Wednesday, May 22, 2024

Ghana’s Economic Recovery Underway

AN ECONOMIC recovery is underway for Ghana’s economy, the latest assessment by the International Monetary Fund (IMF) has stated.

Growth is expected to rebound to 4.7 percent in 2021, supported by a strong cocoa season and mining and services activity, with inflation billed to remain within the Central Bank’s target.

Also, Ghana’s current account deficit is projected to improve to 2.2 percent of GDP, supported by a pickup in oil prices, and gross international reserves are expected to remain stable.

The IMF report avers that though “the 2021 budget envisages a fiscal deficit of 13.9 percent of GDP in 2021, including energy and financial sector costs, and a gradual medium-term fiscal adjustment which would support a decline in public debt starting in 2024, this outlook, however, is subject to significant uncertainty, from new pandemic waves and risks associated with large financing needs and increasing public debt.”

Noting that Ghana was hit hard by the COVID-19 pandemic, the report said the New Patriotic Party (NPP) administration’s response helped to contain the pandemic and support the economy, but at the cost of a record fiscal deficit.

“The economic outlook is improving, even though risks remain, including from the evolution of the pandemic and rising debt vulnerabilities,” the IMF said. The Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Ghana on July 19, 2021.

Stable Cedi

The Ghana Cedi remained stable against the US dollar, partly due to Central Bank intervention, and gross international reserves remained at 3.2 months of imports.

External and domestic financing conditions tightened considerably at the start of the pandemic, but have improved since, and Ghana successfully returned to international capital markets for a US$3 billion Eurobond issuance in March 2021.

Pandemic’s Effect On Growth

Growth slowed to 0.4 percent in 2020 from 6.5 percent in 2019, food prices spiked, and poverty increased.

The fiscal deficit including energy and financial sector costs worsened to 15.2 percent of GDP, with a further 2.1 percent of GDP in additional spending financed through the accumulation of domestic arrears.

Public debt rose to 79 percent of GDP. The current account deficit widened slightly to 3.1 percent of GDP as the decline in oil exports was partially offset by higher gold prices, resilient remittances, and weaker imports.


The IMF executive directors agreed with the thrust of its staff appraisal indicating that the pandemic had a severe impact on Ghana’s economy, with slower growth, higher food prices, and increased poverty.


Directors, albeit, commended Ghana’s authorities for their proactive response to the COVID-19 pandemic, which mitigated its economic impact, but contributed to a record fiscal deficit and increased public debt vulnerabilities.

“There are encouraging signs of an economic recovery,” they noted, adding that it remained uneven across sectors.

“In this context, directors stressed the importance of entrenching prudent macroeconomic policies, ensuring debt sustainability, and pressing ahead with structural reforms to deliver a sustainable, inclusive, and green economic recovery.”

While noting that risks to Ghana’s capacity to repay have increased, directors concurred that they are still manageable and that Ghana’s capacity to repay the fund remained adequate.

Directors welcomed the fiscal adjustment envisaged in the 2021 budget. They stressed that fiscal consolidation was needed to address debt sustainability and rollover risks, as Ghana continued to be classified at high risk of debt distress.


To protect the most vulnerable, the IMF said considerations could be given to more progressive revenue measures and a faster return to the pre-pandemic level of spending, with a shift towards social, health, and development spending. Directors also encouraged the timely completion of the planned audit of COVID‑19 emergency spending and new expenditure arrears.

Directors agreed that the monetary policy stance remains broadly appropriate while noting that tighter policy would be needed if inflationary pressures materialize. Although gross international reserves are relatively high, directors stressed the need to guard against erosion of external buffers and remain committed to a flexible exchange rate regime. Directors also encouraged the authorities to limit the monetary financing of the deficit.

Directors noted that the financial sector cleanup had made the sector more resilient, but stressed that banks’ growing holdings of sovereign debt creates risks and crowds out private sector credit. In this regard, they took positive note of ongoing supervisory and regulatory reforms, which are important steps to protect financial stability. Directors also welcomed the improvements in the AML/CFT framework that allowed Ghana to exit the FATF ‘grey list’.

Additionally, the directors emphasized that the authorities’ structural transformation and digitalization agendas were critical to support the recovery. They noted that the structural transformation could be complemented by the ongoing energy sector review, diversification in tourism, and the digital transition, which had the potential to reduce corruption, boost tax revenues, and improve service delivery.

The next Article IV Consultation with Ghana is expected to be held on the standard 12-month cycle.

BY Samuel Boadi

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