The African Development Bank (AfDB) has released a report indicating that Ghana’s economy, which has been highly vulnerable to internal and external shocks since the COVID-19 pandemic, is expected to stabilize gradually over the coming years.
According to the report, Ghana’s economic recovery from the pandemic has been sluggish. Real Gross Domestic Product (GDP) growth decreased from 5.1 percent in 2021 to 3.8 percent in 2022, with a projected growth rate of 2.9 percent for 2023.
This slowdown is attributed to macroeconomic instability, tighter global financial conditions, and the lingering effects of various shocks.
Inflation has surged significantly, rising from an average of 10.2 percent between 2017 and 2021 to 43.3 percent in 2023. Despite the Bank of Ghana’s efforts to counteract inflation by increasing the Monetary Policy Rate (MPR) from 14.5 per cent in January 2022 to 30 per cent by September 2023, inflation remains high.
The fiscal deficit has improved markedly, falling from 11.8 per cent in 2022 to 4.5 per cent in 2023, driven by budgetary consolidation and enhanced revenue performance.
Additionally, the current account deficit narrowed to 1.7 percent of GDP in 2023, compared to 2.1 percent in 2022 and 3.2 percent in 2021. However, multidimensional poverty slightly increased from 46 percent in 2017 to 46.7 percent in 2022.
The report highlights that tightening international financial conditions has intensified pressures on the exchange rate, leading to a substantial depreciation of the Ghanaian Cedi.
The annual depreciation rate was 60 percent in 2022 and 17 percent in 2023. This depreciation, along with high accurate interest rates and financing needs, has contributed to a debt burden of 93.3 percent of GDP in 2022, with external and domestic debt nearly evenly split.
Ghana’s debt situation remains precarious. In December 2022, it effectively defaulted on much of its external debt.
The Domestic Debt Exchange Program (DDEP) launched in December 2022 has helped reduce debt to 86.1 percent of GDP in 2023.
The AfDB forecasts a gradual stabilization of Ghana’s macroeconomic situation.
GDP growth is projected to rebound to 3.4 percent in 2024 and 4.3 percent in 2025. Inflation is expected to decrease significantly but will remain above the Bank of Ghana’s target range, at 20.9 percent in 2024 and 11.1 percent in 2025.
As fiscal consolidation efforts continue, the fiscal deficit is anticipated to widen to 4.9 percent in 2024 before narrowing to 4.2 percent in 2025. The current account deficit is expected to widen to 1.9 percent in 2024 and 2.3 percent in 2025.
The report cautions that the economic outlook is subject to several risks, including the impact of the Post-COVID Program for Economic Growth (PC-PEG), ongoing effects of multiple shocks, limited access to finance and foreign exchange, and global macroeconomic uncertainties.
The report advises that prudent monetary policy and fiscal discipline will be crucial to mitigate these risks.
