Transcript Ghana Investor Presentation 2014

Republic of Ghana
Presentation to Investors
September 2014
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2
Presentation Team
Hon. Seth Terkper
Honourable Minister of Finance
Governor Henry Wampah
Governor, Bank of Ghana
Hon. Kweku Ricketts Hagan
Hon. Deputy Minister for Trade and Industry
Dep. Governor Millison Narh
Deputy Governor, Bank of Ghana
Dr. Samuel Ameyaw
Director, Debt Management Division, Ministry of Finance
Dr. Alhassan Iddrisu
Director, Economic Research and Forecasting, Ministry of
Finance
3
Contents
1. Introduction
2. Economic and Policy Update
3. Foundations Remain Strong
4. Financing for Growth
5. Conclusion
1. Introduction
Introduction
Ghana is one of the key lower middle income economies in Africa. Despite short term challenges, Ghana’s
broad-based commodities endowment and strong institutional framework support a bright future outlook
Territory & Capital
238,537 sq. Km; Accra
Population (2013)
27 million
Nominal GDP (US$ bn 2013)
42.48 (using period end exchange rate / 47.68 (using period average exchange rate of 1.96)
GDP Growth (2013)
7.1%
GDP Per Capita (US$, 2013)
1,604.1 (using period end exchange rate ) / 1,804.3 (using period average exchange rate of 1.96)
Sovereign Credit Ratings
Moody’s: B2 (Negative) / Fitch: B (Negative) / S&P: B (Negative)
Currency
Ghanaian Cedi (GHS)
Average Exchange Rate
GHS:USD: 2.75 (through August 28, 2014)
System of Government
Multi-party democracy with five (5) year election cycles since 1992. Next general elections scheduled to
take place in December 2016
Borders
Côte D'Ivoire, Togo, Burkina Faso
• Starting in 2008, Ghana embarked on an ambitious adjustment program to rationalise its public sector wage structure labelled Single Spine Salary
Background
Structure (SSSS)- Ghana’s fourth attempt at rationalising public sector wages
• SSSS implementation, starting in 2010, was undertaken from a position of strength with record high commodity prices, very high GDP growth rates
and accelerated infrastructure development
• The rise in wages and arrears related to SSS implementation, combined with rising subsidy expenditure, higher interest payments, a shortfall in
Short Term
Challenges
corporate income tax from the oil sector and grants put pressure on the budget resulting in large deficit overshoots in 2012 and 2013
• Economic management was further compounded by the onset of external pressures in 2012 and 2013, notably disruption in gas supply and fall in
gold and cocoa prices, which have put stresses on the fiscal and current account deficits, the exchange rate and the broader macro-economy
• As a result, we are engaging the IMF to get policy support as well as funding for temporary balance of payments support
• We are also committed to consolidating the gains from our “home-grown” programme which largely adheres to IMF recommendations in the 2014
Our Plan
Article IV Report on Ghana and has already set the foundation for sounder public financial management
• We anticipate the IMF Programme will entail tightening our budget substantially. We have a strong institutional history with the IMF and believe our
working relationship will facilitate the negotiation process
Encouraging
Outlook
• Despite the short term pressures Ghana’s fundamentals are robust: a diverse economy, large commodities base with rising oil and gas production,
and strong institutional framework to support our long-term growth targets
6
Understanding Ghana’s Short Term Outlook
Ghana faces short term challenges on the back of fiscal imbalance and underperformance combined with
macroeconomic pressures
Structural adjustments lead to fiscal challenges
• In 2010, we started to gradually implement the revised public sector
Wage bill (% of GDP)
pay structure under the Single Spine Salary Structure (SSSS)
Fiscal Deficit (% of GDP)
15%
• This was done in a bid to reduce the disparities in pay across the
11.7%
public sector and increase productivity
12%
10.1%
• However, challenges with determining relativities and scales
including unanticipated payments of arrears led to the wage bill
exceeding budget during 2011-2013 and contributed to an expanding
fiscal deficit and rising public debt burden
9%
6.8%
6.9%
7.6%
8.9%
8.8%
2012
2013
6%
5.8%
• At the moment, we have migrated over 99% of public sector workers
3%
onto the new SSSS pay structure, and paid all of the arrears owed to
workers
0%
6.5%
4.0%
2009
2010
2011
Causes of fiscal overruns (deviations from budget)
2012 Deviations
GHS millions
% of GDP
Revenues
Grants
Corporate Income Tax (oil)
Non-oil Tax Revenue
Expenditures
Wages and Salaries
Wage Arrears
Interest Payments
Utility and Fuel Subsidies
Goods & Services
2013 Deviations
GHS millions
% of GDP
H1 2014 Deviations
GHS millions
% of GDP
(389.4)
(384.1)
(112.3)
(0.52)
(0.51)
(0.15)
(519.0)
311.0
(3,155.3)
(0.56)
0.33
(3.38)
(293.5)
182.5
(828.2)
(0.26)
0.16
(0.72)
1,028.0
881.0
245.0
339.0
354.7
1.37
1.18
0.33
0.45
0.47
777.6
922.6
1,202.6
135.8
(293.2)
0.83
0.99
1.29
0.15
(0.31)
139.2
(124.3)
203.0
17.7
(95.2)
0.12
(0.11)
0.18
0.02
(0.08)
Source: Ministry of Finance, Government of Ghana, Ghana Statistical Services
7
Understanding Ghana’s Short Term Outlook (cont’d)
Ghana faces short term challenges on the back of fiscal imbalance and underperformance combined with
macroeconomic pressures
• The government has sought to bring the fiscal deficit under control via a mixture of expenditure control and revenue measures
• However, economic management and fiscal consolidation were further complicated by unforeseen external factors:
• In 2012 / 2013, prices for Ghana’s key commodities declined
• Power disruptions contributed to declines in domestic output
• The pass-through effects of cedi depreciation along with subsidy reductions fuelled inflation
External pressures build as
commodity prices collapse
Cedi depreciation fuels inflation and
exacerbates expenses
USD:GHS
Cocoa
5.0
4.0
Current account
balance deteriorates
Gold
2009
4000
2000
3500
1800
3000
1600
2500
1400
2000
1200
1500
1000
2010
2011
2012
2013
H1 2014
(1,398)
3.0
(1,944)
(2,770)
(3,546)
2.0
Jul-14
Jan-14
Jul-13
Jan-13
May-14
Jul-12
Jan-14
Jan-12
Sep-13
Jul-11
May-13
Jan-11
1.0
Jan-13
(4,922)
(5,704)
Recognizing these challenges, the Government began implementing a far-reaching “home-grown” policy
agenda which it expects will be supported by the IMF Programme, when finalised
Source: Ministry of Finance, Bloomberg
8
Ghana is Implementing Robust Measures to
Tackle Key Challenges
The home-grown programme aims to restore fiscal equilibrium and stem the impact of external pressures. While
many issues have been addressed, we are seeking to resolve remaining challenges with the IMF’s support
Addressing Key Issues

•
•

Fiscal Deficit
Revenue below projections, due to decrease
in commodity prices and grants, along with a
slowdown in economic activity arising from
energy shortfalls
Wage bill contained, but rising expenditure
largely due to increase in domestic funding
costs




Broaden tax base and strengthen
revenue collection
Wage containment, curb on public
expenditure
Budget realignment and structural
reforms
Oil production exceeds target and
cocoa sales at higher prices
•
•
Cedi Depreciation and Inflation
Increase
Inflation bump started with reduction in
subsidies for petroleum and utilities to help
restore fiscal equilibrium
Fueled by pass-through effects of exchange
rate depreciation as the Balance of
Payment (BoP) came up short




Monetary policy tightened
Greater oversight of the foreign
exchange market
Macro prudential measures
Proactive public debt management

•
•
•
External Pressures
Power disruptions and lower output due
to the breakdown of the West African
Gas Pipeline
Pullback in donor funding
Initial cocoa price weakness and
continued gold price weakness




Addressing donor concerns and
monitoring disbursements
In-country Gas plant expected to
feed power stations by Q4-2014
Expected oil production from TEN
and Sankofa fields in 2016/17
Ghana not yet affected by Ebola
Virus Disease but on high alert
Ghana has approached IMF for policy support and BoP funding
9
Previous Experience and Recommendations Have
Shaped Current Policies
A historical comparison indicates that Ghana’s current home grown measures are built on and conform to
the IMF’s recommendations
Timeline view of Ghana’s Historical Engagement with IMF
IMF grants Ghana a US$209 million Enhanced
Structural Adjustment (ESA) Facility
Ghana becomes
member of IMF
1957
Feb 2002
1983-1999 1999-2002
Economic Reform and Structural Adjustment
Programmes (ERP/SAP) with IMF
2003-2006 PRGF
Tax Policy and
Revenue
Administration
• VAT rate increase
• Increase in Road Fund Levy
• Debt Levy for Tema Oil
•
•
Refinery (TOR) Debt
Extension of National
Reconstruction Levy
Creation of a large
taxpayers unit
• Systems upgrades to cover
Public
Expenditure
Management and
Commitment
Control
•
•
key Ministries
Personnel audit
Implement automatic price
adjustment for petroleum
pricing
• Fiscal policy focused on
Debt
Management
reduction of domestic debt
2003-2006
2009-2012 ECF
•
•
•
Stabilization Levy
Royalty rates increased
Ad valorem excise duties
on tobacco and
beverages
Administration reforms
• Systems upgrades to
•
•
cover key Ministries
Civil service payroll audit
Freeze on issuing
commitment certificates
for new investment
projects
• Adopt a debt
management strategy
2009-2012
IMF grants Ghana a US$581.28
million Extended Credit Facility
HIPC Decision Point
• National Fiscal
Ghana implements and consults IMF on
its “home-grown” programme
US$258 million Poverty
Reduction and Growth Facility
fuel
• Higher excises
• Streamlining of tax exemptions
and administration
• Time-bound targets for
•
•
•
removing subvented agencies
from government payroll
Multi-year wage agreements
Review and streamlining of
allowances
Not replacing staff in areas of
overstaffing
2014
Ghana requests initiation
programme discussion with IMF
“Home-Grown Programme”
2014 Article IV
• Higher real estate tax rate
• Reconsideration of windfall tax
• Increase in ad valorem tax on
2013-2017
•
•
•
•
•
•
•
VAT increased and base broadened
Road fund and special import levy
National Fiscal Stabilization Levy
Change in petroleum tax to ad valorem
Environmental tax
Increased withholding tax
Free zone income tax review
• Ghana Integrated Financial Management
•
•
•
•
•
•
Information System (GIFMIS) fully in place
New HR management system
Weaning off subvented agencies
Payroll system upgrade and audits
Net freeze on employment in some sectors
Moratorium new projects
Regular fuel and utility price adjustment
• Full debt management strategy
• Plan to move to recovery schemes for
commercially viable projects
• Emphasis on paying for counterpart funds to
fast-track disbursement of existing loans
10
Support Requested from IMF
To support the ongoing rebalancing, Ghana has approached the IMF for support in addressing current
challenges
•
Ghana’s
Request
•
•
Timelines
Expected
Impact
Ghana’s
Commitment
Ghana submitted its “home-grown” programme to the IMF board during the Article IV consultations in 2014 and
received feedback from IMF on how to improve the home-grown programme
Ghana requested formal support from the IMF in early August to initiate discussions on an economic programme
that could entail receiving policy and credit support from IMF
The IMF Programme, when agreed, should enhance more significant and durable consolidation over the medium
term and provide policy tools to manage volatilities and productivity
•
•
Full mission to arrive in country in September to initiate discussions
Earliest expectation is that any agreed Programme might be ready for IMF Board approval before end of 2014
•
Ghana is seeking a funded IMF program that would provide temporary balance of payments support and
encourage resource flows from our development partners
Ghana to be eligible for both a stand-by arrangement or concessional funds via an Extended Credit Facility (ECF)
Previous IMF program was a three-year ECF under which IMF provided Ghana with US$581.28 million
•
•
•
•
•
Ghana is committed to reaching an agreement with IMF as it has always done
Ghana has already begun preparing to receive the IMF mission and is targeting the end of 2014 to reach an
agreement to a medium term programme of policy support [should be able to be in place before the end of 2014
Ghana has a long history with IMF and has a track record of fulfilling IMF programme requirements
11
Ghana’s Medium-Term Prospects Remain Bright
Despite current challenges, Ghana’s robust fundamentals will support continued inclusive development
and high growth
A Growth Outperformer
An Emerging Commodities Powerhouse
 One of the fastest growing countries globally with
13 consecutive years of robust growth above SubSaharan Africa average
 Nominal GDP has more than doubled since 2006
 Growth of over 7% in 2013 despite challenges
 One of Africa’s emerging oil exporters
 New hydrocarbon projects coming on-line
(including second FPSO, TEN, Sankofa fields)
 Gas production expected in Q4 2014
 2nd largest producer of cocoa and among top
10 gold producers globally
Rising Middle Class Advantage
A Beacon for Democracy
 Strong political stability and government
effectiveness promote growth
 Improved regulatory quality and anticorruption measures encourage investments
 Large middle class at 47% of the total population
 Outranks peers on most measures of human
development
 Evidence of successful poverty reduction
Diverse Economy and Focused Approach to Address Challenges




Committed to fiscal reforms and development agency support to tackle short term pressures
Economic diversity supports the long-term outlook for Ghana, including moving into value-added sectors such as gas-processing
Ghana benefits from a relative diverse domestic economy with services sector which accounted for an estimated 49% of GDP in 2013
Robust framework for managing oil wealth ensures that oil revenues are put to productive use (Petroleum Revenue Management Act
(PRMA) and Ghana Petroleum Funds)
*TEN- Tweneboa-Enyera-Ntomme
*FPSO- Floating production, storage and offloading vessel
12
Ghana’s Oil Sector to Boost Future Growth
New discoveries in 2013 adds up to a total of 28 new fields discovered. Gas also coming on-line in Q1-2015
World-class partners helping to deliver key projects
•
•
•
•
TEN Project: Recoverable reserves of 245 mmbls of oil and 365 bcf gas. First oil expected in 2016/ 2017
Sankofa – Gye Nyame Project: 116mmbls of oil and 1,110bctf gas. First oil expected in late 2016 / early 2017
Western Corridor Gas Project:
• Pipelines installed and tie-in to the Jubilee floating production, storage and offloading vessel (FPSO) in Q4 2014
• Will supply 120 mm btu gas daily to VRA to fuel thermal power plants
• Funded by a US$850mn loan from CDB and US$150mn counterparty funding from Government of Ghana
New Discoveries: 2 new discoveries in 2013 at Cob and PN-1 fields
Snapshot of current reserves
As at June 2014
Proven Oil Reserves
1,284
(mnboe)
Proven Gas Reserves
(Bcf)
2.177
Post-Jubilee discoveries being developed with world-class partners
Operator
Discoveries
Hydrocarbon Type
Status
GNPC
Ebony
Tweneboa-1
Tweneboa-2
Owo/Enyenra-1
Ntomme
Wawa
Odum-1
Teak-1
Teak-2
Banda-1
Mahogany Deep
Akasa-1
Sankofa-1
Gye Nyame-1
Sankofa East
Paradise-1
Hickory North
Almond
Beech
Pecan
PN-1
Cob
Dzata-1
Condensate/Gas
Gas Condensate
Oil
Oil
Oil & Gas
Oil & Gas
Heavy Oil
Oil & Gas
Gas
Oil
Light Oil
Light Oil & Gas
Gas
Gas
Oil & Gas
Oil & Condensate
Oil & Condensate
Oil & Condensate
Oil
Oil
Oil
Oil
Oil & Gas
Marginal
Plan of Development
Plan of Development
Plan of Development
Plan of Development
Exploration
Marginal
Appraisal
Appraisal
Marginal
Appraisal
Appraisal
Appraisal Completed
Appraisal Completed
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Appraisal
*TEN- Tweneboa-Enyera-Ntomme
Source: GNPC
13
2. Economic and Policy Update
Growth Steady but Macro Challenges Persist
Although growth has remained strong, macroeconomic headwinds and fiscal challenges persist and
Ghana is now engaging the IMF on implementing a Programme to help realign the economy
2012
Actual
2013
Projected
2013
Outturn
2014
Projected*
Real GDP Growth (%)
8.8
8.0
7.1
7.1
Headline Inflation (end of year %)
8.8
8.9
13.5
13.0% (+/-2%)
Revenues (Ghs mn)
16,668
22,533
19,472
26,230
Expenditures (Ghs mn)
25,317
30,544
28,926
36,358
Budget Deficit (% GDP)
(11.5)
(9.0)
(10.1)
(8.8)
48.0
-
55.8
-
(4,922)
(5,337)
(5,704)
-
5,349
-
5,632
-
Reserves (Months of Import Cover)
3.0
3.0
3.1
3.0
GHS:USD Exchange Rate (period end)
1.88
-
2.20
-
Public Debt (% GDP)
Current Account Deficit
Gross International Reserves (US$ mn)
Source: Budget Statements 2013 and 2014
* Supplementary Budget 2014
15
Curbing Fiscal Deficit is a Key Focus for Ghana
Targeted action improved Ghana’s fiscal situation with
signs of improvement seen in H1 2014
Revenue pressures and Cedi depreciation effect on expenditure
figures compounded the fiscal and current account deficits
Revenues & Grants (% of GDP)
Expenditures (% of GDP)
29.40%
29.38%
27.94%
Fiscal deficit (% of GDP)
11.7
10.1
25.05%
8.8
5.8
23.00%
6.5
4.2
4.0
2009
2010
2011
22.45%
2012
2013
2014 (proj.)
H1 2014
18.80%
19.14%
2009
2010
21.58%
22.24%
2011
2012
22.90%
20.83%
2013
2014
Projected
Key pressure points identified
2012
2013
22.24%
20.83%
7.39%
5.62%
3.69%
3.99%
1.55%
6.74%
5.17%
3.39%
4.73%
0.79%
27.94%
9.58%
1.76%
5.29%
3.25%
6.63%
1.43%
29.38%
10.14%
1.55%
5.64%
4.70%
6.49%
0.85%
Revenues (% of GDP)
Total revenue
Income & Property Taxes
Taxes on Domestic Goods & Services
International Trade Taxes
Non-Tax Revenue
Grants
Comments
Economic headwinds resulted in reduced domestic activity which led to shortfalls in tax
revenues
International trade taxes came in below budget due to lower import volumes
Non-tax revenue trending higher to provide much needed buffer
Slower disbursement of donor grants exacerbated the deficit
Expenditures (% of GDP)
Total expenditure
Compensation of Employees
Goods & Services
Transfers (subsidies and grants to govt units)
Interest Payments
Capital Expenditures (Total)
Others
Higher than expected wage bill due to single spine salary structure related arrears
Cost-cutting measures which resulted in a smaller goods and services bill
Macroeconomic and external pressures led to an increase in interest payments and
transfers
Prudent management of capital and other expenditures but avoid curtailing growth
Source: Ministry of Finance, 2014 Mid-Year Budget Review Statement
16
Focused Action to Reduce Fiscal Deficit in 2014
2014 Budget introduced a number of policy initiatives, which have been implemented, to control the deficit

Tax Reform
Broaden tax base and remove
inefficiencies

Realign Expenditures
Curb and streamline public
expenditures

VAT increase of 2.5 percentage points and a broadening of the VAT base
•
Withholding tax on commercial rent now 15% from 8%
•
Strengthening expenditure management through GIFMIS
•
Restrain utility and petroleum subsidies
•
Reduce the public sector wage bill as a share of tax revenue
•
Reduce “ghost” workers via payroll audits and electronic payroll platforms (ESPV)
•
A proposal of a moratorium on public sector wage increase in 2014 (with only a COLA uplift)
•
Net freeze on employment into some sectors of the public service
•
Move to a credit and refund system from upfront exemptions
•
Ghana Investment Promotion Centre (GIPC) Act being reviewed to reduce exemptions
•
Strengthening tax compliance through electronic platforms (TRIPS)
Wage Measures
Aggressively manage public
sector wage bill

•
Exemption Reduction
Minimize abuse, tax evasion
and tax avoidance
Stricter programme-based budgeting process and fiscal decentralization being adopted
Source: A Policy Statement on the Ghanaian Economy, April 1, 2014
17
Pay Policy - Key Deficit Driver is Being Tackled
Successful negotiations have resulted in a salary freeze (apart from COLA) for government employees in
2014 while ongoing reforms aim to rationalise the government wage bill
•
Single Spine Salary Structure (SSSS) cost has been
higher than expected due to legal challenges within
Ghana and union negotiations
•
Public sector wage containment to manage down costs
going forward – negotiations with labour ongoing with
encouraging signs both for this year and medium term
Wage Negotiations
Wage bill overshoot has been one of the
key drivers of the deficit
4.0%
2014 (Jan-Jun)
4.0%
• Wage freeze in inflationary environment lowers costs
considerably – with only extra cost one-off Cost of Living
Allowance (COLA) negotiated in May 2014
Removing Agencies
from Payroll
Recruitment and
Replacement
•
Committed to reducing level of wages as a percentage of
revenue
•
12 agencies have been identified as able to independently
meet personnel payments
•
Hard constraints set on budgeted wages and salaries at
Ministry level for recruitment and replacement of staff
•
Payroll audit to focus on Ghana Education Service and
Ghana Health Service (1st Phase)
Payroll Audit
IT and Systems
Upgrades
•
The review and headcount exercise extended nationwide
•
•
Payroll system upgrade
Electronic salary payment vouchers (ESPV) to reduce the
phenomenon of “ghost” workers and reduce the size of
the payroll
8.8%
2013
8.4%
8.9%
2012
8.1%
7.6%
2011
6.9%
0%
2%
Outturn / GDP
4%
6%
8%
10%
Budget / GDP
Source: 2014 Budget Statement, 2014 Mid-Year Budget Review Statement
18
Budget On-Track for H12014 but Risks Remain
Tighter fiscal management is evidenced in H1 2014 with the wage bill under control and the overall deficit
reaching -3.4% of GDP versus projected level of -3.6% of GDP
Jan – June 2014 Revenues largely in line with budget
GHS millions
Projection
Outturn
12,153
11,145
9,044
8,630
Taxes on Income and Property
4,217
3,946
Taxes on Domestic Goods and Services
3,090
2,955
International Trade Taxes
1,737
1,729
82
113
2,470
2,061
556
342
Total Revenue and Grants
Tax Revenue
Social Contributions
Non-Tax Revenue
Grants
Total revenues and grants lower than
expected signalling that risks persists
Slower than expected growth and macro
headwinds affected income taxes
Jan – June 2014 Expenditure lower than forecast, despite overruns in interest payments
GHS millions
Total Expenditure
Compensation of Employees
Use of Goods and Services
Interest Payments
Subsidies
Grants to Other Government Units
Social Benefits
Others
Capital Expenditure
Projection
Outturn
15,401
13,532
5,358
5,051
421
395
3,314
3,243
40
58
3,288
1,900
27
1
358
460
2,594
2,425
Compensation to employees
below forecast
Reduced expenditure to other government
units and social benefits
Slower utilisation of capital budget due to
grant shortfalls and revenue constraints
Source: 2014 Mid-Year Budget Review Statement
19
Tight Policy Stance to Deal with Rising Inflation
Pressures from Cedi depreciation, the fiscal deficit and effects of fuel price adjustments have pushed
headline inflation out of the target band. As a result the BoG has maintained a tight policy stance
Evolution of inflation (%) through 2013 reveals key drivers are non-food-related elements
Inflation rose through H1 2013 with the combined impact of petroleum prices adjustment, the energy
crisis and demand pressures from an expansionary fiscal stance during the 2012 pre-election period
9.9
10.2
10.6
10.7
10.9
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Seasonal food harvest results
in marginal decline
Reduction in subsidiaries for petroleum prices,
transport fares and utility tariffs
see inflation rise in Q4-2013 to 2014
11.5
11.7
13.1
13.3
13.5
15.0
11.8
14.5
11.7
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Mar-14
June-14
BoG used the Monetary Policy Rate (MPR) as a tool to address inflationary pressures
Monetary Policy Rate (%)
20
18.0
18
16
14
12.5
15.0
15.0
15.0
15.0
Jun-12
Sep-12
Dec-12
Mar-13
16.0
16.0
19.0
18.0
16.0
BoG has raised MPR by
300bps since Dec 2013
13.5
12
10
Dec-11
Mar-12
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Source: Bank of Ghana Inflation Outlook Report, February 2014, Bank of Ghana
20
Reining-In Cedi Depreciation
Shortfalls in balance of payments and reduced confidence have led to currency pressures over the past
year. However, a tightening of regulation and monetary policy is beginning to help to stem depreciation
pace
Rate of depreciation is now expected to slow
Cedi has depreciated rapidly over the last 12 months
4.00
GHS:USD (period end)
3.0
following targeted action from BoG
2.5
GHS:USD
3.50
2.0
3.00
1.5
2.50
1.0
0.5
2007
2008
2009
2010
2011
2012
2013
Jun-14
2.00
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14
BoG deployed multiple measures to restore exchange rate stability
•
Monetary policy tools are the primary mechanism for managing the Cedi depreciation:
 MPR raised to 18.00% in March 2014 then to 19.00% in July 2014
 Cash Reserve requirement raised by 200bps to 11.00%
 Net open position of banks lowered on both single currency and aggregate currency basis
•
In order to complement these traditional measures, in Q1 2014, the Bank of Ghana implemented a series of enhancements to ensure transparency,
streamline activity and reduce leakages in the foreign exchange markets:
•
•
•
Strengthening the requirements for banks to repatriate export proceeds to local banks to ensure more foreign exchange supply to banks
More stringent Anti-Money Laundering measures for forex bureaus giving greater oversight on retail demand
Measures are being monitored to determine their efficacy and amended where necessary
Source: Bank of Ghana, Bloomberg (Jan 2014- Aug 2014)
21
2014 Targets and Medium Term Goals
The Government is taking decisive action to correct current imbalances in the economy and ensure
positive future prospects for Ghana
In light of ongoing pressures in the economy since the budget was proposed, the Government presented in July a mid-year review and
supplementary estimates for 2014. The supplementary estimates make adjustments to key macro targets to account for:
•
•
•
•
•
Higher interest costs due to rising interest rates, borrowing and exchange rate depreciation
Erratic gas supply from West Africa gas pipeline and delays in completing gas infrastructure
Grant shortfalls
Higher subsidy costs due to slower than expected implementation of automatic utility and petroleum price adjustments
The cost of public sector wages including the COLA (Cost-of-Living Allowance)
2014 Revised Targets




Real GDP Growth: 7.1% from 8.0%
End Period Inflation: 13.0% (+/-2%) from 9.5%
Gross International Reserves: Unchanged at 3x months of
import cover
Fiscal Deficit: 8.8% of GDP from 8.5% of GDP
Source: 2014 Mid-Year Budget Review Statement
Medium Term Goals
Achieve and Sustain Macroeconomic Stability:
• Average GDP growth of 8.7% (2014-2016) and average non-oil real
GDP growth of 8.2%
• Stabilization of public debt to GDP at 45% by 2016
Fiscal Consolidation:
• Gradual consolidation to achieve deficit of 6.0% of GDP by 2017
• Programme-based budgeting and fiscal decentralization
• Wage bill reduction
• Shit to commitment-based budgeting and automation
Monetary Policy:
• Inflation of 9.5% within a band of +/- 2 percent
• Gross international reserves ≥4 months of import cover
• Reduce BoG lending to Government to at or below 5% of currentyear revenue
22
3.
Foundations Remain
Strong
A Beacon of Democracy in Africa
Ghana is one of the most stable and best governed countries in Africa with an institutional maturity that
provides the ideal foundation for future growth
Consistently Ranks in Top 10 for African Governance
(Mo Ibrahim Index 2013)
Rank
1
2
3
4
5
6
7
8
9
10
Country
Change since
2000
7.3
5.6
6.0
5.5
0.6
2.3
5.3
4.4
7.7
4.3
Score
Mauritius
Botswana
Cape Verde
Seychelles
South Africa
Namibia
Ghana
Tunisia
Lesotho
Senegal
82.9
77.6
76.7
75.0
71.3
69.5
66.8
66.0
61.9
61.0
Percentile Rank
Sub Saharan Average
62
40
32
30
Ghana
56
54
51
60
28
33
63
55
30
28
20
0
Voice and Political Stability Government
Accountability
Effectiveness
Regulatory
Quality
Rule of Law
Rank
Change
2014
67
2010
77
10
Economy
Ease of Doing
Business Rank
Sub Saharan
Africa Rank
20
32
41
56
67
80
83
98
121
123
1
2
3
4
5
6
7
8
9
10
Mauritius
Rwanda
South Africa
Botswana
Ghana
Seychelles
Zambia
Namibia
Cape Verde
Swaziland
Ghana’s business environment achieves scores close to
those for the highest performers
Ghana Continues to Outrank Peers Across
All Measures of Governance
80
Year
Control of
Corruption
Ghana Distance to Frontier*
Starting a Business
Getting Credit
Registering Property
Getting electricity
Paying Taxes
Dealing with Construction Permits
Trading Across Borders
Enforcing Contracts
Protecting Investors
Resolving Insolvency
Source: Mo Ibrahim Index 2013, World Bank 2013 Ease of doing business survey, World Bank Governance Indicators 2013
Sub-Saharan Average derived from top 20 most populated countries
* Distance to Frontier measures economy’s performance against the highest performers globally. Frontier score is 100
0
82.5
81.3
81.0
76.3
73.4
65.7
64.3
63.6
63.3
27.7
20
40
60
80
100
24
Strong and Consistent Growth Profile
Robust and Consistent Nominal GDP Growth
Nominal GDP (GHS billions)
114.79
120
• Despite challenges, a diverse domestic economy ensured
that overall growth remained strong at 7.1% in 2013, with
services boosting output
93.46
90
• Lower growth rate in 2013 can be attributed to disruptions
74.96
59.82
60
in gas and hydro supply which contributed to power
shortages, higher interest and inflation rates, declining
world-wide prices of gold and cocoa (key exports for
Ghana) as well as lower than forecasted Oil & Gas
receipts
46.04
36.60
30
0
2009
2010
2011
2012
2013
2014 (proj.)
Well Balanced Sectoral Contributions to GDP with a
Leading Services Sector
Real GDP Growth (%)
Agriculture
22.00%
Agriculture
31.80%
Growth continues to surpass sub-Saharan regional
averages
Services
49.50%
Services
49.20%
15.0%
16.0%
12.0%
2009
2013
8.8%
8.0%
8.0%
7.1%
7.1%
2013
2014
(proj.)
4.0%
4.0%
Industry
28.60%
Industry
19.00%
Services
Industry
Agriculture
0.0%
2009
Source: Ghana Statistical Services, Ministry of Finance
2010
2011
2012
25
Strong Record of Poverty Reduction and
Development
Ghana’s large middle class is evidence of successful poverty reduction via an inclusive growth agenda
and bodes well for future development
Steady income growth has propelled Ghana
to middle income country status
• Ghana’s large middle class, successful poverty reduction and
strong human development indicators are evidence of broad
based and inclusive development policy
GDP per capita (US$)
2,000
1,606
1,604
1,603
• The Ghana Shared Growth and Development Agenda (GSGDA)
serves as a policy kit for poverty reduction and inclusive growth
1,364
1,500
• As incomes continue to rise the large middle class will contribute
1,117
1,000
to increased consumption, bolstering long-term growth
• Ghana’s infrastructure development plans aim to improve
500
economic conditions in both urban and rural areas
0
2009
2010
2011
2012
2013
Ghana still outranks African peers across
most measures of human development
75%
60%
80%
48% 47% 47% 45% 43%
40%
37% 36%
23% 19%
14% 14% 12%
20%
Source: Ghana Statistical Service, AFDB Middle Class Index, UN Human Development Index
Tanzania
Zambia
Zambia
Uganda
Nigeria
Senegal
South
Africa
Cote
D'Ivoire
Kenya
Ghana
Namibia
Botswana
0%
HDI Index 2011
80%
Gabon
% 2011 Population
Ghana has one of the largest middle class
populations in Sub-Saharan Africa
60%
Ghana
Sub-Saharan Africa
57%
54%
46%
40% 43%
70%
54%
43%
40%
20%
0%
HDI Rank Value
Income index
Education index
Health index
26
Viable External Position
FDI and portfolio inflows which moderated
trade deficit effects can still be improved
Prudent reserves management in face of macro
challenges and seasonal FX inflows
Portfolio flows (US$ millions)
8,000
(months)
6,820
6,000
5,643
3.1
3,946
Imports Cover
6,000
4,722
4,500
3.1
3.0
2.8
2.5
(US$ mn)
5,306
4,877
3.0
4,000
551
5,632
5,035
4,904
2,000
Gross International Reserves
3.5
2.7
3,000
2.7
2.0
1,110
1,500
425
1.5
0
2009
2010
2011
2012
2013
Trade gap remains a challenge
but narrowed in H1 2014
Exports (LHS)
(USD mn)
0
Oct-13
H1 2014*
Nov-13
Jan-14
Feb-14
Mar-14
Diversified and growing exports with gold, oil and
agriculture as key contributors
F.O.B Exports Value (USD millions)
Imports (LHS)
20
Dec-13
17.8
Gold
16
17.6
Cocoa
Oil
Others
15.8
16
12.8
13.8
12
2.22
10.9
12
2.78
8.0
8
13.5
8.0
6.9 7.2
5.8
8
1.94
1.42
4
4
2009
2010
2011
2012
2013
H1 2014
Source: Ghana Statistical Services, Ministry of Finance, Bank of Ghana (H1 2014 provisional data)
*Gross international reserves at US$4.47 billion as at June 2014
2.98
2.83
2.63
3.89
2.27
1.26
4.97
2.02
1.16
2.22
1.87
2.55
0
2.87
2.09
3.80
4.92
5.64
2.14
0
2009
2010
2011
2012
2013
H1 2014*
27
An Emerging Regional Leader in Commodities
A diversified commodities endowment with traditional gold and cocoa, enhanced by rapidly developing
hydrocarbon production provides a powerful foundation for future growth
Rising crude oil production to be
boosted by new wells
Ghana’s oil reserves are comparable in size to other new
producers on the continent
Proved oil reserves (end 2012, billion barrels)
4.0
3.5
75
76
60
3.0
1.7
2.0
1.5
45
1.5
1.2
82
83
2018
2019
77
52
30
1.0
39
40
2014
2015
15
0
0.0
Ghana
205
200
170 165
102 100 95
100
90
87
60
56
45
Chile
Brazil
Papua New
Guinea
Mexico
Uzbekistan
Indonesia
Ghana
Canada
Peru
South
Africa
Russia
United
States
Australia
China
0
1,200
870
800
500
412
400
230
220
185
170
Ecuador
250 230
1400
Brazil
1,600
Cameroon
370
300
2020
Second only to Cote D’Ivoire, Ghana has a 20% share of
the international cocoa market
000’s tonne
400
2017
Nigeria
Ghana is one of the top 10 gold producers globally
2016
0
Rest of the
World
Sudan
Indonesia
Chad
Ghana
Equatorial
Guinea
Cote
D'Ivoire
South Sudan
Metric tonne
million barrels
90
Source: BP Statistical Review of World Energy 2014, Ghana as per Government of Ghana, US Geological Survey, AfDB, FAO
28
Oil Becoming Key Revenue Contributor
Robust framework for managing oil wealth ensures that oil revenues are put to productive use
Composition of
Petroleum Receipts
Distribution of
Petroleum Receipts
H1-2014 Distribution of
Petroleum Receipts
Item (US$ mn)
2012
2013
Item (US$ mn)
2012
Royalties
150.7
149.0
Transfer to GNPC
230.9
186.1
Transfer to GNPC
80.5
Carried and
Participating Interest
390.4
385.2
Net Receipts for
Distribution to ABFA and
GPFs
310.7
520.9
Net Receipts for Distribution to
ABFA and GPFs
482
0.45
0.80
286.6
204.9
Corporate Income Tax
0
172.2
16.9
221.3
Gas Receipt
0
-
541.6
707.3
Surface Rentals
Total
o/w ABFA
o/w Ghana
Stabilization Fund
o/w Ghana Heritage
Fund
Total
7.2
541.6
Ghana Petroleum Funds Balances (Jan-Sep 2013)
US$ mn
Ghana Stabilization Fund
Opening
Book Value
71.9
2013
94.8
707.3
0.8
Opening
Book Value
319.0
Net Income
221.3
H1-2014
o/w ABFA
204.5
o/w Ghana Stabilization Fund
o/w Ghana Heritage Fund
Total
121.2
51.9
562.5
Ghana Petroleum Funds Balances (H1 2014)
Closing
Book Value
293.9
Allocations
Item (US$ mn)
Allocations
Net Income
121.2
0.9
Closing
Book Value
264.7
Ghana Heritage Fund
21.7
94.8
0.7
117.2
128.1
51.9
0.9
181.0
Total
93.6
316.1
1.5
411.1
447.1
173.1
1.8
445.7
Source: BOG Petroleum Funds Report, June 2013 and Petroleum Holding Fund & Ghana Petroleum Funds Report Jan-June 2014, Budget Statement 2014
29
Sound Banking System
Non-performing loans have trended downwards
despite macro challenges
Well capitalized banks
20%
17.41%
18.56%
NPL Ratio
17.96%
16%
16.70%
14.15%
NPL Excluding Loss Category
13.20%
15%
12.70%
12.80%
12%
Regulatory
Minimum
of 10%
10%
5%
8%
5.86%
5.62%
5.46%
4.72%
4%
0%
2011
2012
2013
H1 2014*
0%
2011
2012
2013
H1 2014*
Robust regulatory supervision of the banking sector
•
Due to BOG's robust supervision and sound policies, the banking system has improved in terms of capitalisation, soundness and liquidity,
and the industry's expanding loan portfolio has improved in quality
•
•
Under the current banking system, licensed banks may engage in both commercial banking and investment banking
•
In addition to the universal banks, Ghana has a rural banking system in which 139 Rural and Community Banks (RCBs), which are
licensed only for domestic banking, operate throughout the country
•
Opportunities still exist to deepen the banking sector as only approximately 25% of the country's population has bank accounts
There are currently 27 universal banks which are diversified in geographic origin, corporate character and reach in the global financial
markets.
Source: Bank of Ghana
30
4.
Financing for Growth
Overall Debt Profile Still Manageable but
Domestic Interest Rates Remain High
Debt has risen due to fiscal overruns in recent years. However, Ghana needs to access more cost effective
USD market funding in view of high domestic rates to better manage its interest expenses
Selectively Tap External Markets
• Tap international bond markets to reduce
Debt has increased steadily with an equal
split between domestic and external debt
reliance on short-term, high cost domestic debt
Gross External Debt/GDP
Financing CAPEX
• Long-term debt to finance CAPEX via extended
domestic yield curve and selective use of the
Eurobond markets
40%
55.8%
56.0%
29.2%
24.8%
• Ensure that cost of debt service is managed in
39.7%
16.8%
18.0%
19.9%
19.8%
19.8%
23.0%
26.6%
31.2%
19.6%
2009
2010
2011
*
2012
2013
June2014
25.1%
Export/ Suppliers/
Buyer's Credit
Commercial
29.8%
Other Concessional
9.9%
There is a need to curtail interest
expense by limiting domestic borrowing
9.7%
Domestic yields remain elevated
Loans to Priority Projects
• National priority project registry developed to
better identify high-impact projects
Ghana Infrastructure Investment Fund (GIIF)
• Channel a portion of petroleum funds directly
into infrastructure development
• Strategic infrastructure development with private
sector partnership
• Support debt sustainability by requiring
commercially viable projects to be self-financing
Establishment of Sinking Fund
Domestic
External
5
25.0%
4.4
0.6
4
23.0%
25%
2.4
1.4
1.6
1.0
0.3
0.3
0.3
0.8
1.1
1.3
2009
2010
2011
2
0.6
21%
3.8
1.9
23.0%
24.4%
23.0%
22.9%
19.0%
22.0%
19%
18.0%
22.0%
17%
0
Jul-13
22.5%
23%
3
Jul-14
26.4%
27%
19.2%
15%
7-Yr
5-Yr
3-Yr
2-Yr
1-Yr
Source: Ministry of Finance
* The External Debt from 2012 has been reclassified to reflect the facility type per creditor
2013
182-Day
sustainability
2012
91-Day
• To fund debt redemptions and enhance debt
GHS billions
1
Multilateral
Official Bilateral
37.8%
0%
On-Lending and Escrow Policies
39.3
48.1%
36.3%
20%
management purposes and less for capex
commercially viable projects through
implementation of matched on-lending and
escrow account policy
Gross Domestic Debt/GDP
12.0%
60%
Liquidity Management
• Utilisation of short-term debt for liquidity
External debt is 100% long term
and largely concessional (March 2014)
32
Interim Funding Plans - Why Issue Now?
A number of high-impact projects in Ghana remain in need of funding for 2014 and beyond– so while
capital expenditure has been reined-in, there are a limited number of capital projects that need to be
financed now
Projects Have Been Carefully Selected
Why Now?


• Many of these projects are high growth and postponing

• Funding these long term infrastructure projects with short
Projects that will help sustain high growth even during the
period of fiscal consolidation
Focus on infrastructure projects that will form backbone of
economy for next decade in sectors such as power, energy,
roads, water, housing and transport
Selection of projects where funding unlocks counterparty
funds with development partners, increasing the impact on
the economy partners include the World Bank and the
United States
them would be harmful to economy
• The 2015 budget must be read in November, and any
unfunded projects will be rolled over into next year –
producing a drag on growth and distorting capital
expenditure planning
term domestic debt is still prohibitively expensive
• IMF is already aware of the bond issue and an IMF
programme does not prohibit us from external borrowing
(example is the US$ 3billion CDB loan in 2011)
Ghana is seeking to implement a number of critical projects for this fiscal year and also retire some high
interest domestic short term debt
33
Proposed Transaction Terms
Issuer
The Republic of Ghana
Issuer Ratings
Moody’s: B2 (Negative) / Fitch: B (Negative) / S&P: B (Negative)
Format
144A / Reg S
Status
Senior Unsecured
Currency
US Dollar
Size
USD [] million
Tenor
[] years
Expected Issuer Ratings
Moody’s: B1 / S&P: B / Fitch: B
Use of Proceeds
Capital expenditures to priority infrastructure projects and repayment of short term
domestic debt
Listing
Application to list at Irish Stock Exchange
Minimum Denominations
US$200,000 + US$1
Governing Law
English law
Joint Lead Managers
Barclays Bank PLC, Deutsche Bank AG , Standard Chartered Bank
34
5.
Conclusion
Ghana’s Medium-Term Prospects Remain Bright
Despite current challenges, Ghana’s robust fundamentals will support continued inclusive development
and high growth
A Growth Outperformer
An Emerging Commodities Powerhouse
 One of the fastest growing countries globally with
13 consecutive years of robust growth above SubSaharan Africa average
 Nominal GDP has more than doubled since 2006
 Growth of over 7% in 2013 despite challenges
 One of Africa’s emerging oil exporters
 New hydrocarbon projects coming on-line
(including second FPSO, TEN, Sankofa fields)
 Gas production expected in Q4 2014
 2nd largest producer of cocoa and among top
10 gold producers globally
Rising Middle Class Advantage
A Beacon for Democracy
 Strong political stability and government
effectiveness promotes growth
 Improved regulatory quality and anticorruption measures encourage investments
 Large middle class at 47% of the total population
 Outranks peers on most measures of human
development
 Evidence of successful poverty reduction
Diverse Economy and Focused Approach to Address Challenges




Committed to fiscal reforms and development agency support to tackle short term pressures
Economic diversity supports the long-term outlook for Ghana, including moving into value-added sectors such as gas-processing
Ghana benefits from a relative diverse domestic economy with services sector which accounted for an estimated 49% of GDP in 2013
Robust framework for managing oil wealth ensures that oil revenues are put to productive use (Petroleum Revenue Management Act
(PRMA) and Ghana Petroleum Funds)
*TEN- Tweneboa-Enyera-Ntomme
*FPSO- Floating production, storage and offloading vessel
36