Ghana sits on the Atlantic Ocean and borders Togo, Cote d’Ivoire, and Burkina Faso. Its population is about 29.6 million (2018). In the past two decades, it has taken major strides towards democracy under a multi-party system, with its independent judiciary winning public trust. Ghana consistently ranks in the top three African countries for freedom of speech and press.
President Nana Akufo-Addo’s re-election after the Supreme court dismissed the opposition’s election petition, gave the governing New Patriotic Party a second term. The success of President Akufo-Addo’s second term will depend on his ability to fulfill his electoral promises through consensus building with the opposition and implementing diversification of the economy amidst increasing debt and economic challenges facing Ghana.
Recent Economic Developments and Outlook
Ghana’s rapid growth (7 percent per year in 2017-19) was halted by the COVID-19 pandemic, the March 2020 lockdown, and a sharp decline in commodity exports. The economic slowdown had a considerable impact on households. The poverty rate is estimated to have slightly increased from 25 percent in 2019 to 25.5 percent in 2020. After slowing to 0.5 percent in 2020, growth rebounded to 5.4 percent in 2021 thanks to dynamic agriculture and services sectors. The profile of Ghana’s recovery was relatively inclusive and labor-intensive, with the extractive sector making only small contributions.
In the first quarter of 2022, the overall GDP grew by 3.3 percent, year-on-year, down from 3.6 percent over the same period in 2021. Non-oil growth also slowed down significantly (from 5.3 to 3.7 percent) reflecting a slowdown in agriculture and services.
Fiscal pressures have remained high. Over the first half of 2022, the fiscal deficit reached 5.6 percent of GDP, well above the 3.9 percent target for the same period. Revenues underperformed, as the flagship e-levy was introduced late and faced major implementation challenges. As of end-June 2022, public debt reached 78.3 percent of GDP and interest payments reached 54.4 percent of revenues over the first half of the year. Given growing macroeconomic imbalances, in July 2022, the authorities began discussions with the IMF on a possible program.
Inflation rose to 31.7 percent y-o-y (an 18-year high) in July 2022, from 12.6 percent at the end of 2021. The impact of soaring global commodity prices (Ghana imports 40 percent of its fertilizers from Russia) has been compounded by the depreciation of the cedi which has so far lost 24 percent against the dollar in 2022 (according to the Bank of Ghana data). The Government and the Bank of Ghana (BoG) have sought to dampen inflationary expectations by, respectively cutting expenditures, and raising the monetary policy rate (MPR) to 22 percent and banks’ primary reserve requirements from 12 to 15 percent.
Despite these macroeconomic headwinds, the performance of the banking sector has remained strong. The non-performing loans ratio improved to 14.1 percent in June 2022, from 17 percent in June 2021. However, in the first half of 2022 credit to the private sector grew very slowly (at 3 percent).
The trade balance was in surplus as of end-June 2022, thanks to high oil and gold receipts, but the overall current account recorded a deficit of 1.5 percent of GDP due to investment income outflows and net services account payments. As a result, the stock of gross international reserves declined by US$2 billion in the first half of 2022, to 3.4 months of imports.
Currency depreciation and high inflation have driven up the cost of living, notably for food. This has put considerable strain on household budgets, particularly for the poor who devote more than half of their budget to food. Rural farmers have also been affected by increases in the prices of fertilizer and other inputs.
GDP growth is expected to slow to 3.5 percent in 2022 and average 3.3 percent over 2022-2024 as macroeconomic instability and corrective policy measures depress aggregate demand. The weakening impact of high inflation and elevated interest rates on private consumption and investment will be reinforced by monetary and fiscal tightening. On the supply side, in 2023: agriculture is expected to grow at 2.2 percent, given high input prices and specific issues with cocoa plants; industrial output is projected to grow by 2.4 percent (compared to projected 3.8 percent in 2022), as the oil and gas sector slowly recover from the technical difficulties experienced in the past 2 years; and services are expected to grow by 2.7 percent, as high domestic inflation erodes the purchasing power of consumers.
The fiscal deficit is projected to remain high in 2023 (9.2 percent of GDP) and beyond. Indeed, improvements are projected to take place gradually with contributions from revenues and expenditures.
Risks and Challenges:
The main risks to the outlook include further intensification of macroeconomic vulnerabilities such as the unexpected materialization of contingent liabilities in the energy and financial sectors, and un-anchoring of inflationary expectations. Debt sustainability could be threatened by insufficient access to financing, large interest rate increases, and further currency deprecation. Sizable domestic debt rollover needs will put pressure on the already elevated domestic interest rates. Accommodating these large needs may crowd out private sector investment and test the limits of the domestic financial sector’s appetite for sovereign debt.
Last Updated: Sep 28, 2022