GHANA is about to go through tough times in the next 12-18 months while its current account deficit continues to widen, according to a report published yesterday by Citigroup Global Markets.

Nonetheless the country may be a more exciting destination than SA.

Unlike SA, which was a relatively liquid market, Ghana's fiscal policy position had made little progress since it underwent a major structural change in the mid-1990s, Citigroup economist David Cowan said.

In the past five years, the Ghanaian government's spending has averaged 30% of gross domestic product (GDP).

The rise in spending pushed the country's fiscal deficit to 8,1% of GDP last year. But in comparison to SA, with local GDP growth forecast at 4% this year, GDP is sitting at 6,6% in Ghana.

Citigroup said the rise in the fiscal deficit was due to expenditure on resolving the energy crisis; spending on the country's 50th anniversary of independence; the cost of hosting the 2008 African Cup of Nations soccer tournament; and the National Patriotic Party's use of government spending to secure its re-election in this year's election.

Significant rises in spending on wages and salaries and capital expenditure were also noted. Ghana's high fiscal deficit has negatively affected the rate of inflation, which was at 15,3% in April this year.

Citigroup's view was that the deficit could be in the order of 10% of GDP this year.

Thabo Ncalo, Africa Fund investment analyst for Stanlib, and Citigroup both believed Ghana was the best performing market in Africa last year.

"There is an increase in investor appetite from the foreign investment community in Ghana, but lack of liquidity in the Ghana Stock Exchange (GSE) remains an obstacle in investing in the GSE," said Cowan.

As at the end of March this year, the GSE had 34 listed companies. The JSE had more than 400 but struggled to make gains of 10% and above while the GSE's all-share index gained 18,9% at the end of the first quarter of the year.

Cowan was reluctant to compare Ghana to SA yesterday. He said Ghana was more comparable to Tanzania, Kenya and Uganda, with market liquidity being the main decider with regards to which country to invest in.

Ncalo said yesterday the Ghanaian currency, the cedi, was likely to weaken in the next six months. This was mainly because of the low levels of foreign currency reserves (less than $5bn as opposed to SA's gross reserves of $34,4bn).

The value of the currency has deep political implications.

"In fact, in our view, Ghana's political elite were deeply upset by the collapse of the cedi in 1999 and 2000 in the run-up to the December 2000 elections," Citigroup said.

"This may well have been one of the most important factors that led to the defeat of the NDC (National Democratic Congress) and neither party is likely to allow it again."