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Republic of Ghana. Presentation to Investors. September 2014. Disclaimer. - PowerPoint PPT PresentationTRANSCRIPT
Republic of Ghana
Presentation to Investors
September 2014
2
Disclaimer
IMPORTANT: You must read the following before continuing. The following applies to this document, the oral presentation of the information in this document by the Republic of Ghana (the “Republic”) or any person on behalf of the Republic, and any question-and-answer session that follows the oral presentation (collectively, the “Information”). In accessing the Information, you agree to be bound by the following terms and conditions. The Information is confidential and may not be reproduced, redistributed, published or passed on to any other person, directly or indirectly, in whole or in part, for any purpose. This document may not be removed from the premises. If this document has been received in error it must be returned immediately to the Republic. 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Presentation Team
3
Hon. Seth Terkper
Governor Henry Wampah
Hon. Kweku Ricketts Hagan
Dep. Governor Millison Narh
Honourable Minister of Finance
Deputy Governor, Bank of Ghana
Governor, Bank of Ghana
Hon. Deputy Minister for Trade and Industry
Dr. Samuel Ameyaw Director, Debt Management Division, Ministry of Finance
Dr. Alhassan IddrisuDirector, Economic Research and Forecasting, Ministry of Finance
Contents
1. Introduction
2. Economic and Policy Update
3. Foundations Remain Strong
4. Financing for Growth
5. Conclusion
1. Introduction
Introduction
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
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
Background
• Starting in 2008, Ghana embarked on an ambitious adjustment program to rationalise its public sector wage structure labelled Single Spine Salary 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
Short Term Challenges
• The rise in wages and arrears related to SSS implementation, combined with rising subsidy expenditure, higher interest payments, a shortfall in 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
Our Plan
• 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
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
EncouragingOutlook
• 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
2009 2010 2011 2012 2013
0%
3%
6%
9%
12%
15%
6.8% 6.9% 7.6%
8.9% 8.8%
5.8% 6.5%
4.0%
11.7%
10.1%
Wage bill (% of GDP) Fiscal Deficit (% of GDP)
Understanding Ghana’s Short Term Outlook
Ghana faces short term challenges on the back of fiscal imbalance and underperformance combined with macroeconomic pressures
• In 2010, we started to gradually implement the revised public sector pay structure under the Single Spine Salary Structure (SSSS)
• This was done in a bid to reduce the disparities in pay across the public sector and increase productivity
• 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
• At the moment, we have migrated over 99% of public sector workers onto the new SSSS pay structure, and paid all of the arrears owed to workers
7
Source: Ministry of Finance, Government of Ghana, Ghana Statistical Services
Structural adjustments lead to fiscal challenges
2012 Deviations 2013 Deviations H1 2014 DeviationsGHS millions % of GDP GHS millions % of GDP GHS millions % of GDP
Revenues
Grants (389.4) (0.52) (519.0) (0.56) (293.5) (0.26)
Corporate Income Tax (oil) (384.1) (0.51) 311.0 0.33 182.5 0.16
Non-oil Tax Revenue (112.3) (0.15) (3,155.3) (3.38) (828.2) (0.72)
Expenditures
Wages and Salaries 1,028.0 1.37 777.6 0.83 139.2 0.12
Wage Arrears 881.0 1.18 922.6 0.99 (124.3) (0.11)
Interest Payments 245.0 0.33 1,202.6 1.29 203.0 0.18
Utility and Fuel Subsidies 339.0 0.45 135.8 0.15 17.7 0.02Goods & Services 354.7 0.47 (293.2) (0.31) (95.2) (0.08)
Causes of fiscal overruns (deviations from budget)
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
External pressures build as commodity prices collapse
Cedi depreciation fuels inflation and exacerbates expenses
• 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
8
1.0
2.0
3.0
4.0
5.0USD:GHS
Source: Ministry of Finance, Bloomberg
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
Current account balance deteriorates
2009 2010 2011 2012 2013H1
2014
(1,398)
(2,770)
(3,546)
(4,922)
(5,704)
(1,944)
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
1500
1700
1900
2100
2300
2500
2700
2900
3100
1000
1200
1400
1600
1800
2000
Cocoa Gold
9
Expected oil production from TEN and Sankofa fields in 2016/17
Ghana is Implementing Robust Measures to Tackle Key ChallengesThe 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
• 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
• 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
• 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
Addressing Key Issues
Fiscal Deficit Cedi Depreciation and Inflation Increase External Pressures
Broaden tax base and strengthen revenue collection
Wage containment, curb on public expenditure
Oil production exceeds target and cocoa sales at higher prices
Monetary policy tightened
Greater oversight of the foreign exchange market
Proactive public debt management
Addressing donor concerns and monitoring disbursements
In-country Gas plant expected to feed power stations by Q4-2014
Ghana not yet affected by Ebola Virus Disease but on high alert
Ghana has approached IMF for policy support and BoP funding
Budget realignment and structural reforms Macro prudential measures
2003-2006 PRGF 2009-2012 ECF 2014 Article IV “Home-Grown Programme”
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
• National Fiscal Stabilization Levy
• Royalty rates increased• Ad valorem excise duties
on tobacco and beverages
• Administration reforms
• Higher real estate tax rate• Reconsideration of windfall tax• Increase in ad valorem tax on
fuel• Higher excises• Streamlining of tax exemptions
and administration
• 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
Public Expenditure Management and Commitment Control
• Systems upgrades to cover key Ministries
• Personnel audit• Implement automatic price
adjustment for petroleum pricing
• Systems upgrades to cover key Ministries
• Civil service payroll audit• Freeze on issuing
commitment certificates for new investment projects
• 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
• 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
Debt Management
• Fiscal policy focused on reduction of domestic debt
• Adopt a debt management strategy
• 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
Previous Experience and Recommendations Have Shaped Current PoliciesA historical comparison indicates that Ghana’s current home grown measures are built on and conform to the IMF’s recommendations
10
Timeline view of Ghana’s Historical Engagement with IMF
Ghana implements and consults IMF on its “home-grown” programme
Economic Reform and Structural Adjustment Programmes (ERP/SAP) with IMF
Ghana becomes member of IMF
IMF grants Ghana a US$581.28 million Extended Credit Facility
Ghana requests initiation programme discussion with IMF
HIPC Decision Point
1957 1999-2002 Feb 2002 2003-2006 2009-2012 20141983-1999
IMF grants Ghana a US$209 million Enhanced Structural Adjustment (ESA) Facility
US$258 million Poverty Reduction and Growth Facility
2013-2017
Support Requested from IMF
To support the ongoing rebalancing, Ghana has approached the IMF for support in addressing current challenges
• 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
Ghana’s Request
• 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 2014Timelines
Ghana’sCommitment
• 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
Expected Impact
• 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
11
12
A Beacon for Democracy Rising Middle Class Advantage
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)
Ghana’s Medium-Term Prospects Remain Bright
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
Strong political stability and government effectiveness promote growth
Improved regulatory quality and anti-corruption 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
A Growth Outperformer An Emerging Commodities Powerhouse
One of the fastest growing countries globally with 13 consecutive years of robust growth above Sub-Saharan Africa average
Nominal GDP has more than doubled since 2006
Growth of over 7% in 2013 despite challenges
Despite current challenges, Ghana’s robust fundamentals will support continued inclusive development and high growth
*TEN- Tweneboa-Enyera-Ntomme*FPSO- Floating production, storage and offloading vessel
13
Operator Discoveries Hydrocarbon Type StatusGNPC Ebony Condensate/Gas Marginal
Tweneboa-1 Gas Condensate Plan of Development Tweneboa-2 Oil Plan of Development
Owo/Enyenra-1 Oil Plan of Development Ntomme Oil & Gas Plan of Development
Wawa Oil & Gas ExplorationOdum-1 Heavy Oil MarginalTeak-1 Oil & Gas AppraisalTeak-2 Gas Appraisal
Banda-1 Oil MarginalMahogany Deep Light Oil Appraisal
Akasa-1 Light Oil & Gas AppraisalSankofa-1 Gas Appraisal Completed
Gye Nyame-1 Gas Appraisal CompletedSankofa East Oil & Gas ExplorationParadise-1 Oil & Condensate Exploration
Hickory North Oil & Condensate ExplorationAlmond Oil & Condensate ExplorationBeech Oil ExplorationPecan Oil ExplorationPN-1 Oil ExplorationCob Oil Exploration
Dzata-1 Oil & Gas Appraisal
New discoveries in 2013 adds up to a total of 28 new fields discovered. Gas also coming on-line in Q1-2015
Ghana’s Oil Sector to Boost Future Growth
• 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$150mn counterparty funding from Government of Ghana
• New Discoveries: 2 new discoveries in 2013 at Cob and PN-1 fields
World-class partners helping to deliver key projects
As at June 2014
Proven Oil Reserves(mnboe)
1,284
Proven Gas Reserves (Bcf)
2.177
Snapshot of current reserves
Source: GNPC
Post-Jubilee discoveries being developed with world-class partners
*TEN- Tweneboa-Enyera-Ntomme
2. Economic and Policy Update
15
Growth Steady but Macro Challenges Persist
2012 Actual
2013 Projected
2013 Outturn
2014 Projected*
Real GDP Growth (%) 8.8 8.0 7.1 7.1
Headline Inflation (end of year %) 8.8 8.9 13.5 13.0% (+/-2%)
Revenues (Ghs mn) 16,668 22,533 19,472 26,230
Expenditures (Ghs mn) 25,317 30,544 28,926 36,358
Budget Deficit (% GDP) (11.5) (9.0) (10.1) (8.8)
Public Debt (% GDP) 48.0 - 55.8 -
Current Account Deficit (4,922) (5,337) (5,704) -
Gross International Reserves (US$ mn) 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 -
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
Source: Budget Statements 2013 and 2014* Supplementary Budget 2014
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
Key pressure points identified
2009 2010 2011 2012 2013 2014 (proj.)
H1 2014
5.8 6.5
4.0
11.710.1
8.8
4.2
2009 2010 2011 2012 2013 2014 Projected
18.80% 19.14%
21.58% 22.24%20.83%
22.90%
23.00%25.05%
22.45%
27.94% 29.38% 29.40%Revenues & Grants (% of GDP)
Revenues (% of GDP) 2012 2013 Comments
Total revenue 22.24% 20.83%
Income & Property Taxes 7.39% 6.74% Economic headwinds resulted in reduced domestic activity which led to shortfalls in tax revenuesTaxes on Domestic Goods & Services 5.62% 5.17%
International Trade Taxes 3.69% 3.39% International trade taxes came in below budget due to lower import volumes Non-Tax Revenue 3.99% 4.73% Non-tax revenue trending higher to provide much needed bufferGrants 1.55% 0.79% Slower disbursement of donor grants exacerbated the deficit
Expenditures (% of GDP)
Total expenditure 27.94% 29.38%Compensation of Employees 9.58% 10.14% Higher than expected wage bill due to single spine salary structure related arrearsGoods & Services 1.76% 1.55% Cost-cutting measures which resulted in a smaller goods and services bill Transfers (subsidies and grants to govt units) 5.29% 5.64% Macroeconomic and external pressures led to an increase in interest payments and
transfersInterest Payments 3.25% 4.70%Capital Expenditures (Total) 6.63% 6.49%
Prudent management of capital and other expenditures but avoid curtailing growthOthers 1.43% 0.85%
16
Source: Ministry of Finance, 2014 Mid-Year Budget Review Statement
Fiscal deficit (% of GDP)
17
• VAT increase of 2.5 percentage points and a broadening of the VAT base
• Withholding tax on commercial rent now 15% from 8%Broaden tax base and remove inefficiencies
• 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 serviceAggressively manage public sector wage bill
Tax Reform
Wage Measures
• 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)
Curb and streamline public expenditures
Realign Expenditures
• 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)Minimize abuse, tax evasion and
tax avoidance
Exemption Reduction
Focused Action to Reduce Fiscal Deficit in 20142014 Budget introduced a number of policy initiatives, which have been implemented, to
control the deficit
Source: A Policy Statement on the Ghanaian Economy, April 1, 2014
Stricter programme-based budgeting process and fiscal decentralization being adopted
18
Pay Policy - Key Deficit Driver is Being Tackled
Wage Negotiations
• 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 freeze in inflationary environment lowers costs considerably – with only extra cost one-off Cost of Living Allowance (COLA) negotiated in May 2014
• Committed to reducing level of wages as a percentage of revenue
Removing Agencies from Payroll
• 12 agencies have been identified as able to independently meet personnel payments
Recruitment and Replacement
• Hard constraints set on budgeted wages and salaries at Ministry level for recruitment and replacement of staff
Payroll Audit• Payroll audit to focus on Ghana Education Service and
Ghana Health Service (1st Phase)
• The review and headcount exercise extended nationwide
IT and Systems Upgrades
• Payroll system upgrade
• Electronic salary payment vouchers (ESPV) to reduce the phenomenon of “ghost” workers and reduce the size of the payroll
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
Source: 2014 Budget Statement, 2014 Mid-Year Budget Review Statement
Wage bill overshoot has been one of the key drivers of the deficit
2011
2012
2013
2014 (Jan-Jun)
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
6.9%
8.1%
8.4%
4.0%
7.6%
8.9%
8.8%
4.0%
Outturn / GDP Budget / GDP
19
Budget On-Track for H12014 but Risks RemainTighter 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
GHS millions Projection OutturnTotal Expenditure 15,401 13,532
Compensation of Employees 5,358 5,051
Use of Goods and Services 421 395
Interest Payments 3,314 3,243
Subsidies 40 58
Grants to Other Government Units 3,288 1,900
Social Benefits 27 1
Others 358 460
Capital Expenditure 2,594 2,425
GHS millions Projection OutturnTotal Revenue and Grants 12,153 11,145
Tax Revenue 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
Social Contributions 82 113
Non-Tax Revenue 2,470 2,061
Grants 556 342
Slower than expected growth and macro headwinds affected income taxes
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
Jan – June 2014 Revenues largely in line with budget
Jan – June 2014 Expenditure lower than forecast, despite overruns in interest payments
Source: 2014 Mid-Year Budget Review Statement
Total revenues and grants lower than expected signalling that risks persists
20
Tight Policy Stance to Deal with Rising Inflation
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
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
20
Source: Bank of Ghana Inflation Outlook Report, February 2014, Bank of Ghana
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Mar-14 June-14
9.9 10.2 10.6 10.7 10.9 11.7 11.8 11.5 11.7 13.1 13.3 13.5 14.5 15.0
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 stanceEvolution of inflation (%) through 2013 reveals key drivers are non-food-related elements
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-1410
12
14
16
18
20
12.513.5
15.0 15.0 15.0 15.016.0 16.0 16.0
18.0 18.019.0Monetary Policy Rate (%)
BoG used the Monetary Policy Rate (MPR) as a tool to address inflationary pressures
BoG has raised MPR by 300bps since Dec 2013
21
Reining-In Cedi Depreciation
2007 2008 2009 2010 2011 2012 2013 417910.5
1.0
1.5
2.0
2.5
3.0 GHS:USD (period end)
Cedi has depreciated rapidly over the last 12 monthsRate of depreciation is now expected to slow
following targeted action from BoG
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
• 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
BoG deployed multiple measures to restore exchange rate stability
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-142.00
2.50
3.00
3.50
4.00 GHS:USD
Source: Bank of Ghana, Bloomberg (Jan 2014- Aug 2014)
22
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 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
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 current-year revenue
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
2014 Revised Targets Medium Term Goals
Source: 2014 Mid-Year Budget Review Statement
3. Foundations Remain Strong
Resolving Insolvency
Enforcing Contracts
Dealing with Construction Permits
Getting electricity
Getting Credit
0 10 20 30 40 50 60 70 80 90 100
27.763.363.664.365.7
73.476.3
81.081.382.5
Rank Country ScoreChange since
20001 Mauritius 82.9 7.32 Botswana 77.6 5.63 Cape Verde 76.7 6.04 Seychelles 75.0 5.55 South Africa 71.3 0.66 Namibia 69.5 2.37 Ghana 66.8 5.38 Tunisia 66.0 4.49 Lesotho 61.9 7.7
10 Senegal 61.0 4.3
Voice and Accountability
Political Stabil-ity
Government Effectiveness
Regulatory Quality
Rule of Law Control of Cor-ruption
010203040506070
32 30 2833 30 28
6251 54 56 55
63Sub Saharan Average Ghana
Pe
rce
nti
le R
an
kA Beacon of Democracy in Africa
24
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
Source: Mo Ibrahim Index 2013, World Bank 2013 Ease of doing business survey, World Bank Governance Indicators 2013Sub-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
Consistently Ranks in Top 10 for African Governance (Mo Ibrahim Index 2013)
Ghana Continues to Outrank Peers Across All Measures of Governance
Year Rank Change
2014 67 102010 77
Economy Ease of Doing Business Rank
Sub Saharan Africa Rank
Mauritius 20 1Rwanda 32 2South Africa 41 3Botswana 56 4Ghana 67 5Seychelles 80 6Zambia 83 7Namibia 98 8Cape Verde 121 9Swaziland 123 10
Ghana’s business environment achieves scores close to those for the highest performers
Ghana Distance to Frontier*
25
Services49%
Industry19.00%
Agriculture 32%
Services49.50%
Industry28.60%
Agriculture 22.0%
Services Industry Agriculture
Strong and Consistent Growth Profile
Robust and Consistent Nominal GDP Growth
Growth continues to surpass sub-Saharan regional averages
Well Balanced Sectoral Contributions to GDP with a Leading Services Sector
2009 2013
• Despite challenges, a diverse domestic economy ensured that overall growth remained strong at 7.1% in 2013, with services boosting output
• Lower growth rate in 2013 can be attributed to disruptions 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
Nominal GDP (GHS billions)
2009 2010 2011 2012 2013 2014 (proj.)
0.0%
4.0%
8.0%
12.0%
16.0%
4.0%
8.0%
15.0%
8.8%7.1% 7.1%
Real GDP Growth (%)
2009 2010 2011 2012 2013 2014 (proj.)
0
30
60
90
120
36.6046.04
59.82
74.96
93.46
114.79
Source: Ghana Statistical Services, Ministry of Finance
Ga
bo
n
Bo
tsw
an
a
Na
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ia
Gh
an
a
Ke
nya
So
uth
Af..
.
Co
te D
'Iv...
Se
ne
ga
l
Nig
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a
Ug
an
da
Za
mb
ia
Za
mb
ia
Ta
nza
nia
0%
20%
40%
60%
80% 75%
48% 47% 47% 45% 43%37% 36%
23% 19% 14% 14% 12%
% 2
01
1 P
op
ula
tio
n
HDI Rank Value Income index Education index Health index0%
20%
40%
60%
80%
54%
40%
57%
70%
46% 43% 43%
54%
Ghana Sub-Saharan Africa
HD
I In
de
x 2
01
1
• Ghana’s large middle class, successful poverty reduction and strong human development indicators are evidence of broad based and inclusive development policy
• The Ghana Shared Growth and Development Agenda (GSGDA) serves as a policy kit for poverty reduction and inclusive growth
• As incomes continue to rise the large middle class will contribute to increased consumption, bolstering long-term growth
• Ghana’s infrastructure development plans aim to improve
economic conditions in both urban and rural areas
Strong Record of Poverty Reduction and Development
26
Ghana’s large middle class is evidence of successful poverty reduction via an inclusive growth agenda and bodes well for future development
Source: Ghana Statistical Service, AFDB Middle Class Index, UN Human Development Index
Steady income growth has propelled Ghanato middle income country status
Ghana has one of the largest middle class populations in Sub-Saharan Africa
Ghana still outranks African peers across most measures of human development
2009 2010 2011 2012 20130
500
1,000
1,500
2,000
1,1171,364
1,606 1,603 1,604
GDP per capita (US$)
272009 2010 2011 2012 2013 H1 2014
0
4
8
12
16
20
5.8
8.0
12.813.5 13.8
6.98.0
10.9
15.8
17.8 17.6
7.2
Exports (LHS) Imports (LHS)
2009 2010 2011 2012 2013 H1 2014*0
4
8
12
16
2.553.80 4.92 5.64 4.97
2.14
1.872.22
2.872.83
2.27
1.16
1.42
1.94
2.222.09 2.63
1.26
2.77852.9761
3.8851
2.02
Gold Cocoa Oil Others
Viable External Position
Trade gap remains a challenge but narrowed in H1 2014
FDI and portfolio inflows which moderatedtrade deficit effects can still be improved
Diversified and growing exports with gold, oil and agriculture as key contributors
F.O.B Exports Value (USD millions)(USD mn)
Portfolio flows (US$ millions)
Prudent reserves management in face of macro challenges and seasonal FX inflows
Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-140
1,500
3,000
4,500
6,000
1.5
2.0
2.5
3.0
3.55,035
5,643 5,6325,306
4,877 4,722
2.8
3.1 3.13.0
2.7 2.7
Gross International Reserves Imports Cover(months) (US$ mn)
Source: Ghana Statistical Services, Ministry of Finance, Bank of Ghana (H1 2014 provisional data)*Gross international reserves at US$4.47 billion as at June 2014
2009 2010 2011 2012 2013 H1 2014*
0
2,000
4,000
6,000
8,000
551 1,110
6,820
4,904
3,946
425
28
An Emerging Regional Leader in CommoditiesA diversified commodities endowment with traditional gold and cocoa, enhanced by rapidly developing hydrocarbon production provides a powerful foundation for future growth
Ghana is one of the top 10 gold producers globally
Ghana’s oil reserves are comparable in size to other new producers on the continent
Rising crude oil production to be boosted by new wells
Co
te D
'Ivo
ire
Gh
an
a
Ind
on
esi
a
Re
st o
f th
...
Nig
eri
a
Ca
me
roo
n
Bra
zil
Ecu
ad
or
0
400
800
1,200
1,600 1400
870
500 412230 220 185 1700
00
’s t
on
ne
Second only to Cote D’Ivoire, Ghana has a 20% share of the international cocoa market
Source: BP Statistical Review of World Energy 2014, Ghana as per Government of Ghana, US Geological Survey, AfDB, FAO
South Sudan
Equatorial Guinea
Chad Sudan Ghana0.0
1.0
2.0
3.0
4.0 3.5
1.7 1.5 1.51.2
Proved oil reserves (end 2012, billion barrels)
Ch
ina
Au
stra
lia
Un
ited
S..
.
Ru
ssia
Sou
th A
f...
Peru
Can
ad
a
Gh
an
a
Ind
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esi
a
Uzb
ekis
tan
Mexic
o
Pap
ua N
...
Bra
zil
Ch
ile
0
100
200
300
400 370
250 230 205170 165
102 99.8 95 90 8760 56 45
Me
tric
to
nn
e
2014 2015 2016 2017 2018 2019 20200
15
30
45
60
75
90
39 4052
7682 83
77
million barrels
Composition of Petroleum Receipts
Distribution of Petroleum Receipts
H1-2014 Distribution of Petroleum Receipts
Item (US$ mn) 2012 2013
Royalties 150.7 149.0
Carried and Participating Interest
390.4 385.2
Surface Rentals 0.45 0.80
Corporate Income Tax
0 172.2
Gas Receipt 0 -
Total 541.6 707.3
Item (US$ mn) 2012 2013
Transfer to GNPC 230.9 186.1
Net Receipts for Distribution to ABFA and GPFs
310.7 520.9
o/w ABFA 286.6 204.9
o/w Ghana Stabilization Fund 16.9 221.3
o/w Ghana Heritage Fund
7.2 94.8
Total 541.6 707.3
Robust framework for managing oil wealth ensures that oil revenues are put to productive use
Oil Becoming Key Revenue Contributor
29Source: BOG Petroleum Funds Report, June 2013 and Petroleum Holding Fund & Ghana Petroleum Funds Report Jan-June 2014, Budget Statement 2014
Ghana Petroleum Funds Balances (Jan-Sep 2013)
US$ mnOpening
Book Value
Allocations
Net Income
Closing Book Value
Opening Book Value
Allocations
Net Income
Closing Book Value
Ghana Stabilization Fund 71.9 221.3 0.8 293.9 319.0 121.2 0.9 264.7
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
Ghana Petroleum Funds Balances (H1 2014)
Item (US$ mn) H1-2014
Transfer to GNPC 80.5
Net Receipts for Distribution to ABFA and GPFs
482
o/w ABFA 204.5
o/w Ghana Stabilization Fund
121.2
o/w Ghana Heritage Fund 51.9
Total 562.5
30
Sound Banking System
Well capitalized banksNon-performing loans have trended downwards
despite macro challenges
• 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
• There are currently 27 universal banks which are diversified in geographic origin, corporate character and reach in the global financial markets.
• 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
Robust regulatory supervision of the banking sector
2011 2012 2013 H1 2014*0%
5%
10%
15%
20%17.41%
18.56% 17.96%16.70%
Regulatory Minimum
of 10%
Source: Bank of Ghana
2011 2012 2013 H1 2014*0%
4%
8%
12%
16%14.15%
13.20% 12.70% 12.80%
5.86% 5.62%4.72%
5.46%
NPL Ratio NPL Excluding Loss Category
4. Financing for Growth
Overall Debt Profile Still Manageable but Domestic Interest Rates Remain HighDebt 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
39.3
9.7%9.9%
29.8%
12.0%Multilateral
Official Bilateral
Export/ Suppliers/ Buyer's Credit
Commercial
Other Concessional
Debt has increased steadily with an equal split between domestic and external debt
External debt is 100% long term and largely concessional (March 2014)
Source: Ministry of Finance
32
Domestic yields remain elevatedThere is a need to curtail interest
expense by limiting domestic borrowing
2009 2010 2011 2012 20130
1
2
3
4
5
0.8 1.1 1.31.9
3.8
0.30.3 0.3
0.6
0.6
1.01.4 1.6
2.4
4.4
Domestic External
Selectively Tap External Markets
• Tap international bond markets to reduce reliance on short-term, high cost domestic debt
Financing CAPEX
• Long-term debt to finance CAPEX via extended domestic yield curve and selective use of the Eurobond markets
Liquidity Management
• Utilisation of short-term debt for liquidity management purposes and less for capex
On-Lending and Escrow Policies
• Ensure that cost of debt service is managed in commercially viable projects through implementation of matched on-lending and escrow account policy
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
• To fund debt redemptions and enhance debt sustainability
GHS billions
2009 2010 2011 2012 2013 June-2014
0%
20%
40%
60%
19.6% 19.8% 19.8% 23.0% 26.6% 31.2%
16.8% 18.0% 19.9%25.1%
29.2% 24.8%36.3% 37.8% 39.7%48.1%
55.8% 56.0%
Gross External Debt/GDP Gross Domestic Debt/GDP
* The External Debt from 2012 has been reclassified to reflect the facility type per creditor
*
91
-Da
y
18
2-D
ay
1-Y
r
2-Y
r
3-Y
r
5-Y
r
7-Y
r
15%
17%
19%
21%
23%
25%
27%25.0%
26.4%
22.5%
23.0% 24.4%
19.0%18.0%
23.0% 22.9%
22.0%
22.0%
19.2%
23.0%
Jul-14 Jul-13
33
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
Ghana is seeking to implement a number of critical projects for this fiscal year and also retire some high interest domestic short term debt
• Many of these projects are high growth and postponing 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
• Funding these long term infrastructure projects with short 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)
Why Now?Projects Have Been Carefully Selected
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
34
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 ProceedsCapital 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
5. Conclusion
36
A Beacon for Democracy Rising Middle Class Advantage
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)
Ghana’s Medium-Term Prospects Remain Bright
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
Strong political stability and government effectiveness promotes growth
Improved regulatory quality and anti-corruption 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
A Growth Outperformer An Emerging Commodities Powerhouse
One of the fastest growing countries globally with 13 consecutive years of robust growth above Sub-Saharan Africa average
Nominal GDP has more than doubled since 2006
Growth of over 7% in 2013 despite challenges
Despite current challenges, Ghana’s robust fundamentals will support continued inclusive development and high growth
*TEN- Tweneboa-Enyera-Ntomme*FPSO- Floating production, storage and offloading vessel