The convergence of internal disparities and external disruptions culminated in significant macroeconomic challenges for Ghana. The aftermath of the COVID-19 era is characterized by several noteworthy developments, including currency devaluation, a notable increase in inflation, and a loss of confidence among investors.
The existing vulnerabilities in the fiscal landscape, encompassing an escalating debt burden, an inflexible budget strained by considerable energy sector expenses, and consistently weak public revenues, were further exacerbated by the demanding global economic context.
These dynamics are highlighted in the latest Economic Update from the World Bank. The trajectory of real GDP growth experienced a slowdown, settling at 3.3percent in the year 2022. This represents a decline from the 5.4percent achieved in the preceding year of 2021. The potential for this deceleration to persist over the next five years is influenced by the ripple effects originating from this intricate web of challenges.
In this period, the Ghanaian Minister of Finance expresses optimism that the nation is ‘Turning the Corner’ in the 2023 mid-her budget review. However, many experts dismiss this sentiment as mere rhetoric and a lack of action under President Akufo-Addo’s administration.
For instance, the surge in inflation is primarily attributed to elevated costs within the food and energy sectors, compounded by the depreciation of the local currency. While the government has previously touted the ‘Planting for Food and Jobs’ programme that the actual net impact remains difficult to quantify. The spotlight is also on fiscal dynamics, with many economists noting that this shift has magnified public expenditure.
Within the fiscal landscape, the spotlight is on the central role played by public debt. The increase in public debt is attributed to a combination of factors, including primary fiscal deficits and the weakening value of the local currency against other currencies. The investment landscape presents challenges as well, evident through deficits in both the capital and financial accounts.
These deficits highlight persistent obstacles within these sectors. Amid these economic circumstances, living standards have suffered, largely due to the escalating cost of living and rising unemployment rates. Youth unemployment, specifically within the age bracket of 15 to 24, increased from 7.3percent in 2020 to an estimated 7.2percent in 2021. The overall unemployment rate also climbed from 11.9percent in 2015 to 13.4percent in 2021.
Economic projections forecast a deceleration in growth to 1.5percent in 2023 and continued depression at 2.8percent in 2024. However, there is anticipation for economic recovery to reach its potential growth trajectory by 2025 which is even in doubt.
In response to the evolving economic conditions, the monetary policy stance demonstrated failed the country woefully. Akufo Addo governments came to collapse nine local banks, 23 savings & loans companies, 347 microfinance institutions, 39 finance houses, and 53 fund management companies when they could have used only GH¢9billion to keep them in operation, but rather, they chose to use over GH¢20billion to collapse them.
Current there are so many allegation of the illegal means to printing money as we have been told BoG printed GH¢35billion in 2021 and GH¢45billion in 2022, totaling GH¢80billion within 2 years. The actions and in actions High inflation, increased interest rates, and macroeconomic uncertainties will keep private consumption and investment growth below par. Even though some experts are of the view that the economy has the potential to recover by 2025 as the drag from fiscal consolidation fades and macroeconomic stabilization and structural reforms start bearing fruit through the IMF programmes, I am of the view that it will take a minimum of 5-7 years to see the Ghahaina economy “turning the corner”.
In reaction to the evolving economic circumstances, the monetary policy stance exhibited significant shortcomings for the country. The tenure of the Akufo-Addo government witnesses a series of distressing events unfolding within the financial sector. This included the collapse of 9 local banks, 23 savings & loans companies, 347 microfinance institutions, 39 finance houses, and 53 fund management companies.
Remarkably, an estimated amount of only GH¢9billion could have potentially sustained their operations. However, an alternative approach was chosen by this government involving the utilization of over GH¢20billion to facilitate their collapse.
Presently, a multitude of allegations surrounds questionable practices related to the printing of money. Reports have emerged indicating that the Bank of Ghana (BoG) printed GH¢35billion in 2021, followed by an additional GH¢45billion in 2022. The cumulative total of GH¢80billion printed within these two years raises concerns over the legitimacy and impact of these actions.
The consequences of these actions and inactions have manifested in the form of high inflation, heightened interest rates, and macroeconomic uncertainties. Consequently, the growth of private consumption and investment is anticipated to remain subdued.
While some experts hold the perspective that the economy possesses the potential to rebound by 2025, with the drag from fiscal consolidation gradually subsiding and the fruition of macroeconomic stabilization and structural reforms facilitated through IMF programmes, I hold the belief that a more realistic timeline for witnessing a significant turnaround in the Ghanaian economy would likely extend to a minimum of 5-7 years.
Building resilient economy
How can we cultivate resilience given that the current situation in Ghana is pseudonymized? There are moments when one wonders if the present government’s intentions are truly focused on governance, or if they are more self-serving, treating Ghanaians as mere spectators.
A vivid example of this is the adage that advises us to entrust our funds to banks, while a cabinet minister supposedly stockpiles millions beneath their bed. Additionally, allegations of others engaging in similar practices abound. Similarly perplexing is the presence of an influential individual referred to as a “prime minister” without any official designation, who nonetheless engages in negotiating government affairs.
There are 3 prominent factors that I’ve identified as malignant elements within the Ghanaian economy: failed institutions, inept leadership, and corruption. Crafting a resilient economy in Ghana necessitates a comprehensive and multifaceted strategy that comprehensively addresses the array of sectors and challenges at hand. One pivotal approach is the diversification of the economy, aiming to decrease reliance on a single sector such as cocoa or gold. This diversification can serve to mitigate the adverse effects of fluctuating global prices.
Regrettably, while the policies promoted by the Akufo Addo government held promise, their implementation faltered due to subpar execution, likely attributed to appointees who lacked the commitment to effective governance. The growth of sectors like manufacturing, services, technology, and tourism can establish a more balanced economic foundation.
Furthermore, a genuine investment in infrastructure is crucial, differentiating from initiatives undertaken solely for political expediency. The development and upkeep of critical infrastructure, encompassing transportation networks, energy systems, and digital connectivity, can bolster economic efficiency and attract vital investment.
Paradoxically, despite vocalizing the right intentions, the government’s actions often contradicted their words. Reports even suggest a complex web of hidden transactions, colloquially referred to as “brown envelopes,” that influences the awarding of construction projects.
A worrisome trend is the steady emigration of skilled human resources seeking better prospects elsewhere. This phenomenon bears resemblance to historical episodes of the slave trade, except this time skilled individuals are willingly surrendering their potential to other nations due to the mismanagement perpetuated by failed institutions, inept leadership, and corruption.
Hence, the advancement of Human Capital Development through investments in education, healthcare, and skills training is imperative. By doing so, a more skilled and adaptable workforce can be fostered. This, in turn, will be instrumental in cultivating a diversified and innovative economy—a foundation that is indispensable for the sustained growth and resilience of Ghana’s economic landscape.
Prioritizing sustainable agriculture is the path to leadership, as enhancing agricultural methods to boost productivity, minimize environmental consequences, and ensure food security can effectively fortify the agricultural sector’s resilience. Such efforts contribute to constructing the desired economic framework.
However, it’s important to note that the concept of agricultural advancement extends beyond merely planting for sustenance—it encompasses the creation of a job-centric approach. This perspective challenges claims that only a fraction, around 10percent, of resources are allocated to this sector. Economic resilience-building also entails establishing a diverse and dependable energy mix, incorporating renewable sources. This strategic approach mitigates vulnerabilities to fluctuations in energy prices and disturbances in supply, thereby enhancing energy security.
The current scenario, characterized by overproduction and cost constraints, necessitates pragmatic solutions devoid of political entanglements. Constant references to predecessors can be irksome, especially when the current officeholders were appointed to address existing issues. The financial sector serves as the engine of economic growth. A stable financial sector with robust regulatory frameworks, transparency promotion, and health assurance can significantly bolster economic stability and investor confidence.
Nonetheless, there’s an inclination to believe that those appointed to manage central bank affairs might possess impressive credentials but lack essential competence. A preference is expressed for individuals versed in “Streeteconomics” and equipped with sturdy leadership skills, as opposed to a string of degrees. Given that the Ghana finance ministry encompasses both finance and economic planning, a development economist is deemed suitable for steering its direction.
Unfortunately, the present leadership of the economic management team and the central bank has been a source of challenges. Hence, there’s a suggestion that future administrations should take action against certain decisions. The prevalence of failure accounts for a substantial portion—90percent—of Ghana’s economic challenges. The failure to adopt prudent fiscal policies, coupled with inadequate management of public debt and inefficient public spending, has culminated in this state of macroeconomic instability.
Turning attention to other sectors, trade diversification emerges as a pivotal focus. Expanding trade relationships beyond conventional partners like the UK and USA is advocated, particularly considering untapped opportunities with countries such as the United Arab Emirates, Japan, and China. The query arises: why is Ghana’s cocoa exclusively sold in Europe? The need to reduce reliance on a restricted set of markets and products is evident.
Furthermore, innovation and the integration of new technologies should drive productivity and competitiveness across various sectors, harnessing their potential. Incorporating sustainable practices into economic development is vital to counter the ramifications of climate change and environmental challenges. This endeavor should also extend to supporting the growth of small and medium-sized enterprises (SMEs), which have the capacity to foster economic dynamism and job creation.
There is another form we need to consolidate properly, that s Good Governance and Institutions Strengthening governance, reducing corruption, and improving the efficiency of public institutions can create an environment conducive to economic growth and resilience. While that is done we will establish social safety nets that can provide a buffer against economic shocks and help vulnerable populations cope during challenging times.
This will also assist us in Disaster Preparedness and managing and recovering from natural disasters and other emergencies that are essential for economic resilience. Last but not least Regional Cooperation with neighboring countries on trade, infrastructure development, and other areas can enhance economic opportunities and stability. It’s important to note that building a resilient economy is a long-term endeavor that requires commitment, coordination among various stakeholders, and adaptability to changing circumstances. Additionally, the specific strategies chosen should be tailored to Ghana’s unique economic, social, and environmental context.
>>>the writer is a seasoned professional with expertise in risk management, financial analysis, and strategic business planning with 29 years of experience in academia and corporate environments. He holds a Doctorate in Business Management (UK), MSc in Socioeconomics of Rural Development(Germany), International Securities, Investment & Banking (UK), and a BSc in Agricultural Economics (Ghana). He has a strong track record in identifying and managing risks while fostering growth in various sectors. With advanced analytical and communication skills, he played a key role in consulting for ITC, The World Bank, TechnoServe, Tullow Energy, SNV, Danida, ABSA/Mastercard Foundation, Social Investment Funding (SIF), Skills Development Funds (SIF). His achievements include overseeing major projects, securing financing, revitalizing departments for improved efficiency, and played a pivotal role in fostering entrepreneurship through his work with TechnoServe, SNV, and ABSA/Mastercard Foundation. He can be contacted via [email protected]
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