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 through consensus building with the opposition on major legislation (including revenue-mobilizing bills) towards achieving debt sustainability, and reaching an agreement with external creditors on external debt restructuring in order to conclude the IMF program under preparation.
Recent economic developments
GDP growth is estimated to have slowed to 3.2% in 2022, down from 5.4% in 2021. The slowdown affected mostly the non-extractive sectors, as the recovery in gold exports supported extractives growth. The agriculture and services sectors experienced slower growth in 2022 than the year before. High inflation and interest rates depressed private consumption and investment. Government demand was weakened by lack of access to capital markets and high debt service obligations.
The 2022 fiscal deficit was well above target. The overall fiscal deficit (on a cash basis) reached 9.9% of GDP against a target of 6.7%.
Inflation accelerated throughout the year. In 2022, average CPI inflation was 31.5%, (up from 10% in 2021) and reached 54.1% in December (y-o-y). The Bank of Ghana (BOG) responded by increasing the monetary policy rate from 14.5 to 28 % over the year. However, these efforts were undermined by the government’s extensive use of its overdraft facility with BOG (estimated at 6.7% of GDP in 2022).
Overall, the balance of payments recorded a deficit of 5% of GDP, from a surplus of 1.9% in 2021. As a result, international reserves fell to $5.6 billion (2.5 months of import) in December 2022 from $9.1 billion (4.2 months of import) a year earlier. After remaining stable in 2021, the Cedi lost over 40 % of its value against the US dollar in 2022.
Banking sector vulnerabilities have increased because of the cedi depreciation and the impact of a domestic debt exchange (DDE) concluded in February 2023. Implementation of the DDE will impact Ghana’s financial sector due to the heavy exposure of banks, insurance companies and pension funds to government debt. It is estimated that 42.1% of government domestic debt is held by these entities.
Poverty reduction slowed. The “international poverty” rate is estimated at 20.5% in 2022. Currency depreciation, increased price of electricity and water, and an increase in the VAT have driven up the cost of living, particularly for food. This places considerable strain on household budgets, especially for those who devote more than half of their budget to food. Rural farmers were also affected by increases in the prices of fertilizer and other inputs.
Growth is expected to slow further to 1.6 % in 2023 and remain muted in 2024, before returning toward its potential. Non extractives growth is expected to remain slow, with agriculture affected by high input prices and a disease affecting cocoa trees. Extractives growth is expected to be robust thanks to new gold mines and a recovery in small-scale mining.
International poverty is projected to decline slowly from 20.5 to 19.5% by 2025, consistent with a muted outlook on growth for the country and high inflation. In the shorter term, poverty is expected to increase slightly, due to the cumulative effects of increases in electricity and water tariffs, rising food prices and an increase in VAT. The revised electricity tariffs could be less regressive and reduce poverty if a portion of the increased revenues were targeted to the poor in the form of cash transfers.
Risks and Challenges:
The main risks to the outlook are related to delays in reaching an agreement with external creditors on external debt restructuring and delays with concluding the IMF program under preparation, increased financial sector vulnerabilities, and the realization of contingent energy sector liabilities.
Last Updated: Mar 31, 2023