Ghana sits on the Atlantic Ocean and borders Togo, Cote d'Ivoire, and Burkina Faso. It has a population of about 29.6 million (2018). In the past two decades, it has taken major strides toward democracy under a multi-party system, with its independent judiciary winning public trust. Ghana consistently ranks in the top three countries in Africa for freedom of speech and press freedom, with strong broadcast media, with radio being the medium with the greatest reach. Factors such as these provide Ghana with solid social capital.
President Nana Akufo-Addo’s recent re-election after the Supreme court dismissed the opposition’s election petition, gives the governing New Patriotic Party a second term.
Ghana’s economy contracted by 3.2 and 1.% in the second and third quarters of 2020, respectively, pushing the country into a recession for the first time in 38 years.
However, a modest growth of 1.1% is for the full year of 2020 thanks to a strong 4.9% growth in the first quarter of 2020, at the onset of the COVID-19 crisis. The 1.1% GDP growth in 2020 is a steep fall from the pre-COVID-19 levels of 6.5%.
The Government attempted to mitigate the pandemic’s impact on households and businesses by enacting the Coronavirus Alleviation Plan (CAP) and the medium-term COVID-19 Alleviation and Revitalization of Enterprises Support (CARES) program in mid-2020. But the low growth in 2020, coupled with high population growth, has pushed real per capita incomes 1% lower than in 2019.
Ghana’s economy showed early signs of recovery in the second half of 2020 as business sentiments improved with the ending of lockdowns as the year-on-year performance in the agriculture, manufacturing and tradable services sectors saw some strong recoveries in the third quarter of 2020.
Government financing needs increased substantially during the pandemic, pushing the Government to resort to central bank financing, resulting in sharp increases in debt and debt service cost. Fiscal pressures arose from costly financial sector reforms in 2018-2020 and the Energy Sector Recovery Program (ESRP), started in 2019. The overall fiscal deficit, including energy and financial sector costs, was therefore already elevated at 7.6% of GDP in 2019 and the debt-to-GDP ratio at 63.9%.
In 2020, the COVID-19 crisis led to the suspension of the fiscal rule as the fiscal deficit (including financial and energy sector costs) reached 16.2% of GDP and public debt 76.1% of GDP. While debt remains sustainable, the April 2020 Debt Sustainability Analysis (DSA) concluded that Ghana remains at high risk of debt distress. Ghana’s current account deficit widened to 3% of GDP at the end of 2020 from 2.9% in 2019, reflecting a lower trade surplus and higher services out-flows. However, stronger remittance in-flows and lower net investment income outflows, especially from the extractive sector, helped moderate the impact on reserves.
Outlook: The medium-term negative impact of the pandemic on growth will continue to be felt through low external demand, lower foreign direct investment and tourism receipts. Initial, baseline assumptions of low commodity prices, particularly of oil, led to growth projections of 1.4 % in 2021 and further to 3.6% by 2023 (average of 2.2% for 2021-2023). However, recent rapid recoveries of oil prices complimented by the expected implementation of the Ghana CARES Program will likely result in the realization of the upside scenario with 2021 projected growth of 4.2% and a medium term (2021-2023) average growth of 4.5%.
With relative stability in the exchange rate and the central bank’s gradual return to a tighter monetary policy stance, inflation is expected to moderate to the central bank’s target range. The fiscal and current ac-count balances are expected to improve only slowly over the medium term, largely reflecting adverse external factors and a slow return to normalcy in domestic revenue mobilization. Against this backdrop of economic slowdown and new restrictions, poverty is likely to continue to rise in 2021 to 30.9% before declining as private consumption growth recovers.
Risks and Challenges: The two major short-to-medium term risks are health related. First, risks from the second pandemic wave are already affecting some African countries with more virulent variants of the COVID-19 virus. There has been a sharp rebound in cases in Ghana requiring further restrictions.
A fast vaccine rollout could help mitigate this risk. Secondly, the Ebola outbreak in Guinea in mid-January poses significant health and economic risks for Ghana given the very porous land borders. Ghana’s fiscal position is also a major risk factor with rising domestic and external debt, including Eurobonds.
Last Updated: Apr 15, 2021