Ghana’s government has revised its GDP growth and inflation forecasts for 2014, as well as its end-year budget deficit target, due to worse than expected developments in the first five months of the year, including the steep depreciation in the local cedi currency and the surging interest rates, falling gold prices, lower government revenues, and an energy crisis.

Presenting the mid-year review of the 2014 budget and the government's economic policy to parliament on Wednesday (July 16), Finance Minister Seth Terkper said real GDP was now expected to grow by 7.1% this year, down from previously forecast 8.0%. Ghana’s economy expanded by 6.7% y/y in Q1 2014, accelerating from a 4.9% y/y expansion in Q4 2013, but slower than the 9.0% growth recorded in Q1 2013.

The end-year inflation target band of 2pps either side of 9.5% was lifted to 2pps either side of 13%. Ghana’s annual consumer price inflation hit a fresh four-year peak of 15% in June, accelerating from 14.8% in May.

The 2014 budget deficit target of 8.5% of GDP was increased to 8.8% of GDP.

Terpker highlighted that notwithstanding the current challenges facing the country, “the short-to-medium term prospects for Ghana remain positive" in view of expected increases in oil and gas exploration and production, recovery in cocoa prices, and public-private sector investments.

The minister noted that Ghana’s public debt increased to 55.77% of GDP at end-2013 from 48.03% at end-2012. The country’s gross international reserves stood at USD 4.47bn at end-June, sufficient to provide 2.5 months of imports cover, compared to USD 5.63bn, equal to 3.1 months of import cover, at end-2013.

Ghana is a major producer of oil, cocoa and gold, but its economy has been recently hit by the slide in commodities prices as well as by continuous power supply deficits, in addition to governance issues. The West African country needs to address large current account and budget deficits to restore investor confidence. This should help stabilise the cedi and in turn soften inflation (that is boosted mainly by higher cost of imports).

Ghana’s central bank, which hiked its policy rate by 100bps to 19% last week, predicted that that the proceeds from an upcoming cocoa syndicated loan and a Eurobond issue, estimated at almost USD 3bn, would support the exchange rate in the second half of the year.