debt has fallen from 20.0 the total external debt), followed by the SDR (24.4 per- percent in 2016 to 16.4 percent as at end September cent) and then the Euro, accounting for 11.1 percent 2018, that of external debt has increased marginally, by (Figure 2.3.4). The composition of external debt is in 0.2 percent as at end September 2018. The domestic line with the strategic benchmark of 65 percent U.S. debt portfolio showed an increase of its Average Time dollar exposure (+/– 5 percent). However, the overall to Maturity (ATM) from 7.2 in December 2017 to share of foreign exchange denominated debt in the 7.8 years in September 2018. The ATM of the external portfolio fell significantly in 2018 due to reduced net debt also improved from 9.1 years at the end of 2017 portfolio inflow due to favorable developments of the to of 10.0 years as at end September 2018. The Average U.S. market. Even though the nominal exchange rate Time to Re-fixed (ATR) of the total debt portfolio was relatively stable in 2018, with recent depreciation as at end September 2018 improved to 8.7 years, an of the cedi in the first quarter of 2019 (Figure 2.2.1) as improvement from 7.2 years in 2016 (Table 2.3). The an example, combined with the relatively higher pro- share of the overall public debt portfolio requiring portion of external debt, Ghana’s public debt portfolio re-fixing within one year declined from 25.9 percent is still vulnerable to exchange rate volatility. in 2017 to 24.7 percent in September 2018 largely due to the re-profiled short-term domestic debt and External Sector the relatively small proportion of variable-rate external debt. This is further expected to reduce to 17.2 percent Ghana’s merchandise trade balance shifted to sur- in 2019 (Table 2.3). plus, and the current account deficit almost halved In addition, over half of the total government in 2017. Merchandise exports grew by 24.2 percent debt is exposed to exchange rate risk. As at September while imports fell by 1.7 percent, resulting in a trade 2018, Ghana’s debt portfolio carrying exchange rate risk surplus and a narrowing of the current account deficit had fallen to 49.1 percent from December 2017 level from 6.7 percent of GDP in 2016 to 3.4 percent of of 52 percent but is project to rise to 54.6 percent in GDP in 2017 (Figures 2.4.1–2.4.2). 14 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION FIGURE 2.3: Fiscal Sector 1) Public revenue outturn (% of GDP): 2018 2) Fiscal Performance (% of GDP): 2014–2018 7 25 23.4 22.6 21.8 6 20.9 20 19.9 17.8 5 15.9 15.7 16.2 15.9 15 Percent of GDP 4 Percent 3 10 2 5 1 0 0 –1 –5 –3.8 –4.9 –4.9 –4.8 –4.8 –6.1 –6.1 –7.4 –7.4 –7.2 –2 –10 Direct Indirect Trade Other Grants 2014 2015 2016 2017 2018 taxes taxes taxes revenue Outturn (non-tax) Total revenue and grants Total expenditure Overall balance 2018 revised budget (LHS) 2018 outturn (LHS) Deviation (RHS) Overall balance including Financial Sector cost 3) Public expenditure outturn (% of GDP): 2018 4) Public DSA: PV of debt-to-GDP ratio 7 0.6 120 6 0.4 100 5 0.2 80 4 Percent 0.0 3 60 –0.2 2 40 Most extreme shock is Growth 1 –0.2 0 –0.6 20 Wages and salaries Goods and services Interest Payments Grants to other governments units Other expenses Net acquisition of nonfinancial assets Domestic finance capex Foreign financed capex Discrepancy 0 2018 2020 2022 2024 2026 2028 Public debit benchmark Most extreme shock 1 2018 revised budget (LHS) 2018 outturn (LHS) Deviation (RHS) Baseline Historical scenario 5) External DSA: PV of debt-to-GDP ratio 6) Public external and domestic debt: 2014–2018 60 8 70 50 WAMZ Target 7 60 6 40 50 5 Percent Percent 40 4 30 30 3 20 20 2 10 10 1 Most extreme shock is Exports 0 0 0 2014 2015 2016 2017 2018 2018 2020 2022 2024 2026 2028 Public sector domestic debt (% of GDP) Historical scenario Most extreme shock1 Public sector external debt (% of GDP) Baseline Threshold Interest Payments GDP (RHS) Source: 2.1–3: Ghanaian Ministry of Finance; 2.4–5: Joint IMF-World Bank DSA (March 2019, forthcoming); 2.6; IMF and Ghanaian Ministry of Finance. Note: 2.4–5: 1 The most extreme stress test is the test that yields the highest ratio on or before 2028. Public DSA includes domestic and external public debt. Recent Economic Developments and Outlook 15 TABLE 2.3: Comparison of Debt Risk Indicators, 2016 and 2017 2016 2017 2018 2019 Dec Dec Dec Proj Cost of debt Weighted Av. IR (percent) 11.4 10.6 10.7 10.5 Refinancing risk ATM (years) 7.7 8.2 8.7 9.3 Debt maturing in 1yr (percent of total) 28.1 17.7 17.6 12 Interest rate risk ATR (years) 7.2 7.9 8.5 8.3 Debt re-fixing in 1yr (percent of total) 38.7 25.9 24.1 17.2 Fixed rate debt (percent of total) 87.5 90 91.9 87.8 FX risk FX debt (percent of total debt) 55.7 52 48.5 54.6 ST FX debt (percent of reserves) 23 14.8 14.1 17.2 Local currency debt (by non-resident) 23 14.8 14.1 15.3 Source: Ministry of Finance. Ghana’s merchandise trade data in 2018 contin- March 2018 levels of a deficit of US$0.6 billion (0.9 ued to record surpluses indicating stronger perfor- percent GDP). As a result, the current account balance mance in earnings from oil. Ghana’s external position narrowly expanded to a surplus of 0.4 percent of GDP continued to improve at the end of 2018, which reflects in March 2019 compared to a surplus of 0.3 percent continued increases in oil exports (Figure 2.4.3). The in 2018; while the country’s reserves improved signifi- trade balance for 2018 showed a surplus of US$1,779 cantly at the end of March 2019 (see Paragraph 15). million compared to a smaller surplus of US$1,151 million recorded in 2017. The value of merchan- The current account has improved with the dise exports was US$14,868 million compared to trade balance turning into surplus. US$13,836 million recorded for the same period in 2017, representing 7.5 percent growth, year-on-year. The improvement of the current account of The increase was attributable to improvement in export the balance of payments continued into 2018, but receipts from oil and non-traditional exports which lower than expected capital inflows led to a draw- benefited, to a large extent, from higher volumes of down in international reserves. The current account exports. Trade data in the first quarter of 2019 was deficit of 3.2 percent of GDP was primarily financed similar to trends in 2018. Trade balance at the end of by Foreign Direct Investment, which fell slightly to March 2019 was US0.8 billion (equivalent to 1.2 per- 4.5 percent of GDP in 2018 (from 5.6 percent of cent of GDP) compared to US$0.7 billion (1.1 percent GDP in 2017). Lower than expected foreign capital of GDP) recorded in April 2018. This was mainly as inflows narrowed the capital and financial account to a result of decrease in value of both oil and non-oil an estimated surplus of only 1.7 percent of GDP. This imports (from US$3.3 billion in April 2018 to US$3.2 was driven by a rapid decline in inflows through port- billion in 2019), while exports remain at same levels a folio investment (Figure 2.4.4), which was 1.4 percent year ago. The capital and financial account continued of GDP in 2018 (down from 4.4 percent of GDP in to improve in the first quarter of 2018 increasing to 2017). In 2018, just like many EMDEs, Ghana was US$2.9 billion (4.2 percent of GDP) from December on the receiving end of stifled portfolio investments 2018 levels of US$1.5 billion (2.3 percent GDP); and net inflows as foreign investors sought to rebalance 16 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION FIGURE 2.4: External Sector 1) Ghana’s Current Account and FDI Inflows: 2014–2018 2) Selected Export Commodities: 2014 to 2018 16 20 14 18 16 12 14 Percent of GDP 10 $ billions 12 8 10 6 8 6 4 4 2 2 0 0 2014 2015 2016 2017 2018 (est) 2014 2015 2016 2017 2018 (est) Foreign direct investment Current account deficit Gold exports Cocoa & products exports Crude oil exports 3) Ghana’s Trade Balance: 2014–2018 4) Selected BoP Indicators 2014 to 2018 16,000 8.0 14,000 7.0 12,000 6.0 10,000 5.0 Percent 8,000 $ millions 4.0 6,000 3.0 4,000 2,000 2.0 0 1,0 –2,000 0.0 –4,000 –1.0 –6,000 2014 2015 2016 2017 2018 (est) 2014 2015 2016 2017 2018 (est) Foreign direct investment (net) Portfolio investment (net) Merchandise exports Merchandise imports Trade balance Capital and financial account (net) Official financing (net) Source: 4.1–4: Bank of Ghana. their portfolio due to favorable developments of the Ghana’s medium-term economic prospects is posi- U.S. market leading to their repatriation of coupons tive, with economic growth expected to accelerate and principals. Official financing (aid) registered a net to 7.6 percent in 20195. The primary driver of growth outflow in 2018 in the order of 0.5 percent of GDP, is the oil sector, reinforced by non-oil growth, which compared to 0.6 percent in 2017. As a result, both gross and net international reserves declined (More is expected to remain strong at 6.2 percent as policy details from BoP statistics are shown in Annex 2). interventions in agriculture and industry are expected revitalize the productive sectors. Further reforms in Macroeconomic Outlook and Economic Policy Challenges 5 First quarter 2019 growth data is not yet published; but the Stanbic IBTC Bank Ghana Purchasing Managers’ Index (PMI), a leading in- dicator for economic sentiment, increased slightly from 51.3 points in Economic growth will remain strong, with February to 51.5 in March 2019. A reading above 50 points indicates improving business sentiment; the increasing trends reflected sustained inflation in single digits. growth in new orders in March, amid signs of improving demand (Fo- cusEconomics, May 2019). Recent Economic Developments and Outlook 17 the regulatory environment for the private sector, and growth in the medium-to-long-term. The government efforts to facilitate regional and international trade needs to improve on the economy’s competitiveness will support the agribusiness sector and strengthen for private sector-led investments in the non-oil sector the link between private sector development and for growth. Without that, total factor productivity is jobs creation. Overall, real GDP growth is expected projected to decline marginally over the medium term to average nearly 7 percent between 2019 and 2021 and the growth momentum will gradually come from as the impact of the short-term increase of oil and more capital accumulation (Figure 2.5.3). gas production fades, while an average of 6.5 percent Inflation is projected to remain within the growth is projected for the non-oil sector over the BoG target range of 6–10 percent over the medium medium term (Figures 2.5.1–2.5.2). To facilitate the term, subject to the normalization of exchange rate transition toward a more diversified economy, there pressures. Annual inflation rates are projected to is a need to invest Ghana’s current natural resource remain in single digits over the medium term as the wealth in non-natural resource sectors for sustainable fiscal deficit is contained within the 5 percent cap of FIGURE 2.5: Economic Outlook 1) GDP growth (supply side) 2) GDP growth (demand side) 18.0 30.0 16.0 20.0 14.0 10.0 12.0 0.0 Percent Percent 10.0 8.0 –10.0 6.0 –20.0 4.0 2.0 –30.0 0.0 –40.0 2014 2015 2016 2017 2018 2019 2020 2021 2014 2015 2016 2017 2018 2019 2020 2021 Agriculture Industry Services Private Consumption Government Comsumption GDP growth NON–oil GDP growth Gross Fixed Investment Total 3) Determinants of potential output 4) Fiscal balances 9.0 25.0 21.1 21.6 21.9 8.0 19.8 20.0 17.3 17.1 17.1 7.0 15.9 15.0 6.0 Percent of GDP 10.0 Percent 5.0 4.0 5.0 3.0 0.0 2.0 1.0 –5.0 –3.8 –4.0 –4.4 –4.4 –4.5 –4.5 –5.6 –7.2 0.0 –10.0 2018 Proj 2019 Proj 2020 Proj 2021 Proj 2021 2014 2015 2016 2017 2018 2019 2020 Outturn Real GDP TFP Capital Stock Total revenue and grants Total expenditure Potential GDP Working age population (15–64) (mil) Overall balance including Financial Sector cost Overall balance Source: World Bank staff projections based on data from the Ghanaian Ministry of Finance. 18 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION the fiscal rule, and non-food inflation remains low as interest payment is expected to rise, in line with the reserve buffers are rebuilt. This will allow the central higher interest rates and the depreciation of the cedi bank to continue the gradual lowering of the policy (Table 2). The overall fiscal deficit for 2019, exclud- rate to facilitate increases in domestic credit to the ing financial sector clean-up cost, is projected at 4.0 private sector in line with the medium-term growth percent of GDP—marginally above the outturn of objective. The lower inflation-cum-lower interest rate 3.8 percent for 2018 (Figure 2.5.4). environment will be supported by better coordina- Government revenues in 2019 are supported tion of monetary and fiscal policy. This will allow the by measures, which the Government started inflation targeting framework adopted by the BoG implementing in the second half of 2018. Revenue to be more effective in maintaining low inflation measures introduced in the 2018 midyear budget are in line with the medium-term target, based on low expected to be fully realized in 2019. To complement and stable inflation expectations in the economy. It collection efforts of the Ghana Revenue Authority will be important to gradually lower inflation even (GRA), a medium-term revenue policy is expected below the lower range of the BoG target to ensure to be rolled out in 2019. Several revenue-enhancing that the poor, who are primarily engaged in non-oil strategies will be adopted in 2019 including the inten- economic activities can sufficiently increase their real sification of revenue compliance. An Exemptions Bill incomes to escape poverty. The inflation outlook, is under preparation is expected to rationalize exemp- however, subject to recent flipping of the cedi’s per- tions and strengthen the power of the Minister for formance against the U.S. dollar. In the first quarter Finance to minimize exemptions. The Government is of 2019, the cedi cumulatively depreciated against also committed to broadening the tax base with the the dollar by 3.9 percent compared to a cumulative mandatory rollout of the Tax Identification Number appreciation of 1.9 percent for the same period in (TIN) by sanctioning state and private entities that 2018 (Figure 2.2.1). The performance of the cedi, fail to enforce these TIN requirements. Over the therefore, provides significant risk to the inflation medium term, the Government, with support under outlook which is already relatively high, close to the the World Bank Ghana Economic Strengthening central bank’s upper band target of 10 percent. Project, will be able to use Third-party data/intelli- gence from National Identification Authority, Driver Fiscal consolidation will slow but remain Vehicle Licensing Authority, Law Enforcement within the fiscal rule over the medium-term. Agencies among others, to bring more persons into the tax net. Fiscal consolidation is expected to slow in 2019 The overall fiscal deficit is not expected to (largely due to the financial sector clean-up) but to exceed 4.5 percent of GDP over the medium term— remain intact over the medium term. For 2019, the in line with the fiscal responsibility law passed Government projected total revenues, including grants in 2018. The Government has put in place various of 17.1 percent of GDP. This represents a growth of mechanisms to internalize fiscal restraint since 2016. 20 percent over the nominal level for 2018, well above This includes the enactment of the Public Financial the projected inflation rate of 8 percent. The forecast Management Act (PFMA) in 2016 which mandates for non-oil revenue in 2019 is 15.5 percent of GDP the adoption of numerical fiscal rules. In line with the to be achieved through gains from ongoing reforms PFMA, the Government passed a Fiscal Responsibility in revenue administration and improved tax compli- Act in December 2018, resulting in the legal establish- ance. Non-interest expenditure is expected to fall over ment of the fiscal rule by setting a ceiling to the over- the medium term as Government continues measures all cash budget deficit at 5 percent of GDP. A Fiscal to control the wage bill and transfer payments, but Responsibility Advisory Council was also established Recent Economic Developments and Outlook 19 BOX 2.1: Procyclicality, the Election Cycle and the Fiscal Responsibility Law Ghana has suffered from large fiscal volatility around election cycles for the past two decades. This volatility has been identified as one of the key challenges for Ghana’s future development path in the 2018 World Bank Systematic Country Diagnostic (SCD). Fiscal deficits increased sharply and above 5 percent of GDP in all but one election year since 2000 (that is, 2004). And the level of overshooting in fiscal election cycles has increased over the past decade with the discovery of offshore oil fields in 2007 (World Bank SCD 2018: p.32). Between 2005 and 2012, public expenditure rose rapidly—related to increased spending on wages due to the introduction of the single spine salary structure (World Bank 2017)—from 20 to 30 percent of GDP . Fiscal policy in Ghana is notably procyclical. Procyclical policy reinforces rather than smoothens economic cycles. The cyclicality of public expenditure can be measured as the correlation between the cyclical components of real government expenditure and real GDP (the business cycle). Ghana was among the most procyclical countries over the period 1980 to 1999, with a correlation of 0.7 (Box Figure 1a). And there is a clear bias toward overspending during good times, which explains why procyclicality is higher in boom than in bust periods (Box Figure 1b). Strikingly, Ghana has become even more procyclical in the recent period 2000–17, while many countries were able to leave fiscal procyclicality behind. The procyclicality is related to both the commodity and electoral cycles. The dynamics of the cyclicality over the business cycle can be assessed through estimating a time-varying measure of the fiscal pro-cyclicality using the Local Gaussian Weighted OLS method (Box Figure 1c). There is a clear relation of procyclicality and the commodity and electoral cycles; between 1990 and 2016, four phases of procyclicality can be observed: First, a substantial reduction of procyclicality in the 1990s following BOX FIGURE 1: Procyclicality of Government Expenditure in Ghana Cyclical Real Government Expenditure and Cyclical Real GDP 1.0 VEN Returned to AGO AZE CAF ARG Established 0.8 Procyclical CIV Procyclical ECU BRA SDN YEM 0.6 Correlation, 2000–2017 COG GNO LBY TKM KEN COL BOL SEN IND TTO OMN ALB Ghana 0.4 TJK BEN UZB BLZ GAB QAT RUS TCD MMR 0.2 TZA MAR SAU PRY UGA PNG 0 KWT HDN GTM BRN GNB –0.2 DZA GUY –0.4 CRI KGZ BHR Established CHL MYS Returned to –0.6 ARE Countercyclical Countercyclical –0.8 –1.5 –1.0 –0.5 0 0.5 1.0 1.5 Income Group: High Upper-middle Lower-middle Low Correlation, 1980–1999 Cyclical Real Government Expenditure and Cyclical Real GDP 1.2 Returned to Ghana Established 1.0 MOZ MDG Procyclical AGO AZE Procyclical 0.8 BRA Correlation, Boom Episodes CAF UKR ARG LRY ECU VEN 0.6 NGA COL URY SEN QAT ALB PER YEM 0.4 UGA HND BLZ OMN MMR 0.2 ZMB MAR COG ZAF KAZ TZA LAO 0 PRY KWT SAU –0.2 CRI GUY MWI RWA BHR –0.4 KGZ DZA GTM MYS CHL –0.6 Established Returned to ARE –0.8 Countercyclical Countercyclical –1.0 –1.0 –0.5 0 0.5 1.0 1.5 Income Group: High Upper-middle Lower-middle Low Correlation, Bust Episodes (continued on next page) 20 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION BOX 2.1: Procyclicality, the Election Cycle and the Fiscal Responsibility Law (continued) BOX FIGURE 1: Procyclicality of Government Expenditure in Ghana Time-varying GDP Elasticity of Government Expenditure: Ghana and the Average of lower-middle income among Commodity- Exporting EMDEs 3.5 2000 Electtions 2008 Elections 3.0 2.5 2.0 Discovery of Jubilee Oil Field 1.5 1.0 0.5 0 1990 ´91 ´92 ´93 ´97 ´95 ´94 ´96 ´98 ´99 2000 ´01 ´02 ´03 ´04 ´05 ´06 ´07 ´08 ´09 ´10 ´11 ´12 ´13 ´14 ´15 ´16 Ghana Lower-middle Source: World Bank staff own calculations, using data from IMF (WEO). Notes: (1) Definition of four quadrants follows the logic of the country classification of Frankel et al. (2013) in their 1960–2009 analysis: Established countercyclical: Historically always been countercyclical; Established procyclical: Historically always been procyclical; Returned to procyclical: Historically been countercyclical but turned procyclical over last decade; Returned to countercyclical: Used to be procyclical, but countercyclical over the last decade. (2) Cyclical components estimated using Hodrick-Prescott (HP) filter 100. The group of countries displayed in panels (a) and (b) are commodity-exporting EMDEs. the fiscal reforms of the 1980s. Second, procyclicality increased sharply in the run-up to the 2000 election. Third, procyclicality trends remained stable over most of the 2000s, when fiscal policy was conducted under a “quasi-fiscal rule” during the beginning of John Kufuor’s government. Fourth, the discovery of oil in 2007 and the approaching 2008 elections set the procyclicality on a rising trend all the way to 2017. In an attempt to overcome the fiscal election cycles, Ghana introduced a fiscal responsibility law and a Fiscal Council in December 2018. The law establishes a de facto 5 percent cap on fiscal deficits in any given year. While this is a relatively high annual ceiling (the West Africa Monetary Zone primary convergence criteria for fiscal deficit is 4 percent of GDP), it is a suitable target to contain excessive fiscal over-expenditure in election years, where deficits tend to overshoot. While the exact implementation of the Fiscal Council, which ideally would be an independent body, is still the subject of public discourse in Ghana, the establishment of the law and the council are critical steps toward a sustainable long-term fiscal path. The next election cycle (2020) will likely fall into a boom phase. In a stark contrast to the mere 3.4 percent real GDP growth in the last cycle (2016), growth is expected to be above 6 percent over the period 2019 to 2021 (World Bank 2019a), and potentially higher if oil output can be increased in the short-term. The macro-fiscal economy is largely back on track after years of adjustment, supported by the World Bank and the IMF. This means that Ghana will go into the next fiscal election cycle in 2020 from a much stronger position than in 2016. There are downsides as well, of course, as witnessed by the recent banking sector resolutions, which cost the equivalent of 3.4 percent of GDP in 2018. But the medium-term fiscal outlook is still positive. With the fiscal responsibility law and the fiscal council now in place, the 2020 election provides a unique opportunity to break the ever- increasing fiscal election cycles as strong economic growth in the medium term does not require additional fiscal stimulus in 2020. to act as an advisory body to the President. While discourse in Ghana, the establishment of the law the deficit ceiling is relatively high to act as an annual and the council are critical steps toward a sustain- guidepost, and the exact role of the Fiscal Council able long-term fiscal path (see Box 2.1). Importantly, (which ideally should be an independent body with these efforts need to be complemented by policies to sanctioning authority) is still the subject of public increase domestic revenue, another area of focus for Recent Economic Developments and Outlook 21 the Government,6 and prudent expenditure manage- of imports) to US$7.1 billion in 2021 (2.9 months ment; a booming economy in 2020 will not require of imports), falling just short of the recommended additional, procyclical fiscal stimulus. With the new three-month import cover. institutional mechanisms now in place, the 2020 Financial sector challenges are expected election provides a unique opportunity to break the to remain over the medium term. In 2019, the ever-increasing fiscal election cycles. Government will need to continue with the ongoing interventions to fully resolve these challenges (see The current account will narrow further, but Section 3 for the state of Ghana’s financial sector the financial sector will remain challenging. and specific interventions planned by government for 2019 and the medium term). Improving financial Ghana’s external position is expected to remain inclusion will be an important element to deepen at current levels over the medium term with a cur- the financial sector. Financial inclusion means that rent account deficit of between 3 and 3.5 percent individuals and businesses have access to useful and between 2019 and 2021. Ghana’s trade balance is affordable financial products and services that meet expected to remain in surplus over the medium-term their needs. Chapter 2 of this Economic Update supported by high volumes of oil and precious min- focuses on the specific challenges for a more inclusive erals (which could offset possible marginal declines financial sector. in their prices); as well as projected marginal price increases of cocoa. For the year 2019, even though the trade surplus is expected to narrow, relative to the 2018 levels, improvements in the net services 6 The Government anticipates that enhanced revenue administration and income accounts as well as net transfers are would reduce exemptions and increase tax compliance in a way that expected to help maintain the lower current account would boost overall tax revenues by about 0.5 percent of GDP over the medium term. The law on tax exemptions is expected to be passed by the deficit of the balance of payments at 3.2 percent of Parliament in 2019. Total expenditure is expected to rise by just under 2 GDP. The current account deficits will be adequately percentage points of GDP in 2019 but increases thereafter are expected to be relatively modest. The two main drivers on the expenditure side covered by foreign direct investment (FDI), as well will be interest payments and capital spending. The earnest expansion as official and private financing to result in net addi- of the GIFMIS financial module to cover four Statutory Fund Agencies and 216 MMDAs in 2018 is an indication of the Government’s com- tions to reserves. Thus, gross reserves are expected to mitment to better control spending and meet it fiscal targets following increase from US$5.3 billion in 2018 (2.7 months the end of the IMF program. 23 FINANCIAL SECTOR DEVELOPMENT AND FINANCIAL INCLUSION 3 Universal banks are dominant, with assets equivalent Alongside the rapidly increasing financial sector since 2010, the share of Ghanaians with access to formal financial to 46 percent of GDP in 2017, followed by the fund services—a measure of financial inclusion—has increased. management sector with 15 percent, and pension funds Financial inclusion means that individuals and businesses with 12 percent. A significant part of the financial sec- have access to useful and affordable financial products and services that meet their needs. But access to financial services tor is state owned, and the level has increased in 2018. is heterogeneous across regions and key demographics. As of 2016, there were 15 banking institutions that Rural access to formal financial accounts is low, but almost were at least partially state owned, and the financial doubled between 2011 and 2017, due to a rising market share of NBFI. Women are less financially included than men SOEs represented one-fourth of all active state-entities in Ghana. Yet, excluding women from access to financial in Ghana (GoG-Deloitte 2018). As of 2018, the state services means widespread lost opportunity for their owned four major banks, two of which are among the households and the economy as a whole. Not surprisingly, three largest in Ghana. While private credit to GDP the poor have significantly lower access to formal financial services than the non-poor. Insufficient financial literacy is an (18 percent in 2017) is on par with the Sub-Saharan important long-term factor for low savings rates in Ghana, median, it is below the level implied by Ghana’s level and more broadly, financial illiteracy suppresses consumers’ of income (FinStats 2018). Likewise, domestic credit to demand for financial services. In addition, persistently high interest rates in Ghana are a major barrier to affordable the private sector is low in Ghana (World Bank 2018d). access. But despite all the challenges, there has been The banking sector is affected by high, albeit significant growth in the number of financial access points declining non-performing loans (NPLs). The bank- over the past five years, primarily related to the spread of mobile money. This indicates the potential of DFS and wide capital adequacy ratio (CAR) stood at 20 percent payments to further enhance financial inclusion in Ghana. in December 2018, up from 18 percent a year earlier In the meantime, Ghana has a banking sector that has been and well above the regulatory minimum of 10 percent facing serious soundness challenges, which after years of build-up culminated in 2018 with a series of necessary and and the BoG’s recommended level of 13 percent. The expensive banking resolutions. Bringing the financial sector increase in CAR was in part due to the new minimum back on track is urgent and will require additional efforts in capital that came into force on December 31, 2018. 2019, and over the medium term. The system is liquid, with the ratio of liquid assets to short-term liabilities of 34 percent in December 2018, largely stable since 2014. Average after-tax profitabil- The State of the Financial Sector in ity–measured by the return on equity–stood at 18.5 Ghana percent in December 2018. The average gross NPL ratio declined from 21.6 percent in December 2017 to 18.2 Reducing financial sector vulnerability will percent in December 2018, in part due to the closure of require more effort in 2019 problem banks, write-offs of NPLs, and settlement by the Government of the energy sector SOEs’ debt. The The financial sector in Ghana has grown rapidly private sector, being the largest recipient of outstanding since 2010 but remains bank-dominated and rela- credit balances also accounted for the greater propor- tively shallow. Total financial sector assets grew from tion of banks’ NPLs, only slightly decreasing from the 53 percent of GDP in 2010 to 78 percent in 2017. December 2018 levels of 97.1 percent to 96.9 percent 24 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION in February 2019. The proportion of banks’ NPLs In addition to banks, there are many attributable to the public sector declined from 7.3 (non-bank) SDIs and informal institutions, which percent in December 2017 to 2.9 percent in December often serve the least financially included segments 2018 but has slightly increased to 3.1 percent attributed of the population. These institutions are primar- to increases related to public enterprises. Most private ily regulated by BoG7 and include Microfinance sector non-performing loans were debts of indigenous Companies (MFCs), Micro Credit Companies enterprises accounting for 75.4 percent of total NPLs (MCCs), and Financial NGOs—jointly classified in February 2019. as Microfinance Institutions (MFIs); Rural and The authorities have taken commendable steps Community Banks (RCBs); Susu Collectors; Savings to address soundness challenges in the banking sec- and Loans Companies (S&Ls); and Finance Houses tor. In the August of 2018, BoG closed five domesti- (FHs). As a group, SDIs account for around 14 percent cally owned universal banks – uniBank, Royal Bank, of banks. In terms of size, S&Ls and FHs are relatively Beige Bank, Sovereign Bank, and Construction Bank, larger and focus on consumer lending, while RCBs with their assets and liabilities transferred to a bridge are owned and governed by local communities and bank (the CBG). The CBG was capitalized by the tend to have broader outreach, offering savings, credit, Government of Ghana, and a domestic bond was and payment services to less included groups such as issued to cover the gap between the liabilities and the women, the poor, and rural residents. Moreover, there good assets transferred to the CBG. Earlier in 2018, are informal financial services providers such as Village the Government also issued a bond to cover the gap Savings and Loans Associations (VSLAs). between the liabilities and the good assets of UT Many SDIs are not operating in a safe and sound Bank and Capital Bank and facilitate their purchase manner and are in violation of prudential norms. and assumption by GCB. The total fiscal cost of these Not all the SDIs are currently active because they have interventions amounted to 3.4 percent of GDP in either stopped reporting or have folded. Others are 2018. Finally, in January 2019, the authorities closed financially distressed, facing liquidity and/or solvency two more banks – Premium Bank and Heritage Bank. challenges. The BoG estimates that about a third of In addition to closing troubled banks, BoG has the 707 MFIs and RCBs are distressed or have folded, taken other measures to strengthen the banking sec- putting more than 700,000 depositors at risk (BoG tor. All commercial banks were required to meet a new 2017). Given that the most distressed entities have no minimum capital of GH¢400 million by end-2018, recoverable assets, their resolution entails fiscal costs. raised from GH¢120 million. This led to three merg- Moreover, a considerable number of active MFIs do ers, downgrading of one bank to a Savings and Loans, not comply with the minimum capital requirement.8 one voluntary winding up, and the establishment of In response to these challenges, BoG revoked licenses the Ghana Amalgamated Trust (GAT), a vehicle to pool funds from investors to acquire equity stakes in 7 S&Ls and FHs are under the BoG’s Banking Supervision Department five indigenous banks to enable them to comply with while the remaining institutions are under BoG’s Other Financial Institu- tions Supervision Department. The RCBs are also under the oversight the new minimum capital requirement. With the new of the ARB Apex Bank, with delegated functions from the BoG. Susu capital levels, banks are expected to be able to engage collectors and individual money lenders are supervised by Ghana Coop- erative Susu Collectors Association on behalf of the BoG. in relatively larger transactions, both individually and 8 As of June 30, 2017, the minimum capital requirements were GH¢7 through syndications. BoG is also strengthening super- million for S&Ls and FH; GH¢ 0.5 million for MFCs, MCCs, and RCBs; and GH¢0.3 million for FNGOs. The new minimum capital require- vision, including through enforcement of prudential ments are GH¢15 million for S&Ls and FHs (effective December 31, standards, implementation of a new capital require- 2018); GH¢ 2 million for MFCs and MCCs (effective June 30, 2018); GH¢1 million for RCBs (effective December 31, 2017); and GH¢0.3 ments directive, introduction of risk management and million for FNGOs (unchanged). Individual money lenders and Susu corporate governance directives, among others. collectors are not subject to minimum capital requirements. Financial Sector Development and Financial Inclusion 25 of 347 Microfinance Companies and 39 Micro-credit longer need to rely on and transact solely in cash or Companies on 31 May 2019. At the same time, Bank use their mattresses as savings cabinets (World Bank of Ghana is strengthening its regulatory and supervi- 2018c). Financial access connects people into the for- sory framework for SDIs, including reviewing licens- mal financial system, making day-to-day living easier. ing and supervisory policies and directives, reviewing As account holders, people are more likely to use other capital requirements and encouraging consolidation, financial services, such as credit and insurance, to start enhancing governance, and increasing resources avail- and expand businesses, invest in education or health, able for supervision (BoG 2019). manage risk, and weather financial shocks, which can Reducing financial sector vulnerability is improve the overall quality of their lives. Ultimately, urgent and will require additional efforts in 2019, more and better financial intermediation will have and over the medium term. In total, in 2019, the a positive impact on growth, mostly through lower government will have to spend an additional GH¢5.5 transaction costs and better distribution of capital and billion (equivalent to 1.6 percent of GDP) to solve risk across the economy (World Bank 2014). all challenges related to the MFIs, Savings and Loans, Alongside the rapidly increasing financial and the introduction of another resolution bond for sector since 2010, the share of Ghanaians with the CBG to support the closure of two additional access to formal financial services has increased. banks that took place in January 2019 (IMF 2019). According to Consultative Group to Assist the Poor The resolution of SDIs, which includes MFIs, S&Ls, (CGAP 2015) 58 percent of Ghanaians had access and FHs follows action plans developed by BoG. The to formal financial services in 2015, up from 41 Government is planning a phased approach of the percent in 2010 (Figure 3.1.1). While banks con- SDI-resolution agenda. The implementation of these tributed 36 of the 58 percentage points in formal action plans and stronger supervision and regulation access, they only contributed 2 of the 17 percentage of the sector will help mitigate vulnerabilities. The points increase between 2010 and 2015; conversely, Government has also established a Financial Stability mobile money alone accounted for 7 percentage Council integrating financial regulators and Ghana points of the increase, and mobile money and other Deposit Protection Corporation to, among other NBFIs—regulated MFIs, credit unions, insur- things, assess the vulnerability of the financial system ance companies, etc.—jointly accounted for the on an ongoing basis. To help strengthen resilience and remaining 8 percentage point increase. The share stability of the banking system, the authorities are of Ghanaians with a registered financial account expected strengthen the regulatory and supervisory (bank, NBFI, or mobile money account) was 48 framework and introduce roll-out a deposit insurance percent in 2015. More recent data (Findex 2017), scheme. The reform agenda for SDIs is supported by shows that the percentage of Ghanaians with reg- the World Bank. istered financial accounts increased to 58 percent in 2017, while the percentage with mobile money A Case for Financial Inclusion accounts increased from 13 to 39 percent between 2014 and 2017 (Figure 3.1.2). More financial inclusion is good for the Yet, some regions and key demographics economy … have only limited access to financial services. In terms of regions, the five poorest regions (Upper Financial inclusion means that individuals and West, Northern, Volta, Upper East, and Brong businesses have access to useful and affordable Ahafo) remain the least financially included, despite financial products and services that meet their the largest gains in financial inclusion taking place needs. With access to a financial account, people no in these areas between 2010 and 2015. Similarly, 26 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION rural residents, women, and the poor have less approximately US$13 million in savings and US$8.7 access to financial accounts compared to the aver- million in outstanding loans. The dropout rate among age population and their respective counterparts members is relatively low at 2.9 percent. (Figure 3.1.3). Women are less financially included than men in Ghana. The exclusion of women from financial … yet rural access is low, the poor and services is a prevalent phenomenon at the global level women are largely excluded from financial for a variety of reasons, including the fact that women services. often may not be aware of the services available to them or may be prevented from making use of them. Rural access to formal financial accounts is In addition, it is far too common that women lack low, but almost doubled between 2011 and 2017, collateral for loans, making them ineligible to access due to a rising market share of NBFIs. People liv- financial services (Grandolini 2015). In Ghana, female ing in remote areas usually face a physical distance inclusion continues to fall below the national average. to financial access when banks or other access points In 2017, 54 percent of women had an account with a are simply too far away to reach, unless long bus formal financial institution, compared to 58 percent rides can be afforded (World Bank 2012). Yet, rural for the general population and 62 percent of men. access in Ghana almost doubled, between 2011 and The percentage difference between female inclusion 2017, from 26 to 51 percent (Figure 3.1.4). Much and inclusion of the general population has widened of the growth in rural access has come from formal according to the Findex survey (one percentage points accounts being offered by NBFIs, that have grown difference in 2014 compared to a four percentage their footprints in underserved regions of the coun- points in 2017), suggesting that men are now being try, in a combination of mobile money and other included at a faster rate than women. non-bank formal institutions (World Bank 2016). Excluding women from access to financial ser- In fact, rural residents—such as women and the vices means widespread lost opportunity for their poor—rely more heavily on NBFIs and informal households and the economy as a whole. Access financial services than do urban residents, men, and to financial services helps women shape household the non-poor. spending decisions (often toward education and Almost one-third of all adults in Ghana used health-related causes), make investments, and man- informal financial services in 2015. According to age economic risk. A 2018 study on Ghana showed CGAP (2015), 29 percent of adult Ghanaians used that women who were provided the ability to utilize informal financial services and products, which are not a commitment savings account prioritized savings to regulated by the Government. VSLAs are one impor- ensure their ability to smooth household consumption tant type of informal financial institutions. They are and respond to shocks. The women in the sample also typically groups of around 30 members and often take maintained pressure on their partner to meet current the form of rotating savings and credit associations, in needs and invest in children and property for the which members make deposits into a group fund and future (Friedson-Ridenour et al. 2018).10 A literature take turns borrowing funds for investment purposes or household needs. According to Savings Groups’ Information Exchange, there are 10,832 savings groups 9 The data captures only 49 projects, mainly facilitated or implemented by CARE, Plan International, and World Vision. Therefore, the actual in Ghana, comprised of 282,001 members (an average number and reach of savings groups in Ghana is much higher. of 26 members per group).9 Of these members, women 10 More Ghana-specific insights will come from an analysis of the latest household survey (GSSL7). The World Bank plans to produce a new are the largest participants, comprising 76.4 percent or Ghana Poverty Assessment over the next 18 months based on the latest approximately 214,320 members. These groups have survey. Financial Sector Development and Financial Inclusion 27 FIGURE 3.1: Financial Inclusion in Ghana 1) Access to all types of financial services (in %), 2010 and 2015 2) Access to financial accounts (in %), 2014 and 2015 80 60 52 48 2015 36% 22% 17% 25% 42 41 40 39 35 34 20 17 13 2010 34% 7% 15% 44% 0 Active mobile money Registered Registered financial account bank/financial account institution account Bank Non-bank formal Informal only Excluded Findex 2014 FII 2015 Findex 2015 3) Access ownership across population group (in %) 4) Rural access to financial accounts (in %) 80 60 63.9 50 61.8 60 57.7 53.7 52.5 40 48.3 40 30 20 20 10 0 0 Male Richest Ghana Rural Poorest Female 2011 2014 2017 60% average 40% 5) Percentage of population saving (in %) 6) Financial access points in Ghana (per 100,000 adults) 15 1,500 Saved at a financial institution, rural 10 1,000 Saved at a financial institution 5 500 Saved money in the past year 0 0 2013 2014 2015 2016 2017 0 10 20 30 40 50 60 ATMs (left–hand axis) Commercial bank branches (left–hand axis) 2011 2014 2017 Mobile money agent outlets (right–hand axis) Source: 1.1: CGAP (2015); 1.2–5: World Bank, Findex (2011, 2014, and 2017); and 1.6: IMF Financial Access Survey (2017). Notes: 1.1: Nationally and regionally representative survey (N=3,002), covering adults (15+); 1.2–5: Nationally representative survey (N=1,000), covering adults (15+); and 1.6: Levels per 100,000 adults. 28 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION review of global experiences (Klapper 2015), illustrates found that the period between 2012 and 2016 has, for other yet similar examples of the power of financial the first time in decades, seen an economy unable to access for women. In Burkina Faso and Senegal, generate poverty-reducing economic growth (World access to insurance helped women farmers to increase Bank 2018d). It is therefore not surprising that sav- yields and better manage food security (Delavallade ings fell in that period. et al. 2015). In Niger, mobile cash transfers strength- ened women’s bargaining power, boosted spending Low financial literacy and high interest rates on nutritious foods, and allowed women to spend are key issues for financial inclusion more time on productive tasks by reducing the need to travel to receive cash payments (Aker et al. 2015). Low financial literacy is an important long-term Women-headed households in Nepal spent 20 percent factor for low savings rates and suppressed demand more on education after receiving a savings account for financial services in Ghana. Baidoo et al. (Prina 2015). (2018) show that financial literacy is key to promoting The poor have significantly lower access to for- domestic savings in the country and hence, according mal financial services than the non-poor. According to the authors, the issue requires more policy attention. to Findex (2017) only 48 percent of the poorest 40 Indeed, financial illiteracy has an even more profound percent had a financial account, compared to 64 impact that goes beyond savings. Financially illiter- percent of the richest 60 percent. This finding is not ate consumers are not actually able to demand the surprising since globally, poverty is the leading cause services they need on the market. So, with a sizable for being “unbanked.” According to World Bank proportion of the adult population still underserved (2012), almost two-thirds of the global financially by formal financial institutions, there is an argument excluded population cite poverty as the main obstacle; for stimulating demand among these groups, through the poor in most cases have no income to afford the targeted financial literacy and education campaigns. cost of opening or maintaining an account nor do In a crowded market with many formal and informal they have the possibility to build up savings. This is financial institutions offering their services, financial particularly true for women. In Ghana, the poor tend inclusion-related issues arise from the relationship to rely more on informal financial services than the between providers and their consumers, not only non-poor (Findex 2017). related to the use of services, but also to the low level The share of the population that save in a for- of financial capability in general. mal financial institution fell between 2014 and Persistently high interest rates are a major bar- 2017. While the share of those saving at a finan- rier to access. High interest rates partially reflect a cial institution (including in rural areas) increased high default risk as implied by high NPL rates posted between 2011 and 2014, it fell between 2014 and by banks. In that context, leveraging data to support 2017. Similarly, the share of the respondents who the development of credit markets is critical to market had saved in the 12 months preceding the survey, growth and better service provision for both individu- declined from 55 percent in 2014 to 50 percent in als and SMEs. The aggregation of data on transaction 2017 (Figure 3.1.5). This finding is likely associated history of customers presents a significant opportunity to the fact that the macro-fiscal situation in Ghana to better ascertain the viability of a particular customer was uncertain over this period in an economy that or business when it comes to the provision of credit had lost the dynamism to provide widespread oppor- facilities. Similarly, social media platforms, are devel- tunities for its people; inflation rates were high (19.2 oping data analytics tools that can predict financial percent in 2016), and economic growth was low (only behavior of individuals, which could be leveraged for 3.6 percent in 2016). The World Bank’s recent SCD developing fit for purpose credit products. However, Financial Sector Development and Financial Inclusion 29 the sharing of data throughout the financial sector in is very skewed with one provider accounting for over Ghana is not uniform. While some DFS providers 80 percent of the market. While registered mobile are employing data analytics to develop alternative money customers and usage increased in tandem with credit profiles, significant segments of the market mobile phone penetration, they remain significantly remain at a data disadvantage, limiting their ability below mobile phone ownership, demonstrating that to develop and sell credit-based products. The result there is space for mobile money to contribute even is an underdeveloped credit market, which presents more to financial inclusion. The expansion of the significant risk for default and offers services at sus- agent distribution network was critical to the suc- tained high interest rates that constrain borrowing cess of mobile money. The number of active agents and fuel over-indebtedness. increased from 5,900 in 2012 to 151,745 in 2017 Despite all the challenges, there has been sig- (Figure 3.2.2). This expansion of agents offered nificant growth in the number of access points users more cash-in and cash-out opportunities and over the past five years, primarily related to the increased the overall convenience of using mobile spread of mobile money. The penetration of select money. access points—ATMs, branches, and mobile money Banks have recently contributed the least to agents—has continued to increase since 2013 increasing financial inclusion across the country. (Figure 3.1.6). However, the penetration of mobile Much of this is the result of their lack of focus on money agent locations throughout Ghana is far offering financial solutions to everyday Ghanaians, greater than traditional access points such as ATMs but instead focusing on corporate banking and and branch networks, highlighting the importance high net worth individuals. However, the growth of new technology to advance the financial inclu- of mobile money has demonstrated the potential of sion agenda. retail financial services. Recognizing that mass mar- ket banking presents a significant opportunity for Digital Financial Services and Payments growth, many banks are now also utilizing digital channels to broaden their reach and customer base. Digital innovations play a key role for a Liberalization of the Unstructured Supplementary more financially inclusive economy … Service Data (USSD) channel has been critical to the market, allowing banks to also leverage the mobile Mobile phone penetration has created opportu- phone as a channel for delivering financial services. nities for the expansion of financial services and Multiple banks have developed mobile banking ser- increased the role of non-financial institutions. vices, deploying solutions developed by domestic Ghana is the fastest growing mobile money market fintech companies. in Africa. The total number of mobile voice subscrip- Other forms of electronic payment instru- tions grew 39 percent from 25.6 to 37.4 million ments are also growing, albeit at a slower rate than between 2012 and 2017 (Figure 3.2.1). In tandem, mobile money. Transactions at ATMs and POS ter- registered mobile money accounts increased six-fold minals facilitated by the national switch have grown between 2012 and 2017, from 3.8 million to 23.9 consistently since 2012 (Figure 3.2.5), with over 2.3 million. Active mobile money accounts increased significantly from 345,434 to 11.2 million between 11 The rate of growth of the volume of mobile money transactions rose 2012 and 2017. As a result, the number and value of sharply after 2015, following a shift in regulatory approach by the Bank mobile money transactions skyrocketed since 2012 of Ghana (switch from a model that mandated a group of banks to partner with a group of Mobile Network Operators (MNO)s and agents to 982 million and GH¢156 billion in 2017, respec- were required to be shared, to a model that allows MNOs to operate tively11 (Figures 3.2.3 and 3.2.4). The market share independently through subsidiaries regulated and supervised by BoG). 30 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION FIGURE 3.2: Voice Subscriptions and Mobile Money Statistics 1) Mobile voice subscriptions and mobile money users 2) Number of registered and active mobile money agents 40,000,000 225,000 30,000,000 175,000 20,000,000 125,000 10,000,000 75,000 0 25,000 2012 2013 2014 2015 2016 2017 Total number of mobile voice subcriotion (cumulative) (25,000) 2012 2013 2014 2015 2016 2017 Registered mobile money customers Active mobile money customers Registered agents (cumulative) Active agents 3) Number of mobile money transactions (in millions) 4) Value of mobile money transactions (million GH¢) 1,000 180,000 160,000 800 140,000 120,000 600 Millions 120,000 80,000 400 60,000 200 40,000 20,000 0 0 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 5) Number of electronic funds transfers (in millions) 8 7 6 5 4 3 2 1 0 2013 2014 2015 2016 2017 Direct Debit Direct Credit Source: Bank of Ghana (2018). Financial Sector Development and Financial Inclusion 31 million being undertaken in 2017 alone. Similarly, wallets that offer customers competitive annualized direct credit transactions, which are transfers from interest rates. one bank account into another, through the central electronic fund transfer system of Ghana, have also … and the Government has taken some continued to increase. While banks have not been initiatives to encourage financial innovation. a driving force for increased financial inclusion in Ghana, they are seeing existing accounts being utilized Another notable government initiative was more by existing customers, suggesting a deepening of the introduction in 2008 of the E-zwich biomet- financial inclusion and literacy among their current ric card. E-zwich cards can be used at any E-zwich customer base. enabled point of sale terminal or ATM, at any The government has facilitated interoper- bank, and also for payments, including salaries or ability across payment instruments by establish- pensions, which can be loaded onto a cardholders ing a mobile money switching solution. In May account. The uptake and usage of the E-Zwich card 2018, the GhIPSS went live with the one of the first has been increasing, but it is constrained by limited interoperable mobile money switch in Africa. An merchant acceptance. As of December 2018, 2.7 extension of the existing GhLink switch, the new million E-Zwich cards had been issued, with 7.7 system allows customers to push and pull funds million transactions worth GH¢5.6 billion (2 per- across mobile money providers and between mobile cent of GDP). However, only 53 percent of the cards money providers and banks. Recognizing the impor- have residual value because most E-zwich transfers tance of payment systems and financial inclusion to are immediately “cashed out.” Although not as sig- improved economic growth and performance, the nificant as the growth seen in use of mobile money, Government has shown a high level of commitment direct credit, or check-based transactions, there has in driving digitization and innovation in payments. been substantial growth in the number of E-zwich This commitment is within the context of a very cards issued, (both in volume and in value of trans- active and burgeoning fintech space, where the rate actions) since 2010. The number of cards issued in of innovation across providers has driven the usage 2018 when compared to 2010 has grown by 5 times, of mobile money accounts and other forms of trans- while the value of transactions moving through the action account. system have seen significant growth of over 60 times Interoperability has increased the convenience the value transacted in 2010. and value proposition of DFS for many financial The success of DFS in driving financial inclu- consumers. As active usage increases, so has the range sion has encouraged the Government to develop of products and services riding on the DFS infrastruc- both a vision and strategies to expand financial ture. Customers are beginning to access micro-credit inclusion in Ghana. Working with development directly from their mobile phones, without having to partners such as the World Bank and CGAP, the GoG enter a bank branch; similarly, international remit- has developed a NFIDS that covers the 2017–2023 tances from relatives overseas are being terminated period. In addition, with a growing FinTech market, directly onto mobile wallets, significantly increas- a DFS policy has also been developed, setting out a ing convenience and efficiency for beneficiaries. clear vision for establishing a truly digital economy in Partnerships between different financial institutions Ghana. Importantly, both the NFIDS and the DFS have been essential for much of the use-case devel- policy highlight clear opportunities and growth areas opment observed in Ghana. For instance, a leading going forward. bank and mobile money provider have come together The NFIDS (2017–2023) outlines reforms to offer savings accounts linked to mobile money to increase financial inclusion from 58 percent 32 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION in 2015 to 85 percent in 2023. The reforms are Opportunities to Improve Financial structured around five mutually reinforcing pri- Inclusion ority areas or pillars of financial sector develop- ment: (i) Financial Stability; (ii) Access, Quality, Digitizing government and utility payments and Usage of Financial Services; (iii) Financial will be critical. Infrastructure; (iv) Financial Consumer Protection; and (v) Financial Capacity. In particular, the NFIDS There remain significant opportunities in the acknowledges Ghana’s financial stability challenges payments space for driving financial inclusion, and seeks to address them as a pre-condition for specifically in the area of government collections promoting sustainable financial inclusion and devel- and utility payments. While government to person opment. The increase in access to financial services payments are nearly all electronic, there are untapped is expected to create economic opportunities and opportunities for digiting government collections, contribute to poverty reduction. the majority of which are still paid in cash. Similarly, As a compliment to the NFIDS, the govern- digitizing payments of electricity and water, which ment has also developed its DFS Policy, which are almost exclusively still paid in cash, will bring sig- establishes a 3-year roadmap (2018–2020). The nificant convenience to millions of people, deepening roadmap aims to build on technological advances and financial inclusion further. Current approaches remain ecosystem evolutions to create a resilient, inclusive, piecemeal and clear direction from Government and innovative DFS ecosystem that bolsters social is needed to further push existing projects in these development and a robust economy that supports a areas. To do so, financial and technical support to the thriving private sector. The DFS seeks to achieve two Ministries, Departments, and Agencies (MDAs), and goals by 2020: First, all Ghanaians will have access to a utilities is required to update their internal accounting broad range of suitable and affordable DFS—includ- systems. This would allow full integration via open ing payment, credit, savings, insurance, and invest- application program interfaces (APIs) into institutions ment. Payment flows will have been digitized and such as GhIPSS, allowing for individuals to use their formalized, thereby shrinking the informal economy, bank account or mobile wallets to pay for government increasing government revenues, and making mon- services or utility bills. etary policies more effective. Second, businesses and In 2014, the GoG launched the Ghana government will have achieved greater transparency E-Payment Portal (GEPP) but the one-stop-shop and efficiency to contribute to the economic growth idea for digitizing G2P payments has yet to take of the nation. off. The GEPP has been rolled out in only twelve The ongoing rollout of the biometric central- Municipal and District Assemblies and only very few ized national ID system will provide the sup- services are offered, such as the marriage registration porting infrastructure to facilitate the financial fee payment under Accra Metropolitan Assembly inclusion of the remaining 42 percent of adult (AMA) services. Those services that are offered gen- Ghanaians. Currently there are nine separate identity erally require only one-off payments. Coupled with databases across various public-sector entities. The the fact that a transaction fee is charged to customers rollout of the new centralized system will accelerate for use of the portal, it is not surprising that there is digital payments by adopting a unified approach to low uptake of these services. Whether a centralized identification and authorization of transactions. In approach as seen with GEPP or bespoke solutions for fact, 22 percent of Ghanaians identified the lack of individual MDAs is taken, it is evident that there is documentation as the reason for not having a financial a need for a policy mandating the digital payment of account (Findex 2017). all fees and fines to Government. Financial Sector Development and Financial Inclusion 33 Collections of taxes from small payers—which customers to digital payments would be a significant are almost exclusively done via cash payments— achievement for the GoG, as studies have shown that offer a significant opportunity to leverage a large access to energy and water offers a significant incentive volume of payments to support financial inclusion for customers to register for and actively use digital efforts. GEPP began accepting payment of taxes payment channels (BTCA 2017). online in 2017, commencing with large taxpayers; however, issues with service delivery have limited Linking informal channels with formal tax transactions via the portal. The Small Tax Offices financial services is key. (STOs) of the Ghana Revenue Authority, which are responsible for processing a significant volume of Since informal groups play a critical role in the tax payments from individuals, business, and infor- provision of financial services, there is an oppor- mal sector, almost conduct all transactions in cash. tunity to increase formal financial inclusion by Therefore, mandating that such transactions be con- linking them to formal financial services providers. ducted digitally would not only support the financial There have been programs in the past attempting to inclusion efforts but would also address ongoing create linkages between VSLAs and the formal finan- challenges such as fiscal leakages, while increasing cial sector. Typically, linkage programs help to create or the operational efficiency of tax offices by freeing up train VSLA groups on how to operate as a group and staff to better focus on increasing the overall tax base support formal financial services providers design and of the country. offer products suitable to VSLAs. For example, one Digitization of utility payments such as water common approach is to help groups open accounts and electricity bills has started but is still not in banks or in other financial institutions, therefore complete. According to the World Bank, 79 percent substituting for traditional ‘lock box’ used to keep of the Ghanaian population has access to electricity group money safe. in 2016. The distribution is provided by two sepa- Mobile money is increasingly being used to rate state monopolies: the Electricity Company of improve the VSLA business model. Through part- Ghana (ECG)—now Power Distribution Services nerships between financial institutions and mobile (PDS)—for Southern Ghana and urban areas (over- money operators, VSLA groups can store and access all 70 percent market share; ECG 2017) and the their money in e-wallets on their phones and split up Northern Electricity Distribution Company for the the electronic pin among multiple group members to rural Northern part of Ghana. For post-paid house- ensure the security of funds. Interoperability between holds (those that pay for electricity after it has been a mobile provider and a bank account has also enabled used) there are digital options for making payments, VSLA groups to move funds between banks, mobile including via a bank account or mobile wallet. For wallets, and the group itself. This also helps ease the pre-paid customers, who account for the largest share burden and risk of moving cash between a group and of households, payment cards can only be used at a financial institution. Such linkages can help VSLA ECG pay points or from third party vendors. As with members get their foot in the door of formal financial small tax payments this can only be done via checks institutions and to build their capacity to utilize formal or with cash. financial services, so when members are ready to join The water sector12 lags significantly, with few as individuals, they can do so by opening a savings or opportunities to make digital payments. While digi- transaction account. tization efforts are ongoing, the process needs to be simplified and standardized to ensure migration from 12 The Ghana Water Company services urban areas; the Community cash-based payments. Just shifting a fraction of the Water and Sanitation Agency services rural communities. 34 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION Overall, the effectiveness of linkages depends transaction levels. Recognizing the opportunity, the on the availability of access points (including a BoG issued Agent Guidelines in July 2015 to guide network of bank and mobile money agents) and the recruitment and management of agent networks a stronger consumer protection framework. Thus, by banks and electronic money issuers. However, the there is a complementarity between linkages and the adoption of the agent banking model has been slow, promotion of agent banking. Without effective con- despite a successful rollout of agent banking by a lead- sumer protection, linkages expose VSLAs members ing indigenous bank. It is clear that further promotion to abusive and predatory practices by some financial of agent banking is needed. services providers. Therefore, it is essential to educate consumers about their rights and to put in place a Financial literacy and better use of data can reliable recourse mechanism. stimulate demand for services. Promoting agent banking can increase Improved financial literacy programs could institutional footprints across the country. stimulate demand for services. In Ghana, many consumers have been victims of predatory practices Many banks and other non-bank financial as they seek high investment returns offered by MFIs; institutions are yet to take advantage of agent bank- others have been using digital credit products without ing and other low-cost models to increase their fully understanding their rights and obligations as con- footprint throughout the country. High costs of sumers. Literacy and education programs should be setting up brick and mortar branches and lower lev- tailored to the needs of target groups, and emphasize els of economic activity in some rural areas of Ghana knowledge of financial products, financial concepts, have eroded the business case for improving financial and basic numeracy skills. Given the growth in the access to communities in these regions. To set up use of DFS, it is important to increase the digital one branch location can cost between GH¢300,000 literacy of the public to safeguard customers’ rights and GH¢600,000, with an additional GH¢10,000– and prevent instances of misuse or fraud. A concerted 30,000 per month in operational costs. In compari- effort to improve the overall level of financial literacy son, the cost of starting an agent outlet is estimated in Ghana will give consumers a better understanding at GH¢10,000. In addition, given their physical and of why financial services can be of benefit to achieving cultural proximity to financially underserved commu- economic empowerment. nities, agents are better suited than traditional bank The Government should take the lead in branches to drive financial inclusion, particularly in developing sound policies and/or the legal frame- rural areas. A recent study conducted in Senegal by works to mandate data-sharing. There is a role for the World Bank, shows that, compared to branches, Government in mandating data-sharing or data por- agent banking lowers transaction costs and encourages tability to help level the playing field, allowing for individuals to visit the agents often and to save more new entrants into the market to create competition (Buri et al. 2018). and lower transaction costs. Leveraging the concept The industry is yet to respond to regulatory that the individual is the owner of their own data, developments allowing them to authorize agents as outlined in the Data Protection Act 2012, the to act on their behalf. By authorizing retail busi- GoG could facilitate the introduction of a limited nesses (shops, pharmacies, etc.) and individuals to data-sharing regulation between data controllers and act as agents on behalf of financial institutions, agent other regulated credit institutions, on the basis that banking enables the provision of financial services in explicit consumer consent is obtained prior to the remote areas on a scale that is commensurate with sharing of any individuals information. As outlined Financial Sector Development and Financial Inclusion 35 in MoF (2018), there is a clear role for the Ministry growth in the number of financial access points over of Communication and the BoG in moving this for- the past five years, primarily related to the spread of ward and in obtaining buy-in from other stakeholders mobile money. This indicates the potential of DFS such as the current data controllers in the Ghanaian and payments to further enhance financial inclusion market (MNOs, Social Media platforms, banks). This in Ghana. In the meantime, Ghana has a banking sec- would build on information already provided by credit tor that has been facing serious soundness challenges, bureaus and the collateral registry. which after years of build-up culminated in 2018 with In conclusion, universal financial access is an a series of necessary and expensive banking resolutions. attainable target in Ghana with the use of innovative Further reducing vulnerabilities in the financial sector technology and approaches. This is needed as access is urgent and will require additional efforts in 2019, to financial services is heterogeneous across regions and and over the medium term. The GoG must lead the key demographics. The analysis found, not surprisingly, implementation of the approaches outlined in NFIDS that the poor have significantly lower access to formal and DFS Policy; this should be done in collaboration financial services than the non-poor. Insufficient finan- with the private sector. With the successes already cial literacy is an important long-term factor for low realized in the payment space with mobile money, savings rates in Ghana, and more broadly, financial the demand for effective financial solutions has been illiteracy suppresses consumers’ demand for financial proven. Investments should now be made to improve services. In addition, persistently high interest rates internal systems and processes of MDAs, generating in Ghana are a major barrier to affordable access. But new use cases that will bring greater convenience to despite all the challenges, there has been significant customers. 37 REFERENCES Aker, J, and C. Ksoll. 2015. Call Me Educated: Consultative Group to Assist the Poor (CGAP). Evidence from a Mobile Monitoring Experiment 2015. Financial Inclusion Insights (FII) Survey. in Niger. 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The Economist Intelligence Unit, 2019. ———. 2018d. Systematic Country Diagnostics Ghana Country Report. Generated on February (SCD). World Bank: May. 26, 2019. ———. 2019a. Global Economic Prospects, January World Bank. 2012. Three Quarters of The World’s 2019: Darkening Skies. Washington, DC: World Poor Are “Unbanked”. World Bank: http://www. Bank. worldbank.org/en/news/feature/2012/04/19/ ———. 2019b. Africa Pulse, April 2019: Washington, three-quarters-of-the-worlds-poor-are-unbanked. DC: World Bank. 39 ANNEX 1: SELECTED FISCAL INDICATORS SELECTED FISCAL INDICATORS, 2014-21 CASH BASIS (PERCENT OF GDP) 2019 2020 2021 Categories 2014 2015 2016 2017 2018 Proj. Proj. Proj. Overall Balance (excl. finsec clean-up cost) –7.4 –4.9 –6.1 –4.8 –3.9 –4.0 –4.5 –4.5 Overall Balance (excl. finsec clean-up & Bank –7.4 –4.9 –6.1 –4.8 –3.8 –4.0 –4.5 –4.5 Capitalization costs) Overall Balance (incl. finsec clean-up & Bank –7.4 –4.9 –6.1 –4.8 –7.2 –5.6 –4.5 –4.5 Capitalization costs) Primary Balance (excl. finsec clean-up cost) –2.9 0.2 –1.1 0.5 1.4 1.6 1.7 1.6 Primary Balance (excl. finsec clean-up & Bank –2.9 0.2 –1.1 0.5 1.5 1.6 1.7 1.6 Capitalization costs) Primary Balance (incl. finsec sec clean-up cost) –2.9 0.2 –1.1 0.5 –1.7 0.0 1.7 1.6 Primary Balance (excl. finsec clean-up & Bank –3.9 –0.5 –1.5 –0.4 0.0 0.0 –0.2 –0.4 Capitalization costs; and oil revenue) Primary Balance (incl. finsec clean-up & Bank –3.9 –0.5 –1.5 –0.4 –3.4 –1.6 –0.2 –0.4 Capitalization costs and excl. oil revenue) Total revenue and grants 15.9 17.8 15.7 16.2 15.9 17.1 17.1 17.3 o/w Oil Revenue 1.0 0.6 0.4 0.9 1.5 1.6 2.0 2.0 Taxes 12.0 13.4 12.0 12.6 13.4 13.3 13.5 13.8 Direct taxes 5.5 4.8 4.2 5.2 6.3 6.4 6.7 6.7 Indirect taxes 4.1 5.5 5.7 5.2 5.0 4.7 4.6 4.9 Trade taxes 2.8 3.1 2.0 2.1 2.0 2.2 2.1 2.2 Tax Refund –0.7 –0.7 –0.7 –0.7 Other revenue (Incl Non-Tax & ESLA) 3.4 2.9 3.2 3.0 2.9 3.6 3.6 3.9 Grants 0.5 1.5 0.5 0.6 0.4 0.3 0.2 0.1 Total expenditure 23.4 22.6 21.8 20.9 19.9 21.1 21.6 21.9 Compensation of employees 7.1 7.2 6.8 6.5 6.6 6.6 6.2 6.3 o/w Wages and salaries 6.1 5.9 5.6 5.6 5.8 5.6 5.3 5.4 Goods and services 1.1 0.8 1.5 1.0 1.5 1.7 1.7 1.9 Interest payments 4.6 5.0 5.0 5.3 5.3 5.6 6.2 6.2 Domestic 3.9 4.1 3.9 4.3 4.5 4.2 4.7 4.7 Foreign 0.6 1.0 1.1 1.0 1.1 1.4 1.5 1.4 Subsidies 0.3 0.0 0.0 0.0 0.04 0.1 0.1 0.1 (continued on next page) 40 4TH GHANA ECONOMIC UPDATE – ENHANCING FINANCIAL INCLUSION SELECTED FISCAL INDICATORS, 2014-21 CASH BASIS (PERCENT OF GDP) (continued) 2019 2020 2021 Categories 2014 2015 2016 2017 2018 Proj. Proj. Proj. Social transfers 0.0 0.0 0.0 0.0 0.06 0.0 0.0 0.0 Grants to other government units 3.1 3.8 4.0 3.6 3.6 4.0 3.8 3.7 Other expense 3.1 2.4 1.6 2.3 0.9 0.9 1.0 0.6 Net acquisition of nonfinancial assets 3.9 4.0 3.6 2.5 1.6 2.2 2.5 3.1 Domestic financing 0.8 0.7 1.0 0.4 0.5 0.8 1.2 1.6 Foreign financing 3.1 3.3 2.6 2.1 0.7 1.3 1.3 1.5 Discrepancy 0.1 –0.5 –0.7 0.0 0.0 0.0 0.0 0.0 Overall Balance (excl. finsec clean-up) –7.4 –4.9 –6.1 –4.8 –3.9 –4.0 –4.5 –4.5 Overall Balance (excl. finsec clean-up & Bank –7.4 –4.9 –6.1 –4.8 –3.8 –4.0 –3.5 –4.5 Capitalization cost) Overall Balance (incl. financial sector clean-up) –7.4 –4.9 –6.1 –4.8 –7.2 –5.6 –4.5 –4.5 Financing 7.4 4.9 6.1 4.8 3.7 4.0 4.5 4.5 Foreign (net) 3.8 3.3 1.4 0.0 1.5 2.8 1.1 0.7 Borrowing 4.6 4.8 3.5 1.9 3.1 4.4 2.5 1.9 Amortization (due) –0.9 –1.5 –2.1 –1.9 –1.6 –1.5 –1.4 –1.2 Exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Domestic (net) 4.0 1.7 5.2 4.7 2.8 1.1 3.8 4.2 Other financing –0.2 –0.1 –0.1 –0.1 0.0 0.4 0.0 0.0 Ghana petroleum funds –0.1 0.2 –0.1 –0.1 –0.3 –0.1 –0.1 –0.1 Sinking fund 0.0 –0.1 –0.4 0.3 –0.3 –0.2 –0.3 –0.3 Contingency fund 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Source: IMF and World Bank staff calculations, April/May 2019. 41 ANNEX 2: BALANCE OF PAYMENT STATISTICS BALANCE OF PAYMENTS, 2014–21 (US$ MILLION UNLESS OTHERWISE INDICATED) 2018 2019 2020 2021 Indicator 2014 2015 2016 2017 Est. Proj. Proj. Proj. Trade balance –1,387 –3,107 –1,773 1,151 1,779 1,807 1,431 1,735 Exports 13,213 10,358 11,137 13,836 14,868 15,670 16,133 17,244 Of which: cocoa 2,613 2,764 2,572 2,711 2,092 2,128 2,191 2,254 Of which: gold 4,388 3,213 4,919 5,786 5,461 5,805 5,922 6,648 Of which: oil 3,725 1,931 1,345 3,115 4,573 4,748 4,941 4,641 Imports 14,600 –13,465 –12,910 –12,684 –13,089 –13,863 –14,702 –15,509 Of which: oil –3,694 –2,047 –1,825 –2,029 –2,538 –2,059 –2,077 –2,092 Services (net) –2,602 –1,167 –1,293 –2,972 –2,510 –2,171 –2209 –2,926 Income (net) –1,717 –1,132 –1,256 –2,651 –3,926 –4,300 –4,435 –4,421 Of which: interest on public debt –552 –777 –1,052 –1,147 –1,404 –1,662 –1,726 –1,983 Transfers (net) 2,008 2,570 1,457 2,424 2,581 2,629 2,682 2,736 Current account balance incl. grants –3,698 –2,836 –2,866 –2,131 –2,075 –2,035 –2,531 –2,577 Current account balance incl. grants (% of –9.5 –7.7 –6.7 –3.7 –3.2 –3.0 –3.5 –3.3 GDP) Capital and financial account (net) 3,649 2,937 3,268 2,739 1,554 2,221 3,438 3,309 Financial account (net) 3,649 2,463 3,015 2,497 1,047 2,086 3,404 3,298 Foreign direct investment (net) 3,357 2,971 3,471 3,239 2,908 3,413 3,035 3,649 Portfolio investment (net) 595 940 1,264 2,536 929 2,000 1,854 683 Other investment (net) –303 –1,448 –1,741 –3,278 –2,790 –3,327 –1,485 –1,033 Official financing (net) 932 472 –31 –389 –322 –141 –334 –336 Private financing (net) –1,081 –1,455 –1,501 –2,086 –2,643 –2,793 –793 –650 Errors and omissions –12 –433 –66 150 –339 0 0 0 Overall balance –37 –332 335 758 –860 186 908 733 Financing 37 332 –335 –758 860 –185 –908 –733 Changes in net reserves 85 106 –335 –1,100 672 –522 –908 –733 Of which: use of IMF credit (net) –12 172 164 –74 213 38 –90 –118 Financing gap — –226 0 0 290 — — — Exceptional financing — 226 0 0 0 — — — Nominal GDP (US$ Millions) 48,573 47,473 51,209 58,128 65,191 68,258 72,264 77,628 Source: IMF and World Bank staff calculations, April/May 2019. 43 ANNEX 3: GROSS DOMESTIC EXPENDITURE GROSS DOMESTIC EXPENDITURE GROWTH, 2014–2018 (PERCENT) Item SN SN 2014* 2015* 2016* 2017* 2018* Household final consumption expenditure 1 1 4.1 –0.3 –2.6 11.3 –0.3 General government final consumption expenditure 2 2 24.5 –8.9 –21.9 –35.9 73.7 Consumption 3 3= 1+2 6.8 –1.6 –5.3 5.8 4.9 Gross fixed capital formation 4 4 –1.1 –2.7 12.2 –1.8 –5.0 Change in stock: Reforestation 5 5 1.6 1.0 1.0 1.8 9.8 Change in stock: Crude Oil 6 6 46.6 41.7 158.9 69.0 –37.2 Change in stock: Livestock 7 7 –20.2 6.0 3.6 5.7 4.9 Total Investment 8 8= 4+5+ –1.2 –2.4 12.9 –0.7 –5.5 6+7 Total Domestic Demand 9 9= 3+8 4.8 –1.8 –1.2 4.1 2.4 Exports of goods and services 10 10 –5.8 –0.3 14.8 16.5 10.3 Imports of goods and services 11 11 –14.4 7.9 –1.1 7.9 4.6 Net Exports 12 12= 10–11 36.6 –39.4 44.8 41.0 59.5 Statistical discrepancy 13 13=15–14 –112.4 138.8 125.2 71.3 Gross Domestic Expenditure 14 14 2.9 2.2 3.4 8.1 6.3 Source: Ghana Statistical Service. 45 ANNEX 4: NON-PERFORMING LOANS DISTRIBUTION OF LOANS AND NPLS BY ECONOMIC SECTOR (PERCENT), 2017–2019 FEBRUARY) Feb-17 Feb-18 Dec-18 Feb-19 Share in Share in Share in Share in Total Share in Total Share in Total Share in Total Share in Credit NPLs Credit NPLs Credit NPLs Credit NPLs a. Public Sector 14.0 2.9 11.3 7.3 8.6 2.9 9.3 3.1 i. Government 1.5 1.1 2.4 1.0 3.0 1.0 3.6 1.0 ii. Public Institutions 5.1 0.1 2.2 0.4 1.2 0.3 1.2 0.3 iii. Public Enterprises 7.4 1.7 6.7 5.8 4.4 1.6 4.5 1.7 b. private Sector 86.0 97.1 88.7 92.7 91.4 97.1 90.7 96.9 i. Private Enterprises 71.0 90.9 68.0 85.6 66.3 87.0 67.7 85.6 o/w Foreign 8.8 12.6 8.0 8.5 9.9 9.6 10.9 10.2 o/w Indigenous 62.2 78.3 60.0 77.0 56.4 77.4 56.7 75.4 ii. Household 13.7 5.6 18.7 6.6 22.9 9.4 20.6 9.6 iii. Others 1.2 0.6 2.0 0.6 2.2 0.6 2.5 1.8 Source: Bank of Ghana. The World Bank 1818 H Street, NW Washington, DC 20433 Phone: (202) 473-1000 Fax: (202) 477-6391