This follows as a yawning budget deficit, high inflation and a tumbling currency take their toll on one of Africa’s star economies of recent years.
The International Monetary Fund forecast that gross domestic product growth for 2014 would fall to 4.5 per cent from the 7.1 per cent recorded in 2013, far short of the government’s estimate for the same level of economic expansion this year.
“Ghana continues to face significant domestic and external vulnerabilities on the back of a large fiscal deficit, a slowdown in economic growth and rising inflation,” the Fund said in a statement.
The country has been hit by a fall in the price of gold, a major source of government revenue, while analysts said fiscal difficulties and a power shortage also hampered growth.
For years Ghana has been a model for West Africa, combining stable democracy with high GDP growth, but like other commodity exporters it now finds itself wrestling with imbalances.
Last week the government began talks with the Fund for a financial assistance programme as part of its longer-term plan for broad economic reform.
“These vulnerabilities are putting Ghana’s medium-term prospects at risk,” the IMF said after an initial round of talks, adding that the talks were constructive and would continue in Washington next month.
President John Mahama said Ghana hoped to start a three-year IMF assistance programme in January.
The government has its own reform programme, but the Fund said the fiscal deficit would end 2014 at 9.75 per cent, wider than the government projection of 8.8 per cent.
Deputy Finance Minister Mona Quartey said the IMF’s projections represented a worst case scenario.
“The good thing is that we know and we have identified the same issues they (the IMF) are raising and we are working fervently to address them,” she told Reuters.
Fitch Ratings reaffirmed its sovereign rating for Ghana on Friday at ‘B’, five notches below investment grade, and held the negative outlook. It said government talks with the IMF would be protracted with a deal expected only next year.
PEOPLE CAN’T PAY
Business owners, investors and economists say it is important to put perspective on the fiscal crisis, arguing that medium term prospects remain good as the middle class expands.
“If they implement the necessary reforms they will be able to get that (growth) back again,” said Melissa Verreynne of NKC Independent Economists in South Africa.
However, lower growth this year would reduce the amount of money flowing into government coffers and that, in turn, would make it harder to reduce the deficit, she said.
The country’s economic slowdown is hurting economic sectors large and small alike.
In the Nyamekye neighbourhood of the capital Accra, tailor Richard Tuye said customers still came to his store to buy the traditional clothes worn at many of the elaborate funerals that are a cultural staple in Ghana.
“Every weekend people go to funerals, so people have to sew a new outfit. But people don’t want to pay because the economy is bad and I don’t want to charge them so my profit is down,” he said.
Across a busy commercial street, Asante Bismark, who sells second-hand televisions imported from Britain, said the fall in the currency and higher import duties meant he had been forced to raise prices at least 30 per cent, which hurt his sales.
“It is very difficult to sell even one TV. We just sit around here talking all day,” he said, before returning to a game of Ludo around a small table with other store owners.