A recent report by the African Development Bank (AfDB) has called on the Ghanaian government to implement comprehensive measures.
These measures are crucial in deepening financial markets and improving access to affordable credit, forming a crucial part of a broader strategy to enhance structural transformation in the economy.
The AfDB report, released on July 31, outlines several critical recommendations for addressing Ghana’s economic challenges and boosting its development trajectory.
Among the primary recommendations is strengthening financial markets to facilitate greater access to affordable credit.
The report also emphasises the importance of improving stakeholder engagement and coordination of development assistance to optimise impact.
The AfDB identified three major factors contributing to Ghana’s slow pace of structural transformation.
First, the report highlights a concentration of jobs in less productive sectors such as personal services, agriculture, wholesale and retail trade, and manufacturing.
Second, it points to underutilising factors critical for structural transformation, including deteriorating institutional quality, limited export diversification, inadequate infrastructure, moderately developed human capital, and insufficient urbanisation benefits.
Third, the report notes significant bottlenecks, including a dominant informal sector, high vulnerability to climate change, limited access to and high cost of credit, and a high proportion of young people not in education, employment, or training (NEET).
Despite experiencing sustainable economic growth since the 1990s, Ghana has faced challenges with weak structural transformation and recent financial instability.
The country’s transition from low-income to lower middle-income status in 2010, driven by oil production and stable policies, has been overshadowed by weak post-COVID-19 recovery.
Real GDP growth slowed to 3.8 percent in 2022 from 5.1 percent in 2021 and is estimated to fall to 2.9 percent in 2023 due to macroeconomic instability, tightening global financial conditions, and multiple shocks, including a significant depreciation of the Cedi and a debt crisis in December 2022.
The AfDB report underscores the urgency of Ghana’s substantial financial needs for structural transformation. However, it reassures that these challenges are manageable with the right strategies in place.
To align with the Sustainable Development Goals (SDGs) and the African Union’s Agenda 2063, the report recommends that Ghana mobilise approximately USD 4.87 billion annually until 2030 for the SDGs and USD 0.85 billion annually until 2063 for the AU Agenda.
The country has yet to mobilise a third of these required amounts.
The report advocates for an increase in the tax-to-GDP ratio by 3.8 percentage points for the SDGs and 0.7 percentage points for the AU Agenda, alongside increased investment in high-priority sectors such as education and energy.
To accelerate structural transformation and catch up with top-performing developing nations, the report suggests creating a more business-friendly environment to attract domestic and foreign investment, developing a coherent urbanisation framework, and pursuing reforms to enhance macroeconomic stability. These reforms, if implemented effectively, could bring about significant positive changes in Ghana’s economic landscape.
These reforms include aligning monetary, budgetary, and exchange rate policies to control inflation, stabilise exchange rates, reduce the public deficit, and mobilise internal resources.
Additionally, the report calls for improvements in public sector development coordination, expedited debt restructuring, expanded concessional finance, deepened financial markets for better credit access, and strengthened coordination of development assistance.
