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Ghana cuts GDP forecast as coronavirus headwinds intensify

  • GDP growth forecast for 2020 cut by 530bps to 1.5%, the lowest in 37 years

  • Projected revenues could shrink by GHS9.5bn (US$230mn), bringing budget deficit up to 7.8% from 2.3%

  • Latest forecast update follows measures introduced including loan provisioning, rate cut and mobile payments initiative

Ghana cuts GDP forecast as coronavirus headwinds intensify
Nkemdilim Nwadialor
Nkemdilim Nwadialor

Equity Research Analyst, Financials

Tellimer Research
2 April 2020
Published byTellimer Research

Finance Minister Ken Ofori-Atta cut Ghana's GDP growth forecast for 2020 by 530bps to 1.5%, the lowest in 37 years, due to the collapse in oil prices and the impact of the coronavirus pandemic. Ghana has recorded 195 Covid-19 cases and five deaths (as of 2 April 2020). So far, 5 of the 16 regions in the country have confirmed cases of coronavirus: Greater Accra Region (174), the Northern Region (10), Ashanti Region (9), Upper West Region (1) and Eastern Region (1). On Monday, President Nana Akufo-Addo declared a 2-week lockdown in Accra, Tema and Kumasi regions.

Ghana’s GDP growth over the past 20 years

Source: Bloomberg *Note 2011 GDP 17.4%.

Ghana – confirmed cases of coronavirus

Source: Ghana Health Service

Ghana’s equity market is down 4%, while the FX rate has depreciated 1%, which is largely attributed to pressures from the liquidation of foreign investor portfolios.

More adjustments on the way

Due to the unprecedented negative effects of the coronavirus pandemic, the government has announced plans to reduce the 2020 budget. Based on figures from the Ministry of Finance, government revenues (which was already very ambitious in our view) could fall short by cGHS9.5bn (US$1.6bn), resulting in a deficit of GHS30.2bn (7.8% of GDP). This would be accompanied by a deterioration of the primary balance to a deficit of cGHc5.6bn (1.4 % of GDP) from its projected surplus of GHS2.8bn (equivalent to 0.7% of GDP).

The latest cut in growth forecast follows the announcement of other monetary and fiscal measures including:

1. The allocation of US$100mn earmarked to support health infrastructure and education during the crisis.

2. The lowering of the Monetary Policy Rate (MPR) by 150bps to 14.5%.

3. The reduction of Primary Reserve Requirement to 8% from 10%.

4. The Capital Conservation Buffer (CCB) for banks was reduced to 1.5% (from 3.0%), effectively lowering minimum Capital Adequacy Ratio (CAR) to 11.5%.

(These fours policies are aimed at encouraging increased lending by lowering the cost of borrowing and increasing banks' liquidity to enable them to support the critical sectors of the economy)

5. Provisioning for “Other Loans Especially Mentioned” (OLEM) was reduced to 5% from 10% for all banks. 

6. Micro finance loans that are past due for up to 30 days shall be considered for current loans.

(These initiatives are targeted at slowing down the deterioration of asset quality)

7. Mobile money initiatives, including the removal of transfer charges on transaction lower than GHS100 (c$18), relaxing KYC requirements for onboarding new customers, increasing the daily transaction limit by c100% and mobile wallet balance by 50%, in a bid to promote digital payments versus cash (which the World Health Organization has flagged as a conduit for the spread of the coronavirus). We expect MTN Ghana (not rated), the current leader in mobile payments, to record the largest increase in transaction, users and service fees as a result of the new mobile money policies. (Related reading: The future of payments: Could Covid-19 end cash’s reign?)

Implications for Ghana banks

For the banks we cover (GCB, CAL, EGH and SCB), these measures appear largely positive as they would encourage loan growth, lower funding costs and boost mobile money fees (especially for GCB). However, these policies might not be enough to slow down new NPL formation owing to the bleak macro outlook.