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 Akufo-Addo has faced a much more challenging environment during his second term He is left with 14 months to the end of term of his government, since he is term-limited he will not be running for Office again. The ruling NPP faces a tough challenge towards reelection, because of the country's ongoing economic struggles. The success of President Akufo-Addo's second term will depend on his government’s ability towards leading Ghana on the path of debt sustainability and reaching an agreement with external creditors on external debt restructuring under the IMF program.
Recent economic developments
Ghana’s economy entered a full-blown macroeconomic crisis in 2022 on the back of pre-existing imbalances and external shocks. Large financing needs and tightening financing conditions exacerbated debt sustainability concerns, shutting-off Ghana from the international market. Large capital outflows combined with monetary policy tightening in advanced economies put significant pressure on the exchange rate, together with monetary financing of the budget deficit, resulting in high inflation. These developments interrupted the post COVID-19 recovery of the economy as GDP growth declined from 5.1% in 2021 to 3.1% in 2022. The 2022 fiscal deficit was well above target at 11.8%. Public debt rose from 79.6% in 2021 to over 90% of GDP in 2022, as debt service-to-revenue reached 117.6%.
To help restore macroeconomic stability, Ghana has secured a three-year IMF Extended Credit Facility (ECF) program of about $3 billion and has embarked on a comprehensive debt restructuring. The authorities have committed to a frontloaded fiscal consolidation while pursuing a tighter monetary policy, complemented by structural reforms in the areas of tax policy, revenue administration, and public financial management, as well as steps to address weaknesses in the energy and cocoa sectors. The government has completed a Domestic Debt Exchange Programme (DDEP), implemented an external debt repayments standstill, and sought official debt restructuring under the Common Framework.
In the first half of 2023, GDP growth rebounded to 3.2% on the back of strong growth in services (6.3%) and agriculture (6.2%). On the other hand, the industrial sector contracted by 2.2% as all industry sub-sectors (oil and gas, manufacturing, water and sewerage, and construction) shrank, except for mining and quarrying.
First half 2023 data indicates that fiscal balance improved to a deficit of 0.8% of GDP while the primary balance (commitment basis) recorded a surplus of 1.1% of GDP.
Inflation which has been driven by food prices, remained elevated at 40.1% in August 2023.
Poverty has worsened. The “international poverty” rate is estimated at 27% in 2022, an increase of 2.2% points since 2021. Ghanaian households have been under pressure from high inflation and slowing economic growth.
Growth is expected to slow further to 1.5% in 2023 and remain muted in 2024 at 2.8%, before returning toward its potential. The ongoing fiscal consolidation, corrective monetary policies, high inflation, interest rates, and macroeconomic uncertainties will keep private consumption and investment low. This will result in muted non-extractive growth but extractives growth is expected to be robust in the medium term thanks to new gold mines and a recovery in small-scale mining. The balance of payments is expected to continue to deteriorate in 2023, on the back of continued capital outflows, before recovering in the medium-term.
Poverty is projected to worsen between now and 2025, increasing to nearly 34% (international poverty line) by 2025, consistent with a muted outlook on growth in services and agriculture and rising prices which are outpacing the income growth of those at the bottom of the distribution. Despite considerable inflation in the country, its minimum wage has only increased by 10% – insufficient given the pace of inflation.
Risks and Challenges
Risks to the outlook include financial sector stress following the DDEP, contingent liabilities in the energy and cocoa sector, domestic policy slippages with the 2024 elections being a particular risk, delays in external debt restructuring, commodity price and other external shocks, and sharper-than-expected monetary policy tightening in advanced economies.
Last Updated: Oct 04, 2023