Ghana sits on the Atlantic Ocean and borders Togo, Cote d'Ivoire, and Burkina Faso. Its population is of 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.
Recent Economic Developments and Outlook
Ghana’s rapid growth (7% in 2017-19) was halted by the COVID-19 pandemic, the March 2020 lockdown, and a sharp decline in commodity exports with an overall GDP as low as 0.4%. The economic slowdown had a considerable impact on households. The poverty rate is estimated to have slightly increased from 25% in 2019 to 25.5% in 2020. Ghana’s economy has effectively rebounded from the COVID-19 induced slowdown. Growth is estimated to have reached 4.1% in 2021, is expected to be broad-based in 2022 and projected to reach 5.5% in 2022.
The overall fiscal deficit doubled to 15.2% in 2020 and public debt increased to 81.1% in 2020, placing Ghana at a significant risk of debt distress. While some consolidation happened in 2021 with the deficit declining to 11.3%, more significant effort will be required to alter the debt dynamics meaningfully. Provisional fiscal data for first half of 2021 suggest that the authorities cut spending to make up for revenue shortfalls. The overall fiscal deficit was 5.1% of GDP.
Headline inflation averaged 7.8% in the first half of 2021 and ended at 10% as full year average. This was due to exchange rate, food and non-food price hikes and has continued in the first quarter of 2022. As of end-February 2022, inflation reached 15.7%, the highest level since December 2016.
Fueled by the domestic recovery, imports expanded faster than exports in early 2021 while external demand for commodities remained subdued. As a result, current account deficit is estimated to narrow 2.4% of GDP compared to 2.3% in 2020.
Ghana’s economy is projected to remain relatively strong over the medium term, supported by higher prices for key exports and strong domestic demand. Growth is projected to reach 5.5% in 2022 and average 5.3% over 2022. Growth is expected to be broad-based led by agriculture and services and relatively stronger industry sector.
The government’s 2022 budget set forth an ambitious consolidation plan as it aims to raise revenue from 16% in 2021 to 20% in 2022. Fiscal measures would reduce the deficit from 12% in 2021 to 4.5% by 2024. However, the main revenue measure (an e-levy estimated at 1.4% of GDP in 2022) has faced steep opposition, preventing its introduction so far, while targets for other revenue measures may be too optimistic. A more conservative projection suggest that the fiscal deficit could be closer to 7.5% in the medium-term (2022-2024), compared to the government’s target of 5.8%.
Risks and Challenges
Ghana’s economy continues to suffer the impacts of the pandemic as growth is yet to get back to pre-pandemic levels, and this could be compounded by the war in Ukraine. The developments are expected to raise global prices for several key commodities, including food, fuels, fertilizers, and metals used in manufacturing, adding to prior inflationary pressures in Ghana.
Last Updated: Apr 07, 2022