Poor public finance management, huge debt to blame for Ghana’s economic crisis – WB

The World Bank’s Africa Pulse for April 2022 titled: ‘Boosting resilience: The future of social protection in Africa’, has said Ghana and some other African economies are performing badly because of poor financial management and huge debts.

According to the report, “Ghana, Ethiopia, Malawi, and Mozambique fell short of replicating the success of most non-resource-rich countries, in part, because of elevated debt levels, and in some cases, insecurity”.

“In Ghana and Malawi, the disappointing performance underscores the poor management of public finances and, the need for significant growth-enhancing reforms while growth was held back in Ethiopia and Mozambique by the ongoing civil war in the Tigray Region and insurgency in Cabo Delgado, respectively”, the report noted.

Read excerpts of the report below:

Sub-Saharan Africa’s Three Largest Economies

Nigeria’s economy grew by 4.6 per cent (year-over-year) in 2021Q4, a little over the 4.1 per cent in the previous period (2021Q3), and at a faster pace than pre-pandemic growth. Real GDP growth is expected to have expanded by 3.6 per cent in 2021, 1.2 percentage points above the October 2021 Africa’s Pulse projection, and exceeding population growth of 2.6 per cent for the first time since 2015. On the demand side, the economic expansion was supported by private consumption expenditure associated with accommodative monetary and fiscal policy, while private investment continued to grow moderately, reflecting high uncertainties due to security issues. On the supply side, the service sector remains the key driver of the economy.

The industrial sector dragged down the pace of recovery, owing to supply chain disruptions coupled with the seasonal decline in crop production. Industrial production was down by 3.1 per cent (quarter-over-quarter). Weak production in the oil sector weighed on recovery in 2021. Oil production dropped from 1.57 million barrels per day in 2021Q3 to 1.50 million barrels per day in 2021Q4. The South African economy expanded by 1.2 per cent (quarter-over-quarter) in 2021Q4, falling short of recovering the losses in the previous quarter after contracting by 1.5 per cent (quarter-over-quarter), dragged by the outbreak of the Delta variant of COVID-19 as well as disruption caused by unrest in the Kwazulu-Natal and Gauteng provinces.

The economy grew somewhat in the fourth quarter due to less stringent containment measures implemented by the government to contain the (more transmissible but less harmful) Omicron variant of the coronavirus. Growth in South Africa is estimated at 4.9 per cent in 2021, revised up by 0.3 percentage point from the earlier forecast for a stronger rebound from the 6.4 per cent contraction in 2020.

On the demand side, the expansion was driven by strong household consumption expenditure, particularly expenditure on durable and semi-durable goods. Gross fixed capital formation continued to disappoint after the damage caused to capital stock from the July unrest, it grew by 1.9 per cent (quarter-over-quarter). Investment continued to lag its pre-pandemic level due to electricity outages, political uncertainty including on the macroeconomic outlook and the business environment, and persistently weak state-owned enterprises (SOEs). General government expenditure rose by a mere 0.1 per cent (quarter-over-quarter) in 2021Q4.

The weak private investment amid structural constraints are especially concerning as they inhibit South Africa’s economic growth potential.

On the production side, the service and agriculture sectors supported growth in 2021Q4, while the industrial sector struggled to regain its pre-pandemic traction. The economy of Angola is expected to emerge from prolonged years of recession since the collapse of oil prices in 2014, as it is estimated to grow 0.2 per cent in 2021, 0.2 percentage point down from the previous forecast, supported by good performance in the non-oil sector and elevated oil prices. Outside the three big regional economies, there is a stark divergence in performance between resource-rich and non-resource-rich countries, which emerged since the commodity price collapse of 2014 and persisted in 2021. While growth in resource-rich and non-resource-rich countries was comparable in the pre-collapse period (2004-14), at 5.3 and 5.5 per cent, respectively, the estimates for 2021 are 3.5 and 4.7 per cent, respectively.

Resource-Rich Countries

Resource-rich countries failed to capitalise on the elevated commodity prices during the boom period of 2000-14.44 In particular, oil-rich countries (Angola, Chad, Nigeria, and the Republic of Congo) have struggled to meet their OPEC quotas due to insufficient investment in the oil sector (figure 1.28). Chad registered a dismal performance in 2021, remaining depressed at -1.2 per cent from -1.6 per cent in 2020. The Republic of Congo continued in recession for seven consecutive years. Real GDP growth was down by -3.5 per cent in 2021, 2.3 percentage points down from the October 2021 projection, as oil production dropped, and the non-oil sector underperformed. Economic performance in South Sudan was poor in 2021 as floods affected both agriculture and oil production, and the COVID-19 pandemic delayed new investments to replace exhausted oil wells.

Metal and mineral resource-rich countries emerged from negative territory (-5 per cent) in 2020 to grow by 4.8 per cent in 2021 on the back of elevated commodity prices. Growth was particularly robust in the Democratic Republic of Congo, being revised upward to 5.7 per cent from the October 2021 projection of 3.6 per cent.

Similarly, the economy expanded in Botswana by 12.1 per cent, exceeding the early forecast of 8.5 per cent, driven by strong performance of the non-mining sectors—particularly public sector services. Underperforming sectors include agriculture, forestry and livestock, and accommodation and food services. Other metal and mineral resource-rich countries with positive real GDP growth boosted by high metal and mineral prices include Guinea (3.1 per cent) and Liberia (4 per cent).

Meanwhile, Niger (1.4 per cent) and Zambia (3.6 per cent) were among the worst performers, with the rebound in Zambia supported by favourable terms of trade and improved business confidence after the presidential election.

Non-Resource-Rich Countries

Non-resource-rich countries rebounded strongly from the 2020 recession, expanding by 4.7 per cent thanks to accommodative macroeconomic policies, increase in net exports, and resilience to the COVID-19 pandemic. This is particularly the case among non-resource-rich countries in the WAEMU, such as Benin (6.6 per cent), Burkina Faso (7 per cent), and Senegal (6.1 per cent). The West African non-resource-rich countries withstood first the collapse of commodity prices in 2014, with solid macroeconomic fundamentals, and then the aftermath of the 2020 recession. Inflation and deficits were under control and consistent with WAEMU targets.

This, in turn, helped the countries to rebound alongside advanced economies and emerging markets and developing economies. Likewise, Kenya (6.7 per cent) and Rwanda (10.9 per cent) did exceptionally well, emerging from the recession and regaining their pre-pandemic growth paths. Rwanda is one of the strongest performers in the region, with robust growth of 10.3 per cent in 2021Q4 thanks to its effective management of the COVID-19 pandemic, which translated into strong expansion of the industrial and service sectors. Unlike non-resource rich WAEMU countries, the coronavirus had a more protracted adverse impact on economic activity among non-resource-rich countries in East Africa.

Additionally, Ghana, Ethiopia, Malawi, and Mozambique fell short of replicating the success of most non-resource-rich countries in part because of elevated debt levels, and in some cases, insecurity. In Ghana and Malawi, the disappointing performance underscores the poor management of public finances and, the need for significant growth-enhancing reforms while growth was held back in Ethiopia and Mozambique by the ongoing civil war in the Tigray Region and insurgency in Cabo Delgado, respectively.

The estimated real GDP growth of 6.3 per cent in 2021 for Ethiopia is about half the average growth recorded over 2004- 2014. Tourism-dependent countries, Mauritius and the Seychelles, were hit hard by the pandemic, yet they managed to navigate the recovery process well, and growth was up by 3.9 and 7.9 per cent, respectively. High-Frequency Data Incoming data signal a slow pickup in economic activity in AFE after the Omicron variant disruption in December 2021.

In South Africa, December data highlighted the weakness of the economy stemming from travel bans and mild restrictions imposed by the government to limit the effects of the Omicron variant. The contraction was noticeable in manufacturing (-0.1 per cent) and mining (-5.3 per cent) production (figure 1.29). By contrast, recent data point to a steady recovery, albeit with mounting uncertainty arising from the Russia-Ukraine conflict. After dropping from 57.2 in November to 54.1 in December, the manufacturing PMI bounced back in January to 57.1 and surged further to 60 in March.

Total vehicle sales followed a similar trend, increasing for two consecutive months after dipping in December, and were up by 18.4 per cent (year-over-year) in February. Manufacturing and mining production reversed the poor performance of December 2021 and were up by 2.9 and 0.1 per cent (year-over-year), respectively, in January 2022. The largest contributions to mining production came from manganese ore (19.6 per cent), diamonds (16.3 per cent), and gold (7.0), whereas manufacturing production was mainly supported by food and beverages (11.5 per cent). These data suggest that the manufacturing sector is behind the rebound in economic activity. The positive picture from incoming data is echoed by improved private sector sentiment, with the RMB/BER Business Confidence Index up from 43 in 2021Q4 to 46 in 2022Q1, the highest level since its collapse in 2021Q2 caused by the effects of the Delta variant and riots (figure 1.30).

Unsurprisingly, the survey preceded the Russia-Ukraine conflict. By contrast, consumer confidence dropped in 2022Q1, reflecting negative sentiment from the Ukraine war as well as the steep uptick in fuel prices in March, with the expectation that they will remain elevated for the coming months. Exports of precious metals and stones receded, driving down exports by 16.1 per cent in January from the previous month. As a result, the current account surplus plummeted to 1.9 per cent of GDP in 2021Q4 from 3.5 per cent in 2021Q3.

Crude oil production in Angola has been on the rise since June 2021, up by 0.12 million barrels per day as of February 2022 (figure 1.28). Oil revenues increased considerably in 2021 on the back of high oil prices combined with a recovery in production from June to December 2021. Angola’s oil production has been on the back foot since 2015.

The country resorted to the non-oil sectors, specifically the agriculture sector, as the engine of economic growth. The government’s reform program with the International Monetary Fund (IMF), higher oil prices, and fiscal consolidation have provided an impetus to investors, increasing business confidence to positive territory in 2021Q4.

Declining COVID-19 cases propelled activity in Kenya, which recorded an uptick in the PMI to 52.9 in February from 47.6 in January 2022. The current account deficit widened in December. Business confidence has been zigzagging since the economy emerged from the 2020 recession, reflecting slow progress in reducing COVID-19 cases throughout 2021, supply chain disruptions, and looming uncertainty associated with the presidential elections. Rwanda was among the hardest-hit countries by the pandemic in the sub-region, with soaring cases of the Omicron variant in December and January. Nevertheless, the service sector showed strong performance in 2021Q4 thanks to better management of the pandemic with an accelerated vaccination rollout.

Industrial production retreated by 8.4 per cent in January compared with December. The picture is different on a year-over-year basis, registering a leap of 30.3 per cent. Furthermore, exports and imports ebbed in January by 21 and 11.1 per cent, respectively. In Zambia, the PMI in February edged up to positive territory (50.3) after a short setback in January (49.9) preceded by four consecutive months above the threshold of 50, thus reflecting positive private sector sentiment since the election of a market-friendly president.

The economy stayed resilient to negative effects induced by the different COVID-19 waves. However, the Ukraine war would most likely derail the momentum as inflation remains elevated and could be aggravated by the rising price of fertiliser and depreciation of the domestic currency. From a deficit in November, the current account in Botswana recorded a trade surplus (12.7 per cent) on the back of favourable diamond exports in December. Total exports climbed by 6.7 per cent while imports slumped by 24.7 per cent.


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