Tuesday, Aug 03

Right Policy Measures for a Gradual but Sustained Economic Recovery

Economies across the globe have experienced the adverse effects of the SARS-COV-2 and Ghana has been of no exception. Businesses, jobs and livelihoods have been hugely affected by the pandemic which commenced in December 2019.

The situation, however, appears to be stabilizing now following the roll out of vaccination exercises across the world. As countries take steps to recover and rebuild, it has become necessary for Ghana to also put in place the right policy measures to speed up the process and build back better and stronger from the pandemic.

World Bank Country Director On Ghana’S Economy
In finding such right policy measures that can fasttrack the country’s economic recovery, the Country Director of the World Bank Group, Mr. Pierre Laporte, shared the group’s perspective on the country’s current economy and the way to rebuild back and better after COVID-19.
At the heart of the economic recovery program is the Ghana CARES ‘Obaatanpa’ program which is expected to invest GH¢100 billion into the economy in the next few years. The program has been designed to provide the blue print for the country’s economic recovery post COVID-19.

The two primary phases of the Ghana CARES programme include: The Stabilisation Phase which was scheduled between July to December 2020. This phase saw the government implement interventions that ensured food security, protect businesses and jobs. In view of this, and among several other measures, this phase of the CARES program provided GH¢750 million in soft loans to Micro, Small and Medium Enterprises under the Coronavirus Alleviation Programme-Business Support Scheme (CAP-BuSS). Also, this phase established a GH¢2 billion Guarantee Facility to support all large enterprises.

Moreover, the medium term (the revitalization and transformation phase) that is expected to span between 2021 to 2023 shall see the government invest in activities aimed at accelerating the ‘Ghana Beyond Aid’ agenda.

Specifically, this phase intends to pursue the establishment of Ghana as a regional hub by leveraging the siting of the Secretariat of the Africa Continental Free Trade Area (AfCFTA) in Ghana, and will include the establishment of the International Financial Services Centre (IFSC) among other things.

Laporte.jpgAssessing the medium-term Revitalization and transformation Phase of the program, Mr. Laporte noted that this was critical to accelerate the Ghana Beyond Aid agenda. Furthermore, he revealed that the program was aligned with World Bank’s priorities, notably: improvements in business regulations, digitization to improve public service delivery, access to finance, skills training, and energy sector reforms.

In all, the government is estimating the CARES programme to cost GH¢100 billion, with the government expected to raise GH¢3e government of Ghana plans to finance it jointly with the private sector.

It will be central to the success of the initiative to find ways to engage productively with the private sector, to ensure fair burden sharing between private and public sector and avoid additional public debt accumulation.

Assessing The Current Economic Performance

Ghana’s economy recorded impressive growth between 2017 and 2019 until the advent of COVID-19 in 2020, which erased all the gains that had been chalked.

The economy grew by over 8 percent in 2017, 6.3 percent in 2018 and 6.8 percent in 2019. The fiscal deficit also declined from 6.8% of rebased GDP in 2016 to 3.8% in 2018 and 4.8% in 2019 (excluding cost of the one-off financial sector bailout).

The economy also recorded primary balance surpluses for three years in a row: 0.5% of GDP in 2017, 1.4% in 2018, and 0.9% in 2019 compared to a deficit of 1.1% in 2016. Moreover, Inflation dropped steadily from 15.4% at the end of 2016 to 7.9% (rebased) at the end of December 2019, and the trade balance recorded a progressively large surplus in 2017, 2018, and 2019.

However, the impact of the COVID-19 wiped out all these impressive growth, with the economy growing by just 0.4 percent in 2020, which is one of the lowest economic growths in the country. Inflation also ended the year at 10.4 percent, with trade balance also ending the year with a deficit of 5.3 percent.

Commenting on the World Bank’s assessment of the Ghanaian economy, Mr. Laporte, noted that it was a difficult assessment to make now considering the impact of the pandemic.

He admitted that prior to the pandemic, the country’s economy was doing so well.


Ghana’s economy grew by 7 percent per year on average during 2017-2019, one of the fastest growth rates in Africa. However, the COVID-19 pandemic has had a severe adverse impact on Ghana’s economy (as it did in other developing and emerging countries as well).

Growth slowed sharply in 2020, to 0.4 percent, because of both external factors (the global slump in hydrocarbon prices) and domestic mobility restrictions which hit the services sector (wholesale and retail trade and hospitality). In turn, the growth slowdown has clearly had an impact on poverty.

He further stated that surveys conducted had also indicated that three-quarters of households saw a decrease in their incomes.

Another issue is that the COVID-19 crisis has really dented Ghana’s fiscal space and this is something to look out for.

Debt To GDP Ratio

The country’s debt to GDP ratio has been a major cause for concern in recent times with the International Monetary Fund (IMF), consistently warning the country that the debt was reaching unsustainable levels.

Ghana’s debt currently stands at GH¢304.6 billion, as at March 2021, representing 70.2 per cent of GDP according to latest data released by the Bank of Ghana.

With the debt to GDP projected to have reached 78 percent in 2020 by the World Bank, the World Bank Country Director averred that this was a very significant issue but also one that needs to be put in perspective.

Nevertheless, he revealed that the nominal figure was not the one to look at. He therefore stated that “we need to look at debt as a share of GDP or revenues, because different countries have very different levels of debt they can sustain.

He further explained that “the sharp increase you saw in the debt ratio in 2020 (by 15 percentage points to 78 percent of GDP), is partly a reflection of the fact that growth slowed down sharply (so the denominator shrinks relative to the numerator). Also, I think there is a consensus among economists that fiscal support was needed during the crisis to provide immediate support and immediately after to make sure that the recovery is robust.”

He, however, advised the government to put in place a credible plan to return to fiscal discipline and to rebuild the fiscal buffers that have essentially vanished during COVID.

That credible plan will also need to include a solution to issues in the energy and financial sectors that have been major sources of contingent liabilities in the past. Unless and until that plan is implemented, Ghana will remain at high risk of debt distress and exposed to shocks. This is not a situation it will want to be in


Ghana’s Budget Deficit

After keeping the budget deficit under control and below the five per cent of GDP threshold prescribed by the Fiscal Responsibility Act, the country was forced to suspend the fiscal rule that was introduced in 2018, and the budget deficit widened to 11.4 percent in 2020, largely as a result of the economic impact of the COVID-19 pandemic.

Mr. Laporte noted that countercyclical response to crisis was necessary.

He, however, pointed out that countercyclical policy also means that the government puts money aside (build up fiscal buffers) in good times and rely on those buffers in bad times.

He further indicated the country’s fiscal deficit was already very high prior to the COVID-19 pandemic, which only worsened the situation.

He also pointed out that “it did make sense to suspend the fiscal rule (in fact there are provisions for doing so precisely to address exceptional circumstances) but I also think Ghana needs a credible plan to get back to a meaningful fiscal rule in the near future and this will imply resolving issues in the energy and financial sectors; gradually phasing-out COVID-19 support measures; improving spending efficiency; and raising more domestic revenues.”

Domestic Revenue Mobilization

Domestic revenue mobilization has been a major challenge for the country, considering majority of the country’s workforce being in the informal sector. Over the years, attempts by the government to formalize the informal sector and rope them into the tax net has proven futile.

This has led to the situation where the government keeps over burdening the people in the tax net with more taxes instead of widening the tax net.

In a bid to raise more revenue to fund its policies post COVID-19, the government in the 2021 budget statement introduced some new taxes, while some others were increased.

Commenting on the country’s domestic revenue mobilization drive, Mr. Laporte said Ghana was starting from a very low tax to GDP level.

Mr. Pierre Laporte 2

“Indeed, for the past two decades, the tax to GDP ratio has remained at around 12.8 percent of GDP, well below the Sub Saharan Africa average of 15 percent. However, that means there is a lot of potential for improvement.

“In fact, a low hanging fruit is exemptions (so called “tax expenditures”), which were estimated to amount to about 5 percent of GDP for 2014.”

The Country Director described the government’s intention to increase total revenue and grants from 14.4 percent of GDP in 2020 to 16.7 percent in 2021, which represents a nominal growth of 31 percent year on year, as ambitious.

He said the World Bank, however, supports this ambition, stating “but beyond the measures that have already been announced (such as the proposed levies on petrol/diesel), it is important for Ghana to review existing tax exemptions with a view to rationalize them; strike the balance between tax efficiency and equity; and consider improving the personal income tax (PIT) systems to encourage taxpayers to move out of the informal economy while making the tax system more progressive, for instance by administering social transfers via the PIT.”

Impact Of Corruption

Corruption is identified as one of the major challenges in Ghana, robbing the country of millions of Cedis which could have been used to better the lives of the citizens.

The Government-own Coordinated Program for Economic and Social Development (CPESD) considers corruption as a major constraint on growth and development and therefore, the Government is planning to enforce stronger Anti-Corruption measures by systematizing the interface with the citizens and private sector.

On how to address this menace, Mr. Laporte noted accountability institutions have an important role to play to restore public confidence.


In this respect, Ghana has enacted several laws and established institutions to deal with corruption in the public sphere. Besides the Ghana Audit Service, these include the Economic and Organised Crime Office (EOCO), the Commission for Human Rights and Administrative Justice (CHRAJ), the Internal Audit Agency, the Public Procurement Authority, the Central Tender Board, and the Public Accounts Committee. Despite these legislation and accountability institutions, further reforms are needed to resolve pending issues.

CPESD also acknowledges that governance and institutional challenges are the two internal binding constraints on development. Despite improvements in governance indicators of voice and accountability and political stability and absence of violence in Ghana, indicators of government effectiveness and control of corruption have declined by 18.66 and 4.19 percent, respectively.

Mr. Laporte further said the World Bank, through a combination of interventions, was supporting government’s reform measures for improving governance and Anti-Corruption mechanisms.

These include reform of public financial management systems, strengthening revenue administration, local governance, State Owned Enterprises’ performance and reforms aimed at efficiency of service delivery expenditures and value for money.


World Bank’s Economic Projection

Rating agencies, Fitch and Moody’s at the beginning of the year projected a strong economic growth for the country in 2021. While Fitch projected a growth of 4.8 percent, Moody’s projected a growth of 4 percent. These two projections were in line with the government’s own projection of 5 percent for 2021.

The World Bank, at the beginning of the year was, however, conservative with their projection, predicting a GDP growth of 1.4 percent.

Mr. Laporte commenting on the projection revealed the forecast at the beginning of the year formed part of the World Bank’s global exercise.

However, he noted the World Bank has revised that projection and upgraded its forecast due to the improvement in the global economy.

Our new projections point to a recovery albeit with growth below pre-COVID levels. We now expect that growth will average 4.5 percent per year over 2021-2023 (which is lower than the pre-2020 10-year average of 6.0 percent).

Building Blocks For Turnaround

With the COVID-19 situation now stabilizing, the World Bank Country Director proffered some measures to help fix the economy and bring it back to the pre pandemic levels.

He intimated the country’s first priority and the most effective measure to support the economy is to continue the efforts on the vaccination campaign


The second priority is to extend enough support to households and firms so that they are in a position to support the recovery. The third priority is to ensure fiscal consolidation over the medium term. Finally, structural reforms will be needed to raise the growth potential of the economy. In that respect the AfCFTA offers great potential to support economic diversification in Ghana.

Ghana’s National Development Bank

The Ministry of Finance in May 2021 signed an agreement with the European Investment Bank (EIB) for €170 million to establish the Development Bank Ghana (DBG). Prior to this the World Bank had supported with $250 million in a bid to get the National Development Bank established. Also other developmental organizations including KfW and AfDB have all shown their support behind the establishment of this new National Development Bank.

The Minister of Finance, Mr. Ken Ofori Atta, said the DBG is expected to be a key pillar in the government’s efforts to quickly recover from the effects of the COVID-19 pandemic and quickly resume the economic transformation path as articulated in the Ghana CARES ‘Obantanpa’ Programme.

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The DBG is intended to be a model institution that supports the financial system to play its role in supporting the private sector to expand and create jobs. It will help address two important constraints in the financial system, namely: the lack of long-term funding, and the lack of adequate funding to the productive sectors of the economy.

Commenting on how critical the DBG is to the economic recovery process of the country, Mr Laporte asserted that Ghana’s financial sector did not provide adequate support to the private sector and as a result, credit to GDP stood at 12 percent, which is very low, compared to other similar economies.

“Indeed, many enterprises (esp. SMEs) identify poor access to finance as a major constraint for their opera tions and growth. Moreover, credit is expensive and usually only available as short-term financing (whereas firms need access to long-term financing). But if you ask the banks, they will say that they themselves don’t have enough access to long term funding.


This is precisely the issue that the new National Development Bank is trying to address (with World Bank support). Specifically, the new Bank will provide wholesale long-term funding to financial institutions to on-lend to creditworthy enterprises in agribusiness, manufacturing, and high value services.

Furthermore, he revealed that “the DBG is expected to start with a seed funding of US$ 700 million, including lines of credit from the European Investment Bank, KfW, and the World Bank.”

The US$200 Million Covid Fund

The World Bank on June 10 approved a US$200 million additional financing for Ghana’s COVID-19 Emergency Preparedness and Response Project. This additional financing will provide financing to support the Government of Ghana procure and deploy COVID-19 vaccines for 13 million people in the country.

The project is also expected to strengthen Ghana’s health systems to better prepare for future pandemics; and help secure essential health and nutrition services, including routine childhood immunization.

Mr. Laporte noting the use of the funds said the additional financing builds on the existing Ghana COVID-19 Emergency Preparedness and Response Project that was approved on April 2nd, 2020 by scaling up and strengthening surveillance of the pandemic; case management; increasing public acceptance of COVID-19 vaccine; and COVID-19 vaccine deployment, including strengthening cold chain equipment, vaccine safety monitoring and medical waste management.


The $200 million funds come from the World Bank’s International Development Association (IDA), that was established in 1960 to provide grants and low to zero-interest loans for projects and programs that boost economic growth, reduce poverty, and improve poor people’s lives. IDA is one of the largest sources of development assistance for the Africa region.

As all World Bank operation, it needs to be approved by the Parliament and there is an accompanying legal agreement that need to be signed by representative of the Government of Ghana, who is the Minister of Finance and myself. Since this is an additional financing to a project that is already being implemented, the additional conditions to utilize the funds by the government of Ghana are simplified. We estimate that Government of Ghana will be able to access the additional funds by the end of this month, June 2021.

Moreover, he revealed the World Bank has been the biggest contributor to the fight against Covid-19 pandemic worldwide, stating that “in Ghana, in the Africa region and throughout the developing world. The World Bank Group approved on April 2, 2020 a US$12 billion Fast Track COVID-19 Facility to assist countries worldwide in addressing the global pandemic and its impacts.”

Of this amount, he noted US$6 billion came from the World Bank (the public sector arm of the World Bank Group) and US$6 billion from the IFC (the private sector arm of the World Bank Group).


The IFC subsequently increased its contribution to US$8 billion, bringing the Fast Track COVID-19 Facility total to US$14 billion. The World Bank committed a total of $365m of the Fast Track COVID-19 Facility to support the fight against the Covid-19 pandemic in Ghana through the original Ghana COVID-19 Emergency Preparedness and Response Project that was approved last April 2, 2020 and the two Additional Financing, approved on November 10, 2020 and June 10, 2021, respectively.

World Bank funds have been deployed by the Government to implement the country’s emergency response and preparedness plan (EPRP) for COVID-19 response, which comprises five components: (i) testing and diagnostics; (ii) case management; (iii) social support for the vulnerable; (iv) the continuation of essential health and nutrition services at the PHC level; and, (v) the preparation for COVID-19 vaccine deployment.

Mr Laporte, however, gave an assurance that the World Bank has put in place a number of tools, procedures, and mechanisms to ensure that these funds are used for their intended purposes to achieve the intended results.


First, it is important to clarify that the Government of Ghana is in the driving seat. It is the Government that is responsible for the implementation of the project using the funds provided by the World Bank. The implementing government agency (the Ministry of Health and the Ghana Health Service in the case of Ghana COVID-19 Emergency Preparedness and Response Project) prepares the specifications for the project and carries out all procurement of goods, works and services needed, as well as any environmental and social impact mitigation set out in agreed upon plans. Financial management and procurement specialists on the Bank's project team ensure that adequate fiduciary controls on the use of project funds are in place.

Once underway, the implementing government agency reports regularly on project activities. The Government of Ghana and the Bank also join forces twice a year to prepare a review of project progress and produce Implementation Status and Results (ISR) Reports that are publicly available.

Finally, when a project is completed and closed, the World Bank and the Government of Ghana document the results achieved; the problems encountered; the lessons learned; and the knowledge gained from carrying out the project. A World Bank team compiles this information and data in an Implementation Completion and Results (ICR) Report, using input from the implementing government agency, co-financiers, and other partners/stakeholders. The report describes and evaluates final project outcomes. The knowledge gained from these evaluations is intended to benefit similar projects in the future.

World Bank-Ghana Partnership Going Forward

Speaking about the twos relationship, Mr. Laporte revealed the World Bank Group and the Government of Ghana are in the final stages in the preparation of the Country Partnership Framework (CPF) for 2021 to 2025.
He intimated that the overarching objective of the CPF will be to support Ghana’s efforts towards creating a dynamic and diversified economy, creating job opportunities for a greener, more resilient, and inclusive society. The WBG’s activities under the CPF are structured around three interrelated focus areas.

“The three proposed focus areas are: (i) Improving Equitable Access to Services for Human Capital Development; (ii) Enhancing Conditions for improved productivity and competitiveness with Quality Jobs; and (iii) Promoting Sustainable Resilient Development. The CPF will have a cross cutting theme of Digital transformation.”

Consequently, he noted these focus areas aim to support Ghana’s COVID recovery and the government’s ambition to leverage its strategic position in West Africa and its overall favorable political and economic environment for transformational development.

“The CPF will also reflect our World Bank corporate priorities of addressing climate change, gender, and improved governance,” he concluded.

Ghana considering a direction towards Green Economic Recovery?

Ghana considering a direction towards Green Economic Recovery?

The COVID-19 pandemic has exposed several weaknesses in almost all economies across the globe. However, the recent development and administering of COVID-19 vaccines have raised much optimism of a much faster recovery in the global economy.

As the world recovers from the venomous effect of the pandemic, attention is now shifting towards an economic recovery that ensures environmental sustainability; A Green Economic Recovery (Green Recovery).

A Green recovery is a widely adopted name for a proposed package of environmental, regulatory, and fiscal reforms to recover the economy after the COVID-19 pandemic. It focuses on long-term policies and solutions that are designed to benefit both the people and the planet.

As such, it involves measures that focus on safeguarding the environment, protecting ecosystems, and addressing issues relating to climate. It also includes creating a resilient, sustainable and inclusive society. Consequently, this has aroused the debate on the fight against a long-standing foe– climate change.

The Paris Agreement

More specifically, it has brought to the fore the need to re-assess the progress and commitment made by countries in the Paris Agreement. This agreement, adopted at the Paris climate conference (COP21) in December 2015, is the first-ever universal, legally binding global climate change agreement.

The Paris Agreement sets out a global framework to avoid dangerous climate change by limiting global warming to well below 2°C and pursuing efforts to limit it to 1.5°C. Additionally, the agreement aims to strengthen countries’ ability to deal with the impacts of climate change and support them in their efforts.

Based on this, the EU in December 2020, set a target to reduce emissions by at least 55% by 2030 from 1990 levels.

Meanwhile, Africa’s contribution to the world’s carbon dioxide emissions is very small. According to the United Nations Fact Sheet on Climate Change, Africa accounts for only 2–3% of the world’s carbon dioxide emissions from energy and industrial sources. Nonetheless, the UN warns that Africa is the continent most vulnerable to the impacts of climate change. The UN Economic Commission for Africa (UNECA) estimates that climate impact on economic output will cause annual losses of between 3-5% of GDP by 2030 in Africa.

In Ghana, the cost of environmental degradation is estimated at US$6.3 billion, equivalent to roughly 11% of the country’s 2017 GDP.

Fight against climate change

Even though Africa’s contribution to the problem is minimal, Dr. John Baptist Jatoe, a Senior Lecturer at the Department of Agricultural Economics and Agribusiness at University of Ghana believes that the fight against climate change should be a grave concern to the government of Ghana. He indicated that even though it’s a general issue with no guarantee that a certain action from Ghana will make an immediate impact, Ghana must do its best in addressing the issue.

“Definitely… we actually need to do something about it. If we act and other countries around the world also act, it is then that we will also slow down the warming. As the warming slows down, the losses will also reduce”.

Most people in the developing world believe a Green Recovery is only a preserve for the developed economies. As such, it has become very necessary to find out whether Ghana is considering a ‘green economic recovery’ as it implements its recovery strategies and policies for post-COVID.

“From where I sit, I will say… we are better off driving now than later. If we join now and work with development partners, we will have the chance of accessing greener technologies which will reduce further our contribution to the problem. It will also give us a higher moral ground from which to stand and ask some of the difficult but important questions. E.g. questions of equity and redistribution”.

Efforts at green recovery in Ghana

According to Dr. Jatoe, the June – Dec. 2020 items captured in the CARES program have not yet been implemented as of Jan/ Feb. 2021 due to lack of resources. He said “we largely depend on partner resources. Hence, it is better to join the drive now”.

However, he stated that, since most of the countries have begun to embrace the green recovery as it has become the “world’s poster child”, Ghana will also be better off if it considers a green economic recovery now. He added that this is more so because most of the policies of the other countries and development partners are already gearing towards that direction.

Many economists in the country have called for sector-specific or targeted policies as Ghana rolls out policies and programs to revive the economy which grew marginally at 0.4% in 2020. It is, thus, vital to find out the spending pathways the government needs to consider to enhance economic recovery and environmental sustainability.

Need to Focus on Three major areas

Dr. Jatoe has advised the government to focus on three major areas if it has plans to enhance an environmentally sustainable economic recovery.

“If we look at our economy, agriculture is one of the main areas. Another area we should also work on is the energy sector”.

He pointed out that because of the nature of farming in Ghana, agriculture should be one of the areas that must serve as a starting point for the green recovery. He explained that some of the practices such as slash & burn and the annual bush burning must be replaced with other better means that will not pollute the environment.

Also, Dr. Jatoe stated that the government must also work harder to clamp down on illegal mining activities. He explained that inappropriate farming practices and illegal mining activities are fast degrading and depleting Ghana’s forests. According to him, mining activities have rendered most of the river bodies lifeless posting significant danger to human survival. He expounded that the chemicals mostly used for mining and farming pose a serious risk to environmental sustainability.

Need to gather Political courage

Recently, the Deputy CEO of COCOBOD, Dr. Emmanuel Agyeman Dwomoh revealed during the National Consultative Dialogue on Small Scale Mining that the European Union is threatening to impose restrictions on Ghana’s cocoa exportation into ports of its member countries if the deforestation that is being caused by illegal mining is not dealt with.

Reacting to the call, Dr. Jatoe described it as legitimate but pointed out that it will be very difficult for the government to win the fight against illegal mining. According to him, we need to “gather the political courage” to educate the people on the implications of illegal mining activities on our future generations. He added that the country is not making progress in the fight against ‘galamsey’ despite the government’s efforts.

“That should be a wake-up call. If we haven’t realized the issue of the rapid expansion in illegal mining and the dangers that it poses to our cocoa, the EU has recognized it. Aside from that, if we look at the extent to which our economy depends on cocoa, it will be a pity if we sit back and allow something like this, that we can actually work on, to destroy the future of our cocoa. As for the ‘galamsey’ fight, we are not making progress, that is the way I see it”.

More Investments in Clean Energy Sources

On the energy sector, Dr. Jatoe stated that hydro is better than other fossil fuels in terms of its impact on the environment. Dr. Jatoe, therefore, called for the establishment of more dams in line with the government’s ‘one village one dam’ initiative. He lauded the construction of the Pwalugu dam which is serving both hydro and irrigation purposes but he added that “more of such is needed”.

Furthermore, he specified that the government must try to invest more in solar because it is another major clean energy source that is readily available in our part of the world. Moving into renewable energy use, according to him, will ensure a sustainable recovery.

Meanwhile, among the environmental costs to Ghana’s economy, air pollution is the most significant cost, estimated at 4.2% of GDP in 2017. Based on this, Dr. Jatoe cited transportation as one of the areas that required urgent attention in the country’s quest to ensure a green recovery. According to him, there is the need to decongest our roads by using the public transport system. He added that the country should reduce the importation of used cars and also explore the options of using electric cars and the maintenance of vehicle efficiency standards. He indicated that with proper collaboration with development partners, Ghana can obtain some electric cars that will also help reduce air pollution.

Investment in Green Economy R&D Required

At the heart of a green recovery is the investment in a Green Economy R&D. This includes renewable energy technologies, technologies for decarbonizing sectors such as aviation, plastics, and agriculture, and carbon sequestration.

As to whether Ghana has made any significant strides as far as investment in Green R&D is concerned, Dr. Jatoe indicated that he does not have the statistics on the level of investment in research in that particular area. However, he pointed out that, there are efforts to promote the use of renewable energy especially solar. According to him, the government has unveiled some solar panels and households are already being connected to them.

“I don’t know how much of investment expenditure has been directed to that area. But If we look at it in general, our research and development expenditure is close to zero; that is If we take it as a proportion of our budget. So, in the area of research and development, we are not doing well as a country.”



Dr. John Baptist D. Jatoe
Snr. Lect. Dept. of Agric. Econs. & Agribusiness
University of Ghana

Ghana’s rising public debt; Prof Kusi sheds light on implications, way forward

Ghana’s rising public debt; Prof Kusi sheds light on implications, way forward

Ghana’s total debt hit GHȻ273.8 billion (71% of GDP) at end-September 2020 from GHȻ209.1 billion (62.4% of GDP) in September 2019, indicating an increase of GHȻ64.7 billion (30.9%) in one year. Within the period, domestic debt increased from GHȻ101.4 billion (29% of GDP) to GHȻ135.3 billion (35.1% of GDP), representing an increase of GHȻ33.9 billion (33.4%) and a share of 49.4%, slightly higher than the 48.5% share a year ago.

According to data from the Bank of Ghana, the external debt increased from GHȻ107.7 billion (30.8% of GDP) to GHȻ138.5 billion (35.9% of GDP) over the one-year period ending in September 2020, also indicating an increase of GHȻ30.8 billion (28.6%) and a share of 50.6% over the period.

The central bank noted that the higher share of external debt over the past year ending September 2020 reflects mainly the Eurobond issuance in February last year, 2020, World Bank Development Policy Operations and support for Covid-19 Preparedness and Response Program, the IMF Rapid Credit Facility and support from the African Development Bank (September 2020).

Speaking in an interview with the Vaultz Magazine, the Executive Director of the Institute of Fiscal Studies (IFS), Professor Newman Kwadwo Kusi, said the increase in the domestic debt reflected mainly a pick-up in the medium-to-long-term debt as the Government attempts to close the financing gap created by the covid-19 pandemic.

He said government’s fiscal operations in the first nine months of 2020 and the resultant sharp rise in the public debt had largely been influenced by the covid-19 pandemic.

According to the Government, the fiscal impact of the covid-19 pandemic was estimated at GH¢9.5 billion (2.5% of GDP) in March 2020, resulting from shortfalls in petroleum receipts, import duties, and other tax revenues, the cost of the Emergency Preparedness Response Plan, and the cost of the Coronavirus Alleviation Program.

The revised estimate of the fiscal impact of the pandemic indicates that total revenue and grants are expected to fall short of the 2020 budget target by GH¢13.4 billion (3.5% of GDP) whilst expenditures are expected to increase by GH¢11.8 billion (3.1% of GDP). The overall fiscal deficit is therefore projected to increase from the original GH¢18.9 billion (5.1% of GDP) to GH¢44.1 billion (11.4% of GDP), caused by the inevitable increases in health related costs, social interventions to protect Ghanaians from the adverse effect of the public policy responses introduced to curb the spread of the pandemic and spending on business stimulus to stop the economy from sliding into recession.

Professor Kusi said the revised fiscal deficit target of 11.4 percent would be a difficult task to accomplish as public spending during the last quarter of 2020 is expected to be bloated by the cost of holding the general elections.

Rising public debt

Ghana’s debt stock rose by GHȻ55.6 billion during the first nine months of year 2020 and is planned to increase further by the end of 2020 as the government plans to issue a gross amount of GHȻ22.7 billion in the last quarter of the year. Of this amount, GHȻ19.7 billion is to be used to rollover maturities and the remaining GHȻ3.0 billion as fresh issuance to meet financing requirements. With the fiscal deficit targeted at 11.4% of GDP, which is more than twice the 4.7% of GDP deficit envisaged in the 2020 budget before the COVID-19 pandemic erupted, the government may be forced to accept bids beyond the target established in the debt issuance calendar.

In addition, on 30th September, 2020, the Minister for Finance signed on behalf of the Government two financial agreements worth €92.9 million with the European Union to support Covid-19 response in Ghana and electoral violence prevention and support to enhance security in the northern border regions of the country. In addition, on 10th November, 2020, the World Bank approved an additional credit of $130 million from the IDA for Ghana’s COVID-19 Emergency Preparedness and Response Project. This additional financing for the health sector is meant to support the Government to scale up its efforts to mitigate the resurgence of the COVID-19 pandemic and to safely reopen the economy.

The Executive Director pointed out that all these additional financing would add to the country’s debt stock and cause it to rise beyond the 71% of GDP recorded in September 2020.

In the budget sent to Parliament by the Minister of Finance on 28th October 2020 for approval as appropriation to finance activities in the first quarter of 2021, GHȻ7.0 billion is budgeted to be used to pay interest on public debt during the period. Together with GHȻ3.4 billion allocated for debt amortization, this brings debt servicing during the first quarter of 2021 to GHȻ10.4 billion (2.4% of GDP).

Public finance analysts are now projecting debt service costs to take away between 40-45% of domestic revenue for the full year 2021.

Professor Kusi noted that the country’s capacity to service its debt had become weak because of its inability to mobilize enough domestic revenue to finance its activities.

Impact and Sustainability

The impact of the rising debt is also felt on the country’s debt-servicing bill. As a result of the rising public debt, the government has revised upwards interest payments in 2020 by 21.1%, from GHȻ21.7 billion (5.6% of GDP) to GHȻ26.3 billion (6.8% of GDP), reflecting the effect of higher borrowing to meet the additional Covid-19 related and other expenditures.

In relation to total domestic revenue, interest payments on government debt is projected to increase to 50.1% in 2020 from 37.1% in 2019. Together with wages and salaries, expenditure on the two items will amount to 101.7% of domestic revenue.

Commenting on this, Professor Kusi, said this implied that domestic revenue will be insufficient to meet government’s obligations relating to interest payments, wages and salaries, pointing to the weak domestic revenue mobilization and high rigidity in the execution of the budget.

He said strong revenue mobilization has, therefore, become very critical and tax compliance needs to be strengthened.

He said the surge in Ghana’s public debt has also caused much anxiety about its sustainability.

speaking head

“The public debt of 71% of GDP at end September 2020 passed the generally accepted sustainability threshold of 70% of GDP, raising concerns about a looming debt crisis. According to the IMF’s Sub Saharan Africa Regional Economic Outlook Report released on October 27, Ghana’s debt-GDP ratio will rise to 76.7% of GDP by the end of 2020, posing a serious threat to both the fiscal and monetary management and putting the country at a high risk of debt distress.

“Indeed, the rapid pace of the increase in the recent debt build-up and associated debt servicing costs have become a matter of serious concern. Although Ghana’s gross international reserves as at October this year were enough to cover 4.1 months of imports, reflecting the country’s improved external position, debt sustainability issues could persuade investors to demand a risk premium when government goes to the market to issue Eurobonds. If that happens, government will have to choose between borrowing enough to refinance existing debt or just take what it needs for budgetary support,” he explained.

In addition, he said the high share of foreign-currency debt, accounting for 52% of total debt, exposes the country to swings in global market conditions.

speaking head

“These issues have led the World Bank and the International Monetary Fund to express worry about the quantum of money being borrowed by the country. Ratings agency, Fitch, recently warned Ghana that its sovereign credit ratings may be downgraded to negative if large fiscal deficit and public debt are not addressed.

“Some economists are of the view that poorer countries have no option but to borrow to develop. To them, with Ghana’s debt-to GDP ratio expected to hit 76.7% by the end of the year, the country is not borrowing too much for it to be said that it has become a debt distress country. The fact of the matter, however, is that although public debt tends to serve as an economic stimulus by helping countries to fund development projects, rising public debt can lead to a deep financial crisis. A continuous rise in debt can cause investors to lose confidence in the country’s ability to pay back borrowed funds. Investors will then tend to demand higher interest rates on the debt which would reduce the market value of outstanding government bonds, causing losses for investors and possibly deepen a much wider financial crisis for the country,” he stated.

Severe financial crisis

Public debt in many instances acts like a double edged sword. It can improve the wellbeing of the citizens when prudently used and can lead to the collapse of an economy when it is in excess or imprudently managed.

The Executive Director said uncontrolled levels of public debt beyond a certain ratio could subject the economy to more and severe financial crises.

In Ghana’s situation, he said the huge borrowings over the years have been expected to generate higher returns from the projects financed with the funds.

 speaking head

“Unfortunately, borrowed funds have not been invested in productive and commercially viable ventures capable of generating enough economic returns which could be used to service the debt and eventually pay back the debt. Elections-related fiscal slippages have also led to deep holes in government budgets and unfavorable debt issuances, and the year 2020 will not be an exception.

“Indeed, in times of pandemic, the government has to do whatever it takes to save lives and protect livelihoods by spending on additional health and emergency services, support businesses and workers. A broad-based fiscal stimulus thus becomes necessary to support the recovery. Indeed, hundreds of billions of dollars are needed to provide critical services that can help sustain lives and livelihoods and eliminate poverty. Debt financing is therefore crucial for development and Ghana needs to find a way to prudently take on debt to recover and grow,” he stated.

Sound macroeconomic framework

Professor Kusi also called for the need for the country to develop a sound macroeconomic framework and maintain prudent fiscal policies that safeguard fiscal and public debt sustainability.

He said the country has to improve the composition and profile of the public debt under an appropriate medium-term debt management strategy and must also lock in low interest rates with modest amortization over long maturities, while smoothing the maturity profile of the entire public debt portfolio to minimize rollover risks.

He noted that the covid-19 pandemic had been the worst crisis in Ghana in recent times, and it will require significant policy innovation to recover from the calamity.

speaking head

“The recovery from the crisis is likely to be long and uneven, requiring strong fiscal and monetary policy support.   Government will need to prioritize critical spending on health and transfers to the poor to protect lives and support livelihoods. Policies should, therefore, be designed with the view to placing the economy on the path of stronger, equitable and sustainable growth.

“The easing of monetary policy, while important for the recovery, should be supported with measures to prevent a build-up of financial risks over the medium term. Increased fiscal spending in the face of slow output growth will drive the public debt level to a record high. Investment in health, digital infrastructure, and education is necessary to help achieve productive, inclusive, and sustainable growth. Government has to ensure that the debt management framework and strategies reflect the structure of the debt and take bold steps to strengthen governance around domestic revenue mobilization.

“In all these, what is needed is government processes that are transparent and where data and information are made available throughout the project lifecycle to help detect corrupt practices. Ghana, through the leaders, policymakers and citizens, must find the political will necessary to insist on prudence in debt management and transparency in borrowing  that are necessary to avoid the pitfalls of excessive debt. Lack of transparency surrounding some government transactions creates additional uncertainty and risk and should be avoided,” he concluded.


Elections and the Economy in the Midst of a Pandemic

Since Ghana adopted democracy in 1992, elections have been a mainstay feature in the country and on December 7, 2020, the country will once again head to the polls to elect a new leader who will steer its affairs over the next four years.

At the beginning of the year, one thing that was certain was that the country will elect a new leader this year but one thing that nobody envisaged was the COVID-19 pandemic which has brought economic activities all around the world to a standstill and eroded all the macro-economic gains that Ghana has made in the last three years.

The Ghanaian economy is in dire straits with public debt ballooning to GH¢258.37 billion and the budget deficit expected to widen to 11.4 percent of GDP by the end of 2020.

GDP growth is expected to slow down to 0.9 percent in the face of increasing government expenditure and shortfall in revenues.

In the midst of these disturbing fiscal situations is the December 2020 elections which puts further pressure on the government to spend more to attract more voters in a bid to retain power.

There is no doubt that elections have over the years affected the Ghanaian economy as voters see election years as periods to demand their share of national resources, which puts pressure on the government to sacrifice all the macro-economic gains it has achieved over the period and overspend.

Dr. Ebo Turkson, an Economist and Senior Lecturer/ Coordinator of the Economic Policy Management Programme at the Department of Economics, University of Ghana

Speaking in an interview with Dr. Ebo Turkson, an Economist and Senior Lecturer/ Coordinator of the Economic Policy Management Programme at the Department of Economics, University of Ghana, he agreed that elections have in the past affected the Ghanaian economy, stating that


Almost every four years, we have a situation where we do very well with our macro indicators as we do a lot of fiscal tightening and begin to clear the mess of election year overspending but, we come back to the fourth year, overspend and do the same thing over again.

He said the issues that normally come up in the country’s elections are the political economy issues, where voters are looking for what could be done for them directly (or otherwise) to have an immediate real impact on their livelihoods in order to give an assessment of the performance the economy and for them to make their preference of who to vote for.


That has been the kind of economic policies that we have pursued in election years where we have overspent our budget with the exception of 2004 or thereabout. We do so well after an election year especially in the second and third years and in the fourth year we sacrifice all the gains because it’s an election year.

Concerns of huge budget deficits in election years

Election years in Ghana have always been characterized by huge budget deficits, with the exception of 2004 when the country had just gone into a HIPC programme.

In the year 2000, the country recorded a budget deficit of 8.5 percent against a target of 6.9 percent.


In the 2008 election year, the country recorded one of its worst budget deficits of 11.5 percent against a target of 4 percent. The situation was not different in 2012 when the country recorded a budget deficit of 12 percent against a target of 6.7 percent.


In the 2016 election year, not even being under an International Monetary Fund’s (IMF) Extended Credit Facility programme could stop the country from overspending. Under the watch of the Bretton Woods institution, the country still missed its budget deficit target of 5.7 percent by recording a deficit of 10.3 percent.

This year, the situation was expected to be different as the government has passed the Fiscal Responsibility Law which has set a cap on the budget deficit not exceeding 5 percent of GDP and failure to follow this law will lead to the Finance Minister being removed from office.

It was, therefore, expected that the country will stay within this fiscal deficit target for the first time in many years in an election, then COVID-19 struck with its harsh fiscal impact, leading to the suspension of the fiscal rules for this year.

Corroborating the statement, Dr. Ebo Turkson, said “over the last two years, we have stayed within this target and the expectation when the last budget was read in November 2019 was that we were going to record a deficit of 4.7 per cent in 2020, then COVID-19 hits and when a pandemic like this happens, in almost every economy in the world, fiscal rules no longer work because the government has to intervene.


|“So, what is happening this year in terms of the expectation for the elections is much more compounded by the fact that, a pandemic has occurred and people have lost jobs, firms/enterprises have had a reduction in the demand for what they produce and sell, industries are not producing at the maximum capacity and this has had some dire consequences on incomes, so it has taken a strain on government fiscal policy in two directions.


“One; on its expenditure in terms of having to come up with interventions that are supposed to help the average Ghanaian to be able to withstand the pandemic and also on the revenue side; given that economic activities have declined it means that governmen revenue will also decline.”


The implementation of the 2020 Budget from Jan-June, as presented in the mid-year budget shows a lower revenue performance against the programmed target and higher expenditures compared to target, significantly influenced by the impact of the COVID-19 pandemic.

Total Revenue and Grants amounted to GH¢22 billion falling short of target by 26.0 percent, while Total Expenditures including arrears clearance amounted to GH¢46.35 billion, exceeding the target by 11.5 percent.

These developments for the period resulted in an overall fiscal deficit of 6.3 percent of GDP compared to a programmed deficit target of 3.1 percent of GDP.

Total Expenditure (including clearance of arrears) for the year is now estimated at GH¢97.7 billion, about 13.7 percent higher than the 2020 Budget estimate of GH¢86.0 billion. Total Revenue and Grants have also been revised to GH¢53.7 billion in 2020, representing a 20 percent decrease over the original 2020 Budget target of GH¢67.1 billion.

Dr. Turkson said before the beginning of the year, the expectation was that for the first time, the Fiscal Responsibility Act was going to constrain government’s spending in an election year and all Ghanaians were waiting to see that until the pandemic struck.

Addressing huge budget deficits in election years

The major cause of huge budget deficits in election years has got to do with the pressure that electorates put on the government in such periods. Electorates expect to receive freebies from the government in election years, see their roads tared and see lots of development works going on in their communities.

Dr. Turkson, therefore noted that to solve this problem, the electorate must be made to understand that a government cannot use just four years to solve all of their problems.


The electorate must know that a party cannot use just four years to make any major transformation and that rather, we should look at the future impact of what is going on now. If the electorate will become a little bit sophisticated to know that, yes things are difficult now, but we are ready to sacrifice to maintain all the macro-economic gains in order to attract more investors to expand production by creating jobs, we will be able to solve our problems and surmount our development challenges.”


Temptation to overspend

In the midst of the pandemic, the finance minister, Hon. Ken Ofori Atta went to Parliament to ask the house to suspend the fiscal rules for the 2020 year, a submission which was subsequently approved by Parliament.

As a result of the revisions to the country’s total expenditure and revenue for the year 2020 due to the pandemic, the country’s fiscal deficit target is now projected to widen to 11.4 percent, which is way above the 5 percent target.

With this year being an election year, many are wondering if the government would be tempted to overspend and even exceed the already high 11.4 per cent fiscal deficit target now that fiscal rules have been suspended.

Reacting to this, Dr. Turkson exclaimed that “I will be very surprised if the government does that because the government is well aware of the implications of that.

"Once we get over this pandemic and elections, the economy must recover as soon as possible and the recovery of the economy will depend on the extent to which the government keeps to the programmed deficit target."

When we revised the target for this year, we are looking at a deficit target of 11.4 percent because of the pandemic which is very high and has its own repercussions.

So, the government shouldn’t use this as a blank cheque to overspend. I will be very surprised if they don’t keep within the estimated 11.4 percent. We will need about two years or more to recover from the disruption caused by the pandemic. So, if we keep within our target then our recovery will be much faster than we even expect.”


Government’s relief programmes– Right or Wrong?

In the wake of the COVID-19 pandemic, we have seen the government roll out a lot of relief programmes to citizens, ranging from free water, subsidized electricity, free meals for students, and financial support to small and medium enterprises.

These decisions have left many scratching their heads, considering the difficult fiscal position and rising debt situation the country finds itself in. They argue that this was not the best time for the government to be giving out freebies.

Dr. Turkson, however, disagrees with this school of thought as he believes there were lots of people who have been severely affected by the pandemic which requires that the government steps in to support them.

For instance, if you have two parents who work in private schools and have been laid off because these schools have been closed due to the pandemic, you begin to wonder how they are going to feed their family. Those who work in the hospitality industry have been badly hit and I will support any government intervention that will try to help such disadvantaged households and firms to cope with the pandemic.”

With the country’s debt situation, he said, “this was not the time to talk about debt because in the face of a pandemic, you should even be thankful you have access to money we can borrow to close the financing gap.


“There is no point in keeping our debt low when people are struggling to make ends meet in such a difficult time; so I’m all for it. With our rising debt, what we need to do as a country is to sit down and clearly ask ourselves that in every cedi that we borrow to expend, are we being very efficient and forward looking with that expenditure and that is what is critical. Once the economy’s growth is shrinking, expenditure is increasing and revenues are declining even with the same amount of debt, the debt-to-GDP ratio will increase, but that should not be too much of a concern for now.


If you take the league table of countries that have the highest debt, Ghana is nowhere near the top thirty. A country like Japan has more debt than many countries but it is not poor so we should be asking: what went into the debt? Was it incurred to expand the productive base of the economy, was it incurred to contain an unforeseen occurrence like COVID-19?”


Politics and the economy– mutually unexclusive

While economics is concerned with studying efficient utilization of scarce resources and how policies can be used to influence the economy at both the micro and more often at the macro level, politics is the theory and practice of influencing people through the exercise of power. These two areas may look different on paper but there is a strong link between the two.

The Economics lecturer pointed out that there was a very close relationship between politics and economics, stating that “economist seek to inform policy on all the right things we have to do in the management of the economy but the politician will call the final shot.


“We have something we call the political economy of economic policy. The politician knows very well what the right policies are but the choice of these policies are very difficult to make because of its political cost. So, if you have a politician who is mindful of winning an election and at the same time also doing the right thing for the economy to grow, there is a balance but in our part of the world more than often the politics outweighs the economics.”


Thus, politicians make decisions that will help them stay in government, an action which comes at a cost to the well-being of the economy.


“Ideally, what should have happened is having a politician that is pursuing sound policies that the average Ghanaian will be happy about but in the dispensation where majority of the people cannot comprehend issues about what is good for the economy, they normally begin to ask questions like the economy is doing well but I am not feeling it in my pocket. So, people will prefer freebies and prefer seeing their roads tared even though it might not be necessary at that moment.


He further revealed that people would like to be given money as freebies during election periods, forgetting that the money the politician is giving out will feed into government expenditure (both directly and indirectly) which at the end of the year may cause a huge fiscal deficit which will lead to tightening later on and that is when they (the electorate) will feel the pinch. 


“In Africa, it is difficult for the electorate to comprehend the impact of sound economic policies. So, you sometimes cannot blame the politician because to them the objective function is to win the election and that is what they will do (that is, overspend to satisfy the electorate to win their votes).”


Parallel Party Policies?


 The two main political parties in the country have different ideologies. While the NPP believes in capitalism which involves putting the private sector at the forefront, the NDC leans more to socialist development.

The economist, however, believes that although the two parties may have different ideologies, the policies they both pursue are not different from each other.


“I used to think some couple of years back that these two parties had different ideologies but I think that is not the case now. Their foundations could be based on different ideologies but I don’t think they still pursue those ideologies as at now. When you see them arguing over some policies, that this is my policy, then you tend to believe that they do not practice their ideologies as that school of thought would normally prescribe.


“They seem to be arguing over the same type of policies which shouldn’t be the case. The focus of the two parties has now been on private sector led social development and it seems that is the focus these days. Following from the economic reforms in the early 1980s we tended to call for minimal intervention of government, but now that state-led intervention of development is coming up lately (because of what happened in East Asia where they used the state led development paradigm to quickly develop their countries), our two major parties have shifted their focus.”


Development Plan disregarded?

A bane of the country’s development process since independence has been the practice where one party starts something and it’s voted out of power, another party comes in, abandons it and starts its own plan. Although, the 40-years development strategy was developed and commissioned to solve this menace, it has been difficult in getting the two main political parties to commit to this plan.

The Coordinator of the Economic Policy Management Programme at the Department of Economics, University of Ghana, believes the situation has even improved now, compared to historical antecedents.

“There were instances in the past where an elected government will totally cancel the intervention started by its predecessor and start something totally different. At times the initiatives are even the same but they will change the name.”

He said this was due to the fact that the country’s development path was driven by party manifestoes rather than a national development plan.


I think the parties have all lost it because it is the national development plan that should inform their manifestoes. If Ghana has a 40-years development plan, what are the immediate objectives of the plan? If that plan is there, what these two parties are supposed to tell us is which alternative they will use to deliver that objective, but that has not been the case.


“Over the years, one of the best policies that I have heard been pursued by a government of this country is the one district one factory (1D1F) programme. It is at the centre of the structural bottlenecks our economy faces and the fact that Ghana has not been able to develop to a level that we sort to do after independence is because of our failure to get this very important intervention right. The 1D1F is similar to the Import Substitution Industrialization plan that was pursued by Dr. Kwame Nkrumah, the only difference is that the 1D1F is private sector led while Nkrumah’s ISI was public sector led.


If pursued, the 1D1F policy among other things is expected to reduce the country’s dependence on imported goods which is one of the reasons why the local currency has not stabilized over a long period of time. So, if we are able to produce the import substitutes of equal or even higher quality, then there will be no need to import lots of things.”


Under the 1D1F policy, the country has seen one of the biggest car manufacturing companies in the world, VW, set up its assembling plant here in Ghana to sell to the Ghanaian market and also export to other African countries.

Dr. Turkson believes these were some of the interventions the country needs to speed up its development but unfortunately the policy that gave birth to this milestone was embedded in a party manifesto rather than a national development plan, which presents the risk of it being canceled when another government is voted into power.


“The fact that VW has come to Ghana and it’s producing here reduces the amount of forex that we send outside to import cars and we are going to export to other countries as well which will be export revenue for Ghana which will improve our trade balance and this is exactly what we need to stabilize our domestic currency and be able to maintain the macro stability to attract foreign investors to create jobs. This is the way the eastern Asian tigers went and if we get it right then we will be making remarkable progress but the unfortunate thing is, all of this is coming from a party manifesto."

If this was a national development plan, supposing there is a change in government, you expect the next government to continue with it. The planting for food and jobs is also another good policy which has led to growth in the agricultural sector but you find all of these policies embedded in party manifestoes and that is the bane of our politics and why Ghana has not been able to move forward. We should see institutions and policies as belonging to the country and not a party.”

Political stability yielded any dividend in economic development?

Political stability is considered as one of the major factors necessary to sustain economic growth. Over the years Ghana’s political stability has been one of the main attraction for Foreign Direct Investment into the country, with the World Bank and other notable institutions all indicating that Ghana remains one of the most attractive investment destinations in Africa due to its political stability.

A recent report by the Eurozone indicated that Ghana still remained a safe bet for investment despite the fact that elections were coming up in a few months’ time.

But, although the country has enjoyed political stability over a long period of time, it remains unknown how the country has been able to leverage this to quicken its economic development.

Commenting on this, Dr. Turkson said  “we have been able to change from one government to the other without any disruptions and that is good for us. This does not only bring in investment but also allows for the government and other economic actors to plan. Disruptions in politics can bring a huge cost especially when it leads to civil strife or unrest or wars.”


“Our political stability is putting us out there as the best showcase in Africa and as we go to the polls in December, I hope we will maintain this enviable status because this is what investors want to see and if we are able to continue this political stability over a long period of time, we will attract all the global giants into this country and this would ensure that our educated labour force will get jobs to do.”

He further said, although the country has not been able to leverage on this too much to enhance its economic development, it was however working for the country in terms of attracting investors, something which should excite the country.

Post-election and post-COVID Recovery strategies

In the midst of the pandemic, one thing that will be key is how various government’s roll out policies and measures to quicken their economic recoveries post the pandemic and Ghana is no exception.

With elections coming up soon too and the pandemic showing no signs of ending soon, Dr. Ebo Turkson said any party that would emerge victorious post-election and post-COVID should focus on three main things.

“Domestic resource mobilization is quiet key and we should make sure that we are able to equip our domestic resource mobilization agencies like the Ghana Revenue Authority (GRA) to be able to widen our tax net and also ensure we are able to increase tax revenue by being efficient. We should also focus on improving the capacity of the domestic resources mobilization agencies (both human resource and logistics) for them to be efficient at collecting our taxes and that is why I am happy that a whole lot of digitization is going on to ‘rope’ in as many people as possible into the tax net.


"We also need to accelerate our infrastructural development which is also key. If we are going to reduce the cost of doing business in the country and be an attractive investment destination, then we need to invest in infrastructure. We should also ensure that whatever policy that we are pursuing currently to reduce our dependence on imports and at the same time promote exports should continue, regardless of who wins the election.”

CLAMORING FOR ECONOMIC RESILIENCE:  Moving Past the Gloom of an Existing Era

CLAMORING FOR ECONOMIC RESILIENCE: Moving Past the Gloom of an Existing Era

The COVID-19 pandemic is regarded as the most disruptive experience since the great depression and has taken a heavy toll on the global economy– and Ghana has not been an exception. The pandemic, which started in Wuhan, a city in China, in December 2019, has affected over 200 countries, bringing economic activities to a standstill. This once-in-a-century pandemic caused most countries and cities to completely lockdown, with airlines, restaurants, shops, pubs and night clubs closed down.

The pandemic has led to disruptions in global supply chains with drops in value creation and delays in shipments of major goods and services; widespread supply shortages and attendant huge price increases; slowdown in investments and mass lay-off of workers which further dampened economic activities; and unprecedented volatility and collapse of stock markets which recorded all-time low indices.

The pandemic also led to a decline in the international price of crude oil with significant revenue loss to oil exporting countries; decline in tourism, resulting from border closures, fewer international trips, cancellation of cruise lines, airline suspensions, and cancellation of regional and global events; unanticipated increases in health spending; and higher public debt burden.

With the situation somewhat stabilizing, the global economy has seen the easing of restrictions and things appear to be returning to what has been described as the ‘new normal’. Besides the restrictions being eased gradually, various countries across the world are beginning to put together building blocks to rebuild their economies post- COVID-19.

Looking at the happenings, Dr. John Kwakye, the Director of Research at the Institute of Economic Affairs (IEA), presents a worrying view of the pandemic’s effect on the Ghanaian economy and also discusses the post-covid-19 outlook of the economy and suggests measures the government could put in place to speed up the country’s recovery after the pandemic.

Ghana’s economy before COVID

Ghana’s economy was on the growth trajectory before COVID-19 struck, with economic growth for 2019 projected to be 7.1 percent, while non-oil GDP was also projected to grow by 6 percent. Provisional data available on the performance of the economy as at the end of September 2019 showed that most of the macroeconomic indicators were on target.

WhatsApp Image 2020 07 06 at 3.55.22 PMDr. John Kwakye, Director of Research at the Institute of Economic Affairs (IEA)

Dr. Kwakye confirmed in his narration that pre-COVID, the Ghanaian 

“economy was doing quite well, with GDP growthrojected at 6.8 per cent for 2020, following an equally impressive performance in 2019. This rate of growth was high per African and international standards.”

Inflation was within the Bank of Ghana’s 8 percent band, and the overall budget deficit was projected at 4.7 percent.

This year also, the budget deficit was projected to be 4.7 percent which was still below the five percent cap set by the Fiscal Responsibility Act. Although the country’s public debt was on the rise, Dr. Kwakye said as a debt to GDP ratio, the debt was growing at a slower pace than the immediate past. He further indicated that interest rates were also declining, and although banks’ lending rates were still unacceptably high, they were trending downwards. The external sector of the economy had improved, driven by good export performance.

“However, because of the fiscal consolidation program, the government was keeping spending and the deficit down. The financial sector crisis had affected banks and some workers had lost their jobs. The Menzgold saga had also affected peoples’ investments. All of these had combined to create some liquidity crunch in the economy.“It was therefore understandable to hear people say there was no money in the economy due to the liquidity crunch but on the whole, if you put everything together, the economy was doing very well before COVID struck,” - Dr. Kwakye

Impact of COVID on economy

International research institutions and multilateral organisations, including the International Monetary Fund; the World Bank, the UNECA, the Economic Intelligence Unit, and Fitch Solutions are all projecting significant slowdown of global GDP growth with most predicting a recession or a severe economic contraction.

Though the IMF had indicated earlier in March 2020 that the impact of the COVID-19 on global growth was difficult to predict, the Bretton Woods Institution was certain that 2020 growth will slow down significantly from the projected 3.3 percent to rates far below the 2019 outturn of 2.9 percent. UNECA predicts that the Africa 2020 projected GDP growth will drop by 1.4 percentage points from 3.2 percent to 1.8 percent. The World Bank also estimates that a 1 percent decline in developing countries’ growth rates traps an additional 20 million people into poverty.

Presenting an update on the economic impact of the virus to Parliament on March 30, the Minister of Finance of Ghana, Mr. Ken Ofori-Atta, said a preliminary analysis of the impact of the Coronavirus menace on Ghana’s economy showed that the 2020 projected real GDP growth rate could decline from 6.8 percent to 1.5 percent.

In his view, Dr. Kwakye submitted that the assessment of the Finance Ministry paints a very gloomy picture of the Ghanaian economy.

“I recall that the Minister made a statement to Parliament and provided an assessment of the impact of the pandemic on the economy and then said that growth was projected to be between 1.5 percent or 2.6 percent, depending on the severity and the duration of the pandemic.”

With crude oil prices falling to all-time low as a result of the pandemic, preliminary analysis by the Ministry of Finance showed that at an average crude oil price of US$30 per barrel for year 2020, government would register a shortfall in crude oil receipts amounting to GHȼ5.6 billion. The anticipated decline in import volumes and values, as well as the slowdown in economic activities, is also expected to lead to shortfalls in both import duties and other tax revenues. Based on the performance of import duties to date, as well as assumptions on projected decline in import volumes and values, preliminary analysis shows that import duties will fall short of target by GHȼ808 million for the 2020 fiscal year.

Similarly, the projected slowdown in non-oil GDP as a result of the pandemic is expected to result in shortfalls in tax revenues (excluding oil tax revenues and import duties) amounting to GHȼ1.44 billion, bringing the total estimated shortfall in non-oil tax revenues to GHȼ2.25 billion. In all, the total estimated fiscal impact of the pandemic is expected to be GHȼ9.5 billion.

The country’s overall fiscal deficit for 2020 which was projected to be 4.7 percent of GDP is now projected to slip to 7.8 percent of GDP. In considering the situation, Dr. Kwakye indicated the situation did not look good for the economy. “Now the fiscal deficit is being projected to be over 7 percent compared with the original projection of 4.7 percent. Public debt is rising, export revenues will be lower because of the closing of borders, oil prices have also slumped and we are going to lose revenue from there.” Remittances are also going to be lower because the virus has severely affected countries where most of Ghana’s remittances come from; tourism receipts are also expected to be lower which would all affect the economy and the Bank of Ghana’s reserves. Businesses have also been affected which would impact on employment and people’s livelihoods.

Impact on public debt

The fiscal impact of the pandemic has left the government with no other option than to borrow more.

Commenting on this development, Dr. Kwakye argued that this was something that was happening everywhere, as every country would have to borrow in the wake of the pandemic, with the exception of a handful of countries who may have reserves that they can dip their hands into. The government has so far borrowed US$1 billion from the IMF and also borrowed GH¢10 billion from the Bank of Ghana to support the 2020 budget.

Dr. Kwakye, said although this will cause the country’s debt to rise, it was a necessary evil because the government has no choice at the moment.

“Given the size of money that we need, we cannot afford not to borrow so even though we should be concerned about the rising debt, immediately what we should be thinking of is how to survive. We need to survive now and we will deal with the debt situation later.”

BoG’s support of the budget

To help the government address the economic challenges of COVID-19, the Bank of Ghana (BoG) in its May Monetary Policy Committee (MPC) press release indicated that it has triggered the emergency financing provisions, which permit the central bank to increase the limit of its purchases of government securities in the event of any emergency to help finance the residual financing gap, in line with section 30 of the Bank of Ghana Act, 2002 (Act 612) as amended.

Dr. Kwakye, who is a member of the Monetary Policy Committee threw his support behind the central bank’s decision, stating that

“I am happy that the BoG is providing some of the money to support government in these times.”

Under its Asset Purchase Programme, the central bank purchased a Government of Ghana COVID-19 relief bond with a face value of GH¢5.5 billion at the Monetary Policy Rate with a 10-year tenor and a moratorium of two (2) years (principal and interest). The Bank also indicated that it stands ready to continue with its Asset Purchase Programme up to GH¢10 billion in line with the current estimates of the financing gap from the COVID-19 pandemic.

“If BoG was not providing part of the money, it will mean that government would have to borrow the amount from outside which might come at a higher interest rate. What I know as an economist is that, it is more prudent to increase domestic debt than external debt. The debt level will rise but we should just make sure that we use the money prudently,” he professed.

On the decision of the central bank to finance government budget despite an MoU with the Government not to do so, Dr. Kwakye intimated that

“the MoU was applied in normal times but we are not in normal times now.”

Before the MoU, there was a lending ceiling of 10 percent but under the IMF programme, the BoG signed a memorandum with Government to reduce its lending to zero percent.

Dr. Kwakye noted that this was a gentleman’s agreement which had not been enacted into the Bank of Ghana act yet, and thus saw nothing wrong with the central bank supporting the government is such times.

“We are not in normal times and government needs to borrow from the BoG. In abnormal times, the central bank must be open to support government.” Because the money was being borrowed from the BoG, he believes it could be negotiated at a cheaper rate than what the government would have gotten from the international market or the domestic bond market.

There have been concerns from some economists and the Minority in Parliament that the decision of the central bank to support the government’s budget would increase money supply in the economy which may lead to higher inflation. This, Dr. Kwakye corroborated but was quick to say that inflation was a lesser evil at this time.

“Our survival is critical, so let’s survive today and if it causes inflation, we will see how we can tackle that post-Covid-19. It is better for government to owe its own central bank than to owe foreigners.”

Other measures from the BoG

As part of measures to contain the impact of the COVID-19 on the Ghanaian economy, the central bank at its March MPC press conference announced some measures to help banks to lend more to the private sector in these times. The Primary Reserve Requirement was reduced from 10 percent to 8 percent to provide more liquidity to banks to support critical sectors of the Economy, and the Capital Conservation Buffer (CCB) for banks of 3 percent was also reduced to 1.5 percent to enable the banks provide the needed financial support to the economy. This effectively reduced the Capital Adequacy Requirement from 13 percent to 11.5 percent.

In his view, Dr. Kwakye said this was the right thing to do, noting that

“in this time that we need to support the economy, we needed to free some resources for banks to be able to lend more to the private sector.

He intimated there must, however, be a stakeholder committee to ensure that the banks don’t use the freed up cash to purchase government securities. He suggested the stakeholder committee must include BoG, Ministry of Finance, representatives of the banks, AGI and CSOs.

The central bank as part of the measures moreover lowered the Monetary Policy Rate 150 basis points to 14.5 percent to enable banks to lend to customers at a reduced rate. In response to these measures, banks in the country also reduced their lending rates, provided some loan repayment holidays to their customers and granted new loans to businesses which have been hardly hit by the pandemic. The Ghana Association Bankers, has pointed out that banks had, as at end of May, supported businesses in different forms to the tune of GH¢3.6 billion. The amount was in the form of new loans; rescheduling of loan repayments; interest write offs, among others.

Furthermore, Dr. Kwakye, said figures available to him indicated that banks’ lending rates had come down a bit.

“We don’t expect the lending rates to come down in the same magnitude as the reduction in policy rate. From history, when we reduce the policy rate, there is some kind of inertia from the banks in reducing their lending rates.”

Banks have over the years tended to be more responsive when the policy rate goes up but there is generally an inertia in the transmission of monetary policy. This has become a problem because currently the BoG cannot force any bank to reduce its lending rates, leaving the central bank with moral suasion as the only tool to convince the banks to reduce their lending rates.

Dr. Kwakye, however, believes the central bank must be more forceful in this regard.

“We should be more forceful and make a case that the policy rate has come down so they also need to come down. The gap between lending rates and deposit rates is also too wide and I am not happy with the extent to which banks respond to policy rate reductions. If we leave the banks to do their own thing, my concern is that they may not readily bring down the lending rates and may not lend their free reserves to the private sector.”

Ghana’s Post-COVID recovery process and time frame

The issue of how long the Ghanaian economy will take to recover from the COVID pandemic has dominated discussions in recent times, with the Finance Minister indicating that the economy might take up to three years to fully recover. However, Dr. Kwakye said it was difficult to predict how long it will take for the economy to recover. Every country is definitely going to recover at some point and some may take longer. Some will have a V-shape recovery where they go down the cliff and after COVID they come up sharply, while others will have a U- shape, implying that when they go down, they stay down for a much longer time before they climb up again.

But, Dr. Kwakye hinted it would be difficult to predict how Ghana’s case would be due to the many uncertainties surrounding the pandemic.

“The recovery will also depend on how quickly we are able to lift the restrictions we have imposed on the economy. I won’t be able to put a timeline on it though because the factors are too many and uncertain.”

How to quicken the country’s recovery?

While the period to recover is uncertain, Dr. Kwakye outlined some measures that the government could put in place to quicken the country’s recovery. Many have argued that the pandemic provides an opportunity for countries to rethink their economic policies and Dr. Kwakye believes it was time for Ghana also to rethink its entire economic policy going forward.

“It’s time to rethink our entire economic policy going forward. We have to create a more resilient, self-reliant and robust economy, leveraging our natural resources. The pandemic has disrupted the world economy and value chains and we need to move away from strictly specializing in a small number of economic activities and products. We should not concentrate on producing just a few low value-added products but rather position ourselves to self-sufficient.”

The country cannot continue to depend on others to produce things for us. We cannot produce everything, but there are some critical things that we must begin to produce ourselves locally. The government must therefore take the necessary steps to restructure the economy. Dr. Kwakye said this could be done by leveraging the country’s natural resources to transform agriculture and manufacturing.

He said data available to the IEA suggested that the country’s natural resources, which include; oil, gas, gold, bauxite, manganese and iron ore was valued at over US$12 trillion. Over US$12 trillion of natural resources is buried under ground and you ask yourself why as a country we have not been able to exploit this to develop and transform the economy.

“The portions that we have exploited, we have given them away through concession contracts to foreigners and our portion of it is very minimal. We are giving out what we are exploiting to foreign investors and their cohorts in Ghana when we should be using our natural resources judiciously to transform our agriculture and manufacturing sectors,” - Dr. Kwakye

Protecting local industries

In a bid to industrialize, many have called for the need to introduce policies that will protect local industries and impose tariffs on goods that could be produced locally. Responding to such suggestions, Dr. Kwakye subscribed to this school of thought, stating that

“I am doing research looking at the liberal policies that we have been implementing all these years. Liberal policies like: open trade, privatizing all our public enterprises, not providing subsidies and other incentives, liberalization of the financial sector, production concentration, etc. One of the problems is the open trade that western financiers have been preaching to us and because of that we have removed quotas on all goods and reduced tariffs to very minimal levels and as a result our country is being flooded with cheap imports from outside which is killing the local infant industries. If we need to put in quotas and increase tariffs to protect our industries, then we should do that. I am not talking about across board restrictions, but we should be selective in protecting our local industries. The advanced countries who have been preaching open trade to us, when they were developing, did not practice what they now preach.”

Stimulus package

As part of measures to alleviate the impact of the pandemic on small businesses, the government launched a GH¢1 billion stimulus package to provide relief to Micro, Small and Medium Enteprises (MSMEs) who have been hardly hit. In addressing which sectors the stimulus package should target, Dr. Kwakye averred the package must target businesses in the agriculture and manufacturing sectors.

“These are the bedrocks of the economy but unfortunately for us it looks like the services sector has shot up to become the lead contributor to GDP. If you look at the development of countries; countries develop by using agriculture and the manufacturing sectors as the base of their economy. We should therefore not ignore these two sectors. The extractives sector is doing well but it does not generate enough employment like agriculture and manufacturing,” Dr. Kwakye concluded.

Dr. John Kwakye Director of Research at the Institute of Economic Affairs IEADr. John Kwakye, Director of Research at the Institute of Economic Affairs (IEA)

Ghana: Recent Economic Developments and Outlook

Ghana: Recent Economic Developments and Outlook

Ghana’s economic growth slowed down continuously after an all-time high of 14% in 2011, spurred by the coming on stream of first oil production in the country. High economic growth resumed after 2016, spurred by the coming on stream of new oil and gas production from the Sankofa and TEN fields. The economy grew by 8.1% in 2017, making it the second-fastest growing economy in Africa after Ethiopia, driven by strong recovery in oil production and high gold output, with cocoa production remaining stable. Non-oil GDP growth remained at 4.6% in 2017, same as in 2016, as marginal expansions in the services and agriculture sectors offset slower growth in non-oil industry. The economy continued to expand rapidly in 2018, albeit at a slower pace than the rate in 2017, with a real GDP growth of 6.3%. This was spurred by the expansion of the mineral component of the industry sector and a larger GDP resulting from the rebasing exercise conducted in October 2018. The growth of agriculture was high in 2018 and was also a key supportive sector to the overall economic growth during the year. Nonetheless, the services sector remained the dominant sector of the economy, accounting for 46% of GDP in 2018. This means that while the main driver of economic growth in 2017 was oil production, in 2018 the impact of the oil production on GDP growth reduced significantly as it recorded a growth rate of 3.6% (GSS, April 2019). The economy continued to expand in 2019 with a growth rate of 6.7% in the first quarter, driven by a strong recovery in the services sector which recorded a growth of 7.2% in the period.

Inflation dropped from a peak of 19.2% in March 2016 to 12.1% in June 2017 due to base effects and lower domestic food price pressures. The inflation rate stabilized thereafter to levels within the central bank’s target range of 8±2%. Inflation declined to 9.4% in December 2018, the lowest in five years, reflecting the continued monetary restraint by the central bank, sharp moderation in non-food inflation, the relative stability of the cedi as well as the impact of the fiscal containment during the period. The moderation in inflation created room for monetary policy easing beginning in July 2017, with the policy rate cut from 21.5% in January 2017 to 16% in January 2019 in an effort to spur non-oil economic growth. Inflation continued to remain in single digits in the first half of 2019, rising gradually from 9% in January to 9.5% in April 2019 and then declined to 9.1% in June 2019, driven mainly by low food inflation.

The government launched a concerted fiscal consolidation efforts in 2017, aimed at reducing the large fiscal deficit. As a result, Ghana’s fiscal performance showed a broad turnaround in 2017, with the fiscal deficit (on cash basis) narrowing to 4.8% of GDP during the year, from 6.5% in 2016. The government sustained the fiscal consolidation efforts in 2018, leading the fiscal deficit for the year to drop to 3.9% of GDP, although achieving revenue targets remained a challenge. The primary balance turned positive at the end of 2017, the first time in almost a decade, and remained positive in 2018. The fiscal consolidation efforts continued in 2019 even though there were still challenges in meeting the revenue targets. The fiscal performance in the first half of 2019 showed a budget deficit (on cash basis) of 3.3%, due both to revenue shortfalls and expenditure cuts.

Whilst fiscal consolidation seemed to be gaining ground since 2017, this did not reflect the true state of the country’s public finances. First, there were huge expenditure and liabilities incurred by the government that were outside the budget approved by Parliament. These include a US$2 billion Sino-hydro Group loan secured for infrastructure development, bonds issued to bail out ailing banks under the banking sector reforms, and extra-budgetary borrowings by the Ghana Education Trust Fund. Second, domestic revenue mobilization was not only weak but consistently undershot the budget targets. As revenue projections were not achieved in 2017 and 2018, budgeted capital spending were sacrificed to safeguard the deficit targets. According to the World Bank (June 2018), including the cost of the financial sector reforms would have raised the fiscal deficit to 7.2% of GDP in 2018. The same situation is playing out again in 2019 as the government responded to the revenue undershoot of 17.6% in the first quarter of the year by spending 4% less than budgeted, with investment expenditure falling by 28.7% relative to target and bearing the brunt of the expenditure cuts. This means that, beginning in 2017, government investment spending has been at risk of severe retrenchment due to revenue underperformance. Not surprisingly, the weak areas of tax revenue were the same ones that were described as nuisance taxes by the government and were abolished in 2017.

Fiscal policy outcomes in the last decade have caused a serious impact on Ghana’s public debt stock. The stock of public debt at end-2018 stood at GHȻ173.1 billion, from GHȻ9.8 billion in 2008. By end-June 2019, the debt stock had risen to GHȻ204 billion, comprising domestic debt of GHȻ96.3 billion (47.2% of total debt) and external debt of GHȻ107.7 billion (52.8% of total debt). As a result, the debt/GDP ratio which stood at 57.9% in 2018 rose to 59.2% at end-June 2019, despite the nearly 25% increase in GDP due to the rebasing in September 2018, keeping Ghana at a high risk of debt distress. Fiscal expansion, contingent liabilities from energy sector state-owned enterprises (SOEs) and additional debts incurred by the government to support the financial sector clean-up presented a serious risk to debt sustainability. The March 2019 IMF/World Bank debt sustainability analysis maintained Ghana’s high risk of debt distress despite the fact that the country’s external debt indicators significantly improved on account of the rebased GDP. Vulnerabilities associated with debt service remain, with debt service to exports and debt service to revenue in breach of their baseline thresholds (IMF, 2019).

Interest rate risks continued to be a serious concern for both external and domestic debt. In addition, over half of Ghana’s public debt was exposed to exchange rate risk. The country’s debt portfolio exchange rate risk dropped to 49.1% in September 2018 from 52% in December 2017 but is projected to rise to 54.6% in 2019, with the issuance of the US$3.0 billion Eurobond in March 2019 (World Bank, 2019). Even though the nominal exchange rate was relatively stable during the first three quarters of 2018, the depreciation of the cedi in the last quarter of 2018 and in the first quarter of 2019, combined with the relatively higher proportion of external debt made Ghana’s public debt portfolio still vulnerable to exchange rate volatility.

The overall banking sector remained profitable despite some weaknesses. An asset quality review undertaken in 2016 by the central bank highlighted serious under-provisioning and capital shortfalls. Some banks were found to have exceeded their single obligor limits, with capital erosion following the asset quality review, generating further pressures. The weak economy and the power sector problems during the 2014-2016 period also affected the banking sector adversely, leading to high non-performing loans. As a result, the financial sector came under serious stress after 2016. Heightened vulnerabilities in the sector resulted in the resolution of five indigenous banks in 2018 in addition to two banks that were closed down in 2017, with substantial fiscal costs to the government.  The assets and liabilities of the two banks closed down in 2017 were transferred to a state-owned Ghana Commercial Bank (GCB) while those of the five banks closed down in 2018 were transferred to a bridge bank, Consolidated Bank Ghana (CBG). The CBG was capitalized by the government in the amount of GHȻ450 million and the issuance of special resolution bonds of GHȻ7.6 billion in two tranches to cover the gap between the liabilities and the good assets assumed by the bank.

After spending some GH¢13 billion in cleaning up the banking sector, the IMF estimated that government will have to spend, at least, GH¢5.5 billion more of taxpayers money in 2019 to address the challenges in the micro-finance, savings and loans institutions, as well as the Heritage and Premium banks that were collapsed and added to the Consolidated Bank Ghana Ltd. The Bank of Ghana also introduced reform measures to address the remaining financial sector weaknesses. As a result, the overall financial system became adequately capitalized and well-positioned to support credit growth and investment going forward. The fiscal deficit, including the financial sector clean-up however reached 7.2% of GDP in 2018, compared to 3.8% without the financial sector clean-up. As the clean-up cost continues in 2019, the fiscal deficit (including the financial sector clean-up) is projected to reach 5.6% of GDP (IMF, 2019).

Ghana’s merchandise trade recorded strong performance after 2016, with the trade balance recording a surplus of US$1.2 billion in 2017 and US$1.8 billion in 2018, attributable to improvement in export receipts from cocoa and gold and stronger performance in export earnings from oil. The trade surplus declined to US$0.8 billion at end of March 2019, due to a drop in imports values, while export earnings remained at the same level as in 2018. With the trade balance turning into surpluses, the current account showed significant improvement, with the deficit declining from 2% of GDP in 2017 to 1.4% of GDP in September 2018 and gross international reserves reaching US$6.8 billion (3.9 months of imports). The current account continued its improvement, reaching a surplus of 0.3% of GDP for full year 2018. Although improvement of the current account continued into 2018, lower than expected foreign capital inflows reduced the capital and financial account net inflows, leading to a decline in both the gross and net international reserves in 2018, with the import coverage of the gross international reserves dropping to 2.6 months of import cover from 2.7 months in 2017. The current account recorded a surplus of 0.1% of GDP during the first half of 2019, supported by favorable trade conditions. This, together with significant inflows to the capital and financial accounts, resulted in an overall balance of payments surplus, equivalent to 1.9% of GDP. Together with the US$3 billion Eurobond issued in March 2019, Ghana’s international reserves significantly improved, with gross international reserves reaching US$8.6 billion, equivalent to 4.3 months of import cover at the end of June 2019.

Despite the relative exchange rate stability that prevailed after 2016, a few episodes of sharp surges in the exchange rate occurred in 2018 and persisted through the first quarter of 2019. The cedi remained stable in the first half of 2018 but came under considerable pressure in the second half, and in the first quarter of 2019. Between January and May 2018, the cedi depreciated cumulatively by 1.3%  but the pressure on the currency strengthened thereafter as external financing pressure increased and the US dollar strengthened, leading investors to rebalance their portfolios. At the end of 2018, the cedi had depreciated against the US dollar by 8.9% cumulatively, attributed mainly to a sudden sell-off of domestic government bonds held by foreign investors. The central bank intervened in 2018 to slowdown the depreciation, which resulted in the gross international reserves dropping by US$250 million. This policy action was discontinued in an effort to stop loss of reserves. As a result, the depreciation of the cedi intensified in the first quarter of 2019, reaching its lowest point in mid-March 2019 when year-to-date depreciation reached 11.1%. With the successful issuance of three Eurobonds totaling US$3.0 billion in March 2019, the increased foreign exchange reserves provided enough buffer to reverse the downward trend of the cedi depreciation. As a result, the cedi bounced back and by mid-April it had appreciated by 6% over the mid-March low-point (World Bank, 2019).

Outlook and Challenges

Ghana’s medium-term economic prospects looks positive, with economic growth expected to reach around 7% in 2019, to be driven mainly by the expected increase in oil production from the Jubilee and TEN fields. Aker Energy also announced in February this year that it has discovered 450-550 million barrels of oil in the Deep-water Tano Cape Three Points block, with potential recoverable reserves of nearly one billion barrels (EIU, 2019). Non-oil GDP is also expected to grow by 6.2% as the government’s “Planting for Food and Jobs Program” to boost agriculture production and promote agribusiness begin to take effect. The government has also indicated its intention to continue to prioritize industrialization in line with its election pledge to establish one factory in each of the country’s 254 districts by 2020. The 2020 Budget and Economic Policy of the government is therefore expected to focus on providing liquidity to boost industrialization in the country in order to sustain the economic transformation. External support from the US and China has been secured under the initiative to support small and medium-sized enterprises, but progress has been hampered in some regions by a lack of supporting infrastructure (especially electricity), poorly trained workforce and weaknesses in the business environment. The government has also indicated its intention to establish a refinery to support the downstream oil sector to improve value-addition and revenue generation.

While the past economic growth momentum helped place Ghana at the forefront of poverty reduction in Africa, the changing determinants of growth in recent years have reduced its impact on poverty. In addition, the oil and gas-driven growth has increased volatility in the economy. Inefficiencies in the public sector also had a negative impact on economic growth, private sector development and the labor market. Ghana therefore has to accelerate economic transformation if it is to achieve higher, sustainable and inclusive growth. The country needs to invest more to diversify the economy through agricultural transformation and industrialization, and increase productivity if it is to have a significant and sustained impact on poverty reduction. However, progress is likely to be delayed due to fiscal, infrastructure and local financing constraints.

In December 2018, Ghana introduced a fiscal responsibility law and also established a Fiscal Council. The law establishes a de facto 5% of GDP cap on fiscal deficits in any given year, although we expect the government to pursue an expansionary fiscal policy in the run-up to the 2020 general elections. The public sector wage bill, together with high interest payments and capital expenditure to help deliver the agriculture, industrialization and infrastructure promises will drive expenditure increases ahead of the 2020 elections. To this end, the fiscal deficit is likely to slip beyond the 5% cap in 2020. Financing constraints will necessitate a shift to proper fiscal consolidation beyond 2020 so the fiscal deficit is expected to be brought within the fiscal rule ceiling of 5% of GDP. However, the government’s efforts towards fiscal consolidation remain constrained by high public spending in the face of relatively weak domestic revenue mobilization, owing to high levels of tax exemptions and tax avoidance. Tax enforcement remains a big issue as many individuals and companies continue to benefit from various loopholes in the tax system. Maintaining a fiscal consolidation stance and staying on a sustainable path through the 2020 election cycle will be a big challenge, pointing to an urgent need to fundamentally improve revenue mobilization, through tax compliance and broadening of the tax base. An effective domestic resource mobilization strategy is urgently needed as reduction of expenditures, including public investment, in response to revenue underperformance may not be sustainable given the pressures to implement election promises (World Bank 2018).

Ghana’s energy sector is also in dire financial conditions that without a solution the sector will pose serious fiscal risks in the coming years. The sector is facing high costs from excess power capacity and natural gas supply, which are exacerbating the existing revenue gap. An Energy Sector Recovery Program approved by the Government in May 2019 provides an action plan to bring the sector back into improved financial situation in the coming years. However, the success of this plan in closing the revenue gaps of the energy sector enterprises cannot be guaranteed.

The biggest threat to Ghana’s economic recovery is that of a sharp tightening of global financial conditions, which would cause higher debt service and refinancing risks, as well as putting stress on vulnerable sovereign bond issuances and those with un-hedged dollar exposures. Reduced external financing would erode foreign exchange buffers and possibly put pressure on the exchange rate and inflation. Another threat whose likelihood of occurrence and expected impact are both rated high is fiscal loosening in the run-up to the 2020 elections. Political pressures to spend more and tax less are evident and Ghana has de facto entered pre-election campaign. This threat could result in further accumulation of payment arrears,  and thus increasing non-performing loans and straining public service provision. The resultant lack of confidence in the economy could trigger pressures on the exchange rate, affecting inflation, government balance sheet and debt sustainability (IMF, 2019). There is also the continuing weaknesses of the state-owned utility providers, which make the enterprises to incur significant losses which could add to government’s risk of debt distress and constrain growth. To mitigate these risks, an implementation of a credible medium term fiscal adjustment strategy that cuts spending and increases revenues, boosts investors’ confidence, builds forex buffers to enhance resilience, and adopts contingency measures in case financing conditions tighten further is needed. A credible strategy to tackle the energy sector inefficiencies and strengthens oversight of state-owned enterprises is also very necessary.

Ghana’s exposure to capital flight also remains high due to the large portion of public debt held by non-residents. Non-residents hold about half of Ghana’s domestic public debt in the local currency. A similar percentage of non-residents also hold foreign currency-denominated public debt. Against this background, there is a strong possibility of capital flight if these non-resident holders of the country’s debt find other attractive investments outside the country. Aside from the risk to capital flight, Ghana also appears vulnerable to investors’ changes of confidence and to fluctuations in the exchange rate. The country will have to face high financing costs on internal and external markets in the context of a strong US dollar and the rise in global bond yields (AFD, 2019). More effort is therefore critically needed to reduce the country’s public debt stock. Off-budget transactions - financial expenditures which are not factored into the budget - not only create fiscal rigidities but also difficulties in knowing the country’s true deficit and debt levels.

  • By Professor Newman Kwadwo Kusi

Executive Director, Institute for Fiscal Studies (IFS), Ghana