Navigating Ghana’s Economic Odyssey: Past Challenges, Current Realities, and Future Strategies


Navigating Ghana’s Economic Odyssey: Past Challenges, Current Realities, and Future Strategies

The tumultuous events of 2020, triggered by the global COVID-19 pandemic, disrupted nations worldwide, challenging their resilience and testing the capabilities of governments. This narrative delves into Ghana’s economic journey from 2021 to 2023, marked by a series of national budgets and reviews reflecting progress and challenges. As Ghana approaches the presentation of its 2024 budget in November 2023, a scrutiny of the nation’s fiscal performance since 2021, the impact of the 2023 IMF bailout, and future possibilities is imperative.

A Review of Ghana’s Budget Performance (2021-2023)

FY 2021: Post-COVID-19 Recovery Efforts 

The year 2021 is a pivotal chapter in Ghana’s economic story, characterised by the nation’s resolute response to the formidable aftermath of the COVID-19 pandemic. The national budget for 2021, amounting to an estimated ₵113.7 billion ($19.9 billion) in expenditure and projected revenues of ₵72.45 billion ($12.69 billion), vividly portrayed the challenges ahead. Allocated primarily to vital sectors like healthcare, education, and infrastructure, these funds showed the government’s unwavering commitment to rebuilding the nation and fostering long-term resilience in the wake of the COVID-19 pandemic.

Beneath the noble intentions of these investments, however, hid a fiscal conundrum. Revenue shortfalls, exacerbated by increased spending, presented a challenge. Ghana’s economic downturn saw significant gaps between revenue projections and actual collections, leading to a grim fiscal deficit of GH₵41.30 billion. This precarious fiscal tightrope required effective strategies to avoid an unfortunate snapping.

The delicate balancing act of 2021 rested on one hand, with the government’s moral obligation to invest in citizen welfare amidst pandemic-induced disruptions. Healthcare, education, and infrastructure development were not just optional investments but essential for national recovery. On the other hand, concerns loomed over the fiscal deficit and escalating public debt. According to the Ministry of Finance, as of end-December 2021, the provisional stock of outstanding public debt stood at GH¢351,787.0 million (US$58,640.0 million), comprising external debt of GH¢170,009.8 million (US$28,339.2 million) and domestic debt of GH¢181,777.2 million (US$30,300.8 million). In light of these staggering figures, avenues for revenue enhancement, prudent financial management, and judicious borrowing became imperative to safeguard the nation’s fiscal health. 

An Unusual Paradox for FY 2022

In 2022, Ghana’s economy showed an interesting paradox. On the one hand, while the country hoped to throw off the debilitating effects of the pandemic on the economy by now, the country was also faced with lingering fiscal uncertainty as key economic indicators had previously recorded extremely sluggish GDP growth year-on-year since the pandemic. The Ministry of Finance reported that the outturn for the Overall  Real GDP growth rate for 2021 was 3.5% as at June,  compared to the 2021 projection of 5.0%. The Ministry, for 2022, projected an Overall GDP Growth of 5.8%, but recorded an outturn of 4.0% by June 2022, further cementing fears of economic collapse. Furthermore, the fiscal deficit for 2021 fell from 9.5%  to 9.4%, raising questions on the prospects for economic recovery.

However there were some indicators that accounted for the citizens’ hope of absolution from the economic quagmire, prominent of them being the considerable spike in commodity exports prices on the international front, giving some economic respite and hope of recovery. This comeback, largely credited to the fortunate coincidence of high commodity prices, especially for gold and cocoa, gave the economy a much needed and timely boost. Gold prices rose to a six-year high in early 2022, and cocoa also  fetched favorable prices on international markets as well. However, beneath the surface of economic recovery, there were lingering concerns about fiscal prudence and public debt. The 2022 government’s mid-year budget failed to address most of these concerns, as citizens and civic groups condemned the administration for excessive spending and the increasing cost of governance. According to the Ministry of Finance, in 2022, Ghana aimed for a fiscal deficit target of 7.9% of GDP, showcasing an ambitious fiscal consolidation of 1.8% of GDP from the 9.4% deficit recorded in 2021. However, the fiscal deficit outturn for 2022 was 7.4% of GDP, indicating some level of financial management despite the general economic conditions in the country.

In 2022, public debt also cast a looming shadow on the economic horizon, discouraging foreign investments. Based on the 2022 Annual Debt Report published by the Ministry of Finance, Ghana’s nominal debt-to-GDP ratio was recorded at 70.7% at end-December 2022 compared to 76.6 percent at end-December 2021. Despite the slight decline, this figure continued to fan concerns regarding the country’s ability to meet its long-term financial obligations as the decline could largely be attributed to inflated prices on commodity exports. Although temporarily advantageous, the windfall resulting from inflated commodity prices ultimately demonstrated its unsuitability as a long-term solution. The nation’s reliance on commodity exports rendered it vulnerable to external shocks, currency devaluation, and price fluctuations. The government recognized the imperative to enhance revenue collection, optimize expenditure efficiency, and diminish the fiscal deficit during the mid-year budget review in 2022, with a sincere effort to achieve equilibrium. However, the challenge was effectively implementing these reforms and ensuring tangible results. 

FY 2023: Debt Restructuring

Despite applying its most aggressive debt restructuring plan, Ghana’s economy further deteriorated and plummeted into further crisis.

The year 2023 was a watershed moment in Ghana’s economic trajectory, marked by citizens’ outrage at the government’s decision to seek a $3 billion bailout package from the International Monetary Fund (IMF), owing to the IMF’s notoriously stringent and austere economic conditionalities, which included a domestic debt restructuring programme. Ghana, faced with rising economic woes and diminishing investor confidence, was forced to seek financial assistance from the IMF for a record 17th time.The IMF rescue plan, which amounted to a substantial infusion of capital into the Ghanaian economy, was created with the dual goals of stabilising the country’s economy and restoring investor confidence. While this provided a lifeline to a nation on the verge of collapse, it came at a high cost. 

The IMF’s financial assistance was accompanied by stringent conditions, including a series of austerity measures and far-reaching structural reforms, the most controversial and possibly one of the major contributors to this government’s unpopularity being the Domestic Debt Exchange Programme (DDEP), whose net stretched to include groups such as pensioners and bondholders, among others. Ghana’s Domestic Debt Exchange Programme was a government project aimed at reorganising domestic bonds into four categories with longer maturities and lower interest rates. The program’s goal was to free up fiscal space and qualify Ghana for an IMF loan. Individuals such as the former Chief Justice of Ghana, Madam Sophia Akuffo, joined a group of pensioners to picket at the Ministry of Finance headquarters to oppose inclusion in the Debt Exchange Programme decrying the move by government to include them in the programme, as inconsiderate and unacceptable.

On the fiscal front, precise numbers sufficiently indicated Ghana’s fiscal dilemma in 2023. According to the 2023 Budget, the government projected to spend GH₵205 billion for the fiscal year, with receipts of GH₵144 billion and a significant fiscal deficit of GH₵61 billion. The fiscal deficit, which had been a source of concern in previous years, had risen to a critical level of GH₵61 billion as opposed to GH₵37.01 billion in 2022, raising concerns about the economy’s deficit trajectory. This deficit not only highlighted the importance of fiscal assistance, but also the importance of budgetary discipline. 

Interestingly, by mid-2023, the Minister of Finance stated in the presentation of the 2023 Mid-Year Budget Review that Ghana’s fiscal deficit for the Half Year stood at GH6.3 million, which was 0.8% of GDP, as opposed to the projected GH28,277, which was 3.5% of GDP, explaining that these figures were due to all expenditure lines, except employees and expenditure on goods and services, remaining within budget thresholds.

However, the IMF issue added another degree of complication to the country’s economic recovery. While the bailout provided financial relief, it also required tough fiscal reforms affecting several elements of the nation’s economy, such as public spending, taxation, and public sector reform. While necessary for long-term viability, these reforms posed major challenges, notably in striking a balance between fiscal consolidation and the welfare of ordinary individuals.

The burden of these reforms frequently affects average Ghanaians, who have to deal with the consequences of austerity measures and the restructuring of public services. The IMF’s criteria required cautious navigation of Ghana’s economic course, putting to the test its willingness to prioritise fiscal stability without jeopardising its inhabitants’ well-being.

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