major macro economic indicators
|GDP growth (%)
|Inflation (yearly average, %)
|Budget balance (% GDP)
|Current account balance (% GDP)
|Public debt (% GDP)
(e): Estimate (f): Forecast * Costs of cleaning up the financial sector, as well as consolidating the energy sector, included
**including public enterprise debt, government guarantees, financial sector liabilities and public-private partnerships
- Important mining (gold), agricultural (cocoa), oil and gas resources
- Diversified and self-sufficient energy mix
- Robust mobile telephony development and progress in digitalisation
- Stable democracy, active civil society
- Attractive business environment, favourable to FDI
- High debt levels requiring restructuring
- High public deficit resulting from low revenues and poor expenditure control
- Fragile banking sector: non-performing loans, exposure to public debt, high interest rates
- Dependence on raw materials: gold and oil (70% of exports), cocoa (10%, 30% with other agricultural products, such as cashew nuts)
- Security threats including jihadist infiltration in the north
Public debt crisis forces Ghana to seek IMF assistance
On top of efforts to reduce the budget deficit, which were deemed insufficient to ensure debt sustainability, and after the economic shock of the pandemic, fallout from the war in Ukraine on the public accounts dealt a death blow to investor confidence. At the end of 2022, external creditors held about 60% of the public debt stock. Of this share, bondholders hold 45%, multilaterals 30%. As a result, the latter, as well as domestic creditors (banks, insurance companies and pension funds) have massively withdrawn their funds from the Ghanaian economy, causing the cedi to collapse. Over a year, Ghana’s currency lost about 50% of its value against the dollar and drove up external debt. To buoy the currency and limit inflation, the central bank raised its key rate from 14.5% in January 2022 to 28% a year later, in parallel with inflation which exceeded 30% over the year, but at the cost of an increase in interest on the domestic debt. The central bank's foreign exchange reserves melted rapidly, from USD 9.7 billion at the end of 2021 to USD 6.6 billion in September 2022 (less than 3 months of imports), and it did not tap the markets. In the end, the government was forced to turn to the IMF to address its financing problem (debt service estimated at USD 3 billion in 2023) and placate the markets. A preliminary agreement to secure a USD 3 billion credit facility was reached in December 2022. To obtain confirmation, Accra has embarked on a restructuring drive on its outstanding liabilities, pending which Ghana has partially defaulted on its external debt payments. A debt exchange programme with domestic holders was carried out in the first quarter of 2023, with a haircut to reduce domestic public debt from 35% to 25% of GDP. Meanwhile, external private creditors came together to form a negotiating committee. Overall, the Ghanaian government hopes that the restructuring will reduce the total debt stock from about 90% to 60% of GDP. In terms of fiscal consolidation, the government is likely to improve tax collection (11% of GDP in revenue, half of which is swallowed up by interest, compared to 18.5% in expenditure planned for January-September 2022), expenditure control, management of public enterprises, and accelerate the restructuring of the energy and cocoa sectors. The government has already taken action by introducing a tax on mobile transactions (e-levy) in the spring of 2022, a VAT increase of 2.5%, an additional 35% income tax bracket and a freeze on salary spending. For years now, the imbalance in public finances has blown out external indebtedness and affected the balance of payments through the financial account (disbursements and repayments linked to borrowing) and the current account (interest on debt). Consequently, reducing public deficit in 2023 will be essential, with the help of debt restructuring.
In 2022, the rising cost of food imports (cereals, sugar, etc.) weighed on the trade surplus, but was nonetheless slightly offset by high oil and especially gold prices. As in the past, the current account deficit was largely fuelled by the income deficit, subject to the increase in external debt servicing and profit repatriation by foreign investors, as well as the services deficit, even if reduced by the recovery in tourism. The latter deficit is dominated by purchases of services related to oil exploitation, as well as transport, and accentuated by the growing use of telecommunications. The current account deficit is expected to decrease in 2023, mainly due to the decrease in imports arising out of weaker domestic demand and the price of imported products. To address the foreign currency shortage, the Ghanaian government is attempting to launch "in kind" gold-for-fuel exchanges. The first agreement of this kind was reached with an Emirati company for delivery in January 2023. Owing to the expected economic slowdown in advanced economies (diaspora host countries), expatriate remittances (5.8% of GDP in 2021) will fail to make up for these deficits.
Inflation and fiscal tightening will weigh on consumption
Given the stalemate in public finances, the tough economic policy expected in 2023 will squeeze demand. The population already suffered greatly from the explosion in prices in 2022, leading to a fall in consumption due to the collapse of purchasing power. The country's relative energy independence (crude oil, hydroelectricity) has not prevented energy prices from rising more than 50% as the government has chosen neither to control prices nor increase subsidies excessively. Demand is likely to remain feverish in 2023 given uncertainty over the exchange rate and the austerity programme associated with the IMF loan. High inflation is likely to lead to an increase in poverty (USD 1.9/day threshold) – which had fallen to cover 11.1% of the population in 2019 – and a further brake on consumption despite a reduction in household savings.
Given that household consumption is a driving force of the economy (~70% of GDP), growth will be affected accordingly. The difficulties faced by the banking sector, tight monetary policy and capital outflows are expected to affect private investment in particular. The development of an industrial base (the One-District-One-Factory plan) will therefore not progress significantly, after making a start in agri-food, fertilizers, car assembly, aluminium and steel. Public investment is also likely to be reduced and bear the brunt of a future savings plan. As for the contribution of net exports to growth, the combined easing of imported and exported food and fuel product prices in 2023 should keep it positive. However, illegal mining and smuggling of gold, delays in the commissioning of offshore oil fields and the market power on cocoa prices by roasters will erode the contribution of foreign trade to growth. The Cocobod (Ghana) and the Conseil du Café-Cacao (Côte d'Ivoire) have continued to make joint demands for cost of living and country of origin premiums to foreign buyers since 2019, which have so far failed to produce a firm agreement.
A resilient democracy despite financial setbacks
Despite suffering a severe loss of political credibility, President Akufo-Addo's government is expected to retain its narrow majority until the 2024 general election. Political credibility has been damaged due to the President's emphasis has been on ending dependence on foreign aid. Ongoing demonstrations under the slogan #FixTheCountry, without any serious incidents reported, testify to the indignation of active elements of civil society against the negligence of the political class.
Boasting its strong position as a regional economic powerhouse and credited with institutional strength, Ghana should once again obtain the understanding of its creditors and continue its tradition of dialogue with diverse interlocutors. The country enjoys close ties with the United States and the United Kingdom, as well as with China, which is an important trading partner. Although low, the risk of Islamist terrorist infiltration at the northern border cannot be ignored. Since 2017, Ghana has cooperated with its neighbours to address this problem through the Accra Initiative on Anti-Jihadist Intelligence in the Sahel and Gulf of Guinea.
Last updated: June 2023