The latest Economic Update by the World Bank indicates that Ghana’s economy is expected to fully recover its potential by the year 2025.
However, the report, titled “Price Surge: Unraveling Inflation’s Toll on Poverty and Food Security,” highlights the country’s current challenging economic outlook.
Economic growth is projected to slow down significantly, reaching 1.5% in 2023 and remaining depressed at 2.8% in 2024.
Despite these challenging conditions, the Ghanaian economy is anticipated to rebound and return to its potential growth rate by 2025.
The report furthered that “A combination of domestic imbalances and external shocks in 2022, led to macroeconomic challenges in Ghana. The year was marked by currency depreciation, rising inflation, and tumbling investor confidence. Pre-existing fiscal vulnerabilities such as mounting debt burden, a rigid budget weakened by high energy sector costs and chronically low public revenues, were deepened by difficult global economic conditions”.
“As a result of efforts to address macroeconomic instability, corrective fiscal and monetary policies are expected to influence total demand and slow down non-extractive GDP growth”, said Pierre Laporte, World Bank Country Directorfor Ghana, Liberia, and Sierra Leone.
“High inflation, increased interest rates, and macroeconomic uncertainties will keep private consumption and investment growth below pre-pandemic levels, leading to subdued non-extractive growth in the short term; but growth will begin to recover to its potential by 2025 as drag from fiscal consolidation fades and macroeconomic stabilization and structural reforms start bearing fruit.”
The report advised that in addition to addressing the immediate macroeconomic crisis, the authorities should prioritize structural reforms to tackle its underlying causes, enhance economic growth, and strengthen economic resilience:
The report recommended Ghana to focus on sustainable domestic revenue collection, with particular emphasis on streamlining tax incentive regimes and enhancing revenue administration.
Tighter expenditure controls were suggested as a means to improve budget execution accuracy and prevent the accumulation of new arrears.
The government was urged to fully address the energy sector’s shortcomings, which pose a threat to fiscal sustainability. To achieve this, the report called for the extension, expansion, and thorough implementation of the Energy Sector Recovery Programme.
The report emphasized the need for the government to increase Foreign Direct Investments by improving the investment climate. This can be achieved through enhancing transparency, accessibility, and the quality of business regulation and regulatory governance.
Regarding climate change adaptability, the report suggested that the government should prioritize investments based on recommendations from the World Bank’s recent Country Climate and Development Report (CCDR). These investments should aim to maximize resilience benefits while remaining cost-effective.
“Macroeconomic shocks, particularly inflation tend to affect the poor the most. The next two years will be very tricky for Ghana’s poverty reduction efforts. Without bringing the economy back on track, no meaningful poverty reduction can happen. Concurrently, safety nets to protect the most vulnerable need to be enhanced to ensure sustainable poverty reduction and shared prosperity.” said Kwabena Gyan Kwakye, World Bank Economist and co-author of the report.
“Expanding and increasing transfers of the Livelihood Empowerment Against Poverty (LEAP) could ensure the poorest are able to cope and build resilience to future shocks”, he added.
The report also indicated that high inflation in 2022 has had significant effects on food security and poverty in Ghana and has eroded the purchasing power of Ghanaian households, leading to a deterioration in living standards and ultimately, worsening poverty and food insecurity.