Leveraging gains for sustainable development
By Prof. Samuel Lartey
Introduction
THE International Monetary Fund (IMF) has revised Ghana’s growth projection for 2024 from an initial 3% to 4%.
This upward revision was confirmed by Abebe Aemro Selassie, Director of the African Department at the IMF, during the launch of the Regional Economic Outlook report in Washington, D.C., on the sidelines of the IMF/World Bank Meetings.
Mr. Abebe explained that the earlier projection, based on mid-April 2024 data, did not account for recent developments in Ghana’s economic landscape.
This revision has sparked discussions about Ghana’s economic journey in recent years, tracing the factors that led to the country’s current position and the strategies necessary to leverage these gains to drive individual, business, and public sector growth.
The Path to Economic Recovery
Ghana’s economic situation in recent years has been marked by a series of challenges. In the years leading to 2024, the country faced significant economic turbulence driven by a combination of external shocks, including the COVID-19 pandemic, which strained public finances and increased national debt levels. Rising global inflation, soaring energy costs, and the depreciation of the cedi worsened the situation, leaving the Ghanaian economy vulnerable to both domestic and international pressures.
By the end of 2022, Ghana’s public debt reached GH₵467.4 billion (approximately $78 billion), with the debt-to-GDP ratio hitting 93.5%. This unsustainable debt burden pushed the government to seek a $3 billion Extended Credit Facility (ECF) program from the IMF in late 2022 to stabilise the economy and restore investor confidence.
With soaring inflation (which peaked at 54.1% in December 2022) and high borrowing costs, Ghana’s fiscal position remained fragile well into 2023, prompting the government to initiate painful reforms.
One of the key reforms was the Debt Exchange Program, which sought to restructure both domestic and external debt, in line with IMF conditions. This program, however, was not without social and economic costs, as it led to reduced confidence in the financial sector and business closures due to the loss of liquidity.
The austerity measures also included cuts in government expenditure, the freezing of public sector employment, and increased taxes, further tightening economic conditions for Ghanaians.
Despite the pain of fiscal adjustments, Ghana began to see gradual improvements by mid-2023. Inflation began to moderate, falling to 40.1% in October 2023, and the cedi stabilized.
The successful negotiations with creditors and the government’s commitment to economic reforms allowed the IMF to release the second tranche of the ECF in late 2023, paving the way for growth projections.
The IMF’s 4% Growth Projection: A Sign of Recovery
The IMF’s upward revision of Ghana’s 2024 growth projection to 4% is a reflection of the country’s improving economic fundamentals. The IMF’s World Economic Outlook had initially set the growth at 3%, but as Abebe Aemro Selassie noted, recent developments in Ghana, especially fiscal stabilization efforts, improved investor confidence, and a modest recovery in key sectors like agriculture, mining, and services, led to the more optimistic projection.
The government’s fiscal discipline and its efforts to reduce the budget deficit are beginning to bear fruit. The budget deficit, which ballooned to 15.2% of GDP in 2020, was reduced to 7.5% in 2023 and is expected to continue narrowing in 2024.
Additionally, international reserves, which had been depleted in previous years, are being rebuilt, improving the country’s balance of payments situation.
The IMF’s forecast underscores that Ghana is emerging from a period of economic distress, but challenges remain. The government still faces the task of ensuring that economic growth is inclusive and sustainable, particularly as it continues to restructure its debt and deal with persistent inflationary pressures.
Exiting the Pain: What Was Done Right?
Ghana’s economic recovery has been underpinned by several critical interventions. First, the government’s ability to secure IMF support was crucial in restoring macroeconomic stability.
The IMF program came with tough but necessary reforms that have begun yielding results, including fiscal consolidation, increased revenue mobilisation, and spending efficiency.
The introduction of the e-Levy and other tax measures improved revenue, while the capping of non-essential spending allowed the government to refocus its limited resources on priority areas like education, health, and infrastructure.
Moreover, structural reforms in the energy sector, including the reduction of energy subsidies and renegotiation of power purchase agreements, have helped to reduce the financial burden on the state.
Additionally, the Bank of Ghana’s monetary policy tightening, with the policy rate at 30% in 2023, has contributed to controlling inflation, even though it has kept borrowing costs high.
Ghana’s recovery has also been bolstered by the revival of key industries. The gold mining sector, which saw a production increase of 7% in 2023, and the export of oil and cocoa have provided much-needed foreign exchange to support the balance of payments.
The agriculture sector, benefiting from government initiatives like Planting for Food and Jobs, has shown resilience despite global food supply chain disruptions.
Leveraging Gains for Sustainable Development
Ghana stands at a crucial juncture. While the growth projection of 4% in 2024 offers hope, the challenge lies in ensuring that this recovery benefits all sectors of the economy including individuals, businesses, and the public sector alike. To achieve this, the government must consider focusing on some of the following areas:
1. Supporting Private Sector Growth
The private sector remains the engine of Ghana’s economy, and policies that promote entrepreneurship, innovation, and business expansion are essential for sustained growth. The government should create a more conducive business environment by addressing bureaucratic bottlenecks, reducing the cost of doing business, and improving access to finance for small and medium-sized enterprises (SMEs). Enhancing digital infrastructure and e-commerce will allow businesses to tap into new markets and create jobs.
2. Human Capital Development
For Ghana to build on its recovery, there must be investment in education and skills development. Closing the gap between education and industry requirements will help reduce unemployment, which stood at 13.2% in 2023. Partnerships between the government, private sector, and educational institutions are crucial to developing a workforce that is equipped to meet the demands of a modern economy.
3. Public Sector Reforms
The public sector plays a significant role in Ghana’s economy, but inefficiencies and corruption have hampered its effectiveness. Reforms aimed at improving service delivery, accountability, and transparency are needed to make the public sector more responsive to the needs of businesses and individuals. Additionally, digitizing public services can help reduce inefficiencies and improve revenue collection.
4. Building Economic Resilience
The lessons from Ghana’s recent economic challenges highlight the need for resilience against external shocks. Diversifying the economy by expanding non-traditional exports and investing in renewable energy, particularly solar power, will help reduce the country’s reliance on volatile global markets. Moreover, increasing domestic production and reducing imports will enhance food security and economic self-sufficiency.
5. Sustaining Fiscal Discipline
Ghana’s journey to recovery has been painful, but it has provided a blueprint for maintaining fiscal discipline. Implementing sound fiscal policies, managing debt levels responsibly, and improving revenue collection through innovative measures will be critical to sustaining growth.
Conclusion
The IMF’s upward revision of Ghana’s growth rate to 4% for 2024 is a promising sign that the country is recovering after years of economic hardship.
However, for this recovery to be meaningful and sustainable, the government must focus on leveraging the gains from this growth to improve the livelihoods of individuals, support businesses, and reform the public sector. By addressing these priorities and building resilience to future shocks, Ghana can overcome its economic pains and pave the way for long-term development and prosperity.
Prof. Samuel Lartey
sammylaatey@yahoo.com
