Wishing our economy a speedy recovery….

IMF financial assistance

Since the onslaught of the deadly COVID-19 virus, virtually every economy in the world – including Ghana’s – has been negatively impacted. In fact, the devastating impact of the virus on even the most robust and resilient economies such as the USA, UK, Germany, France etcetera compelled their governments to review their economic projections downward to reflect the reality.

Therefore, Ghanaians must swallow the bitter truth that our economy is not so shock-proof and robust that COVID-19 couldn’t have hit it as hard as other countries. For an economy that was recording eight percent GDP growth from 2018-2019 to slump to 0.3 growth in 2020 means that the impact of the virus overturned all economic gains in just under one year.

Soon after the 2020 election and assumption of the second term by the current government, many Ghanaians – especially opposition elements – started making unrealistic demands and behaving as if Ghana was the only island in the world economy that could withstand the shocks of COVID-19.

We are all witnesses to the numerous interventions government made during the economic lockdown, especially in offering water for free and electricity at half the cost for high class consumers and full cost relief for lifeline consumers. Besides, food and other stimulus packages were allocated to very poor households which were hit hardest. These interventions came on the heels of continuous payment of full salaries for public sector workers, in addition to sustenance of the all-inclusive Free SHS programme. Realistically, no Ghanaian should underestimate the devastating effect of COVID-19 on the economy.

Current economic forecasts

Initially projected to record a sustained growth at eight percent of GDP, Ghana’s economy, currently at 0.8%, is projected to increase to 4% in 2021 and 4.1% in 2022. These figures are far below the initial projections.  Inflation is also expected to ease to 8.2% in 2021 and 8%, in 2022; and in the midpoint, the Bank of Ghana’s targets a range of 6%–10%.

According to the Bank of Ghana, at the end of March 2020 gross public debt stood at GH¢234.9billion (US$43.17billion), representing 59.30 percent of rebased GDP. Ghana’s current account deficit widened to 3% of GDP at the end of 2020 from 2.9% in 2019, reflecting a lower trade surplus and higher services out-flows. In 2019, Ghana started making a historic trade surplus until COVID-19 struck. However, stronger foreign exchange remittances and lower net investment income outflows, especially from the extractive sector, helped to sustain Ghana’s foreign reserves.

GDP growth and forecasts

The economy lost some steam in the first quarter of 2021, amid a second wave of COVID-19 infections and the re-imposing of restrictions – with GDP growth slowing to 3.1% in annual terms from 3.3% in Q4 2020. Meanwhile, in seasonally-adjusted quarter-on-quarter terms, GDP grew 0.8% – matching the prior quarter’s increase.

The quarterly slowdown was largely due to the services sector, which accounts for a large share of GDP, expanding at a more moderate pace (Q1: +4.0% year-on-year; Q4 2020: +4.6% year on year). Moreover, the agricultural sector also grew at a slower rate (Q1: +4.3% year on year; Q4 2020: +8.2% year on year). More positively, the industrial sector bounced back to growth in Q1, recording a 1.3% expansion and contrasting Q4’s 0.4% contraction. The upturn was chiefly due to strong growth in the construction and manufacturing subsectors, although overall growth was capped by a contraction in the mining and quarrying subsector.
                                                                                                                                  Public debt stock

In its April 2021 Fiscal Monitor, the IMF projects that Ghana’s public debt stock is not going to reduce anytime soon – as it is expected to hit 81.5% of Gross Domestic Product (GDP) by the end of this year. This means the country’s debt will go above GH¢300billion before the end of 2021.

Per the IMF data on low-income developing countries, Ghana’s debt to GDP ratio will surge to 83.2% in 2022, and then further to 84.8%, 86.0% and 86.6% in 2023, 2024 and 2025 respectively. It will however drop slightly to 85.5% in 2026. This could possibly push the economy into the highly debt distressed category, as a majority of revenue will be used to service debt and leave only small fiscal space. In sub-Saharan Africa, only Zambia and Congo Republic will record unsustainable debt levels worse than Ghana.

Economic analysts are worried about Ghana’s rising debt, as there is a higher risk of default. Of course, because of COVID-19 the current government justifies why it had to borrow to pay-off some of the debts it inherited from the previous government and to finance its flagship projects.  Government insists there is no cause for alarm because its social investments and industrialisation drive will ensure a robust economy.  Let’s not forget that Ghana’s current debt level is rooted in the imprudent borrowing and contracts the previous government engaged in during the energy crisis. The accumulated debts and the interests accruing have shackled the economy to its current plight, wherein interest payments are increasing public expenditure and threatening the very foundation of the economy.

Debt analysis

In 2018, the national debt of Ghana amounted to approximately 63.23 percent of the GDP – but this has been rising since 2020 when COVID-19 struck.

As at December 2020, Ghana’s total public debt stock reached an all-time high of GH¢291.6billion – approximately 76.1% of GDP. Bank of Ghana figures indicate external debts alone stood at GH¢141.8billion, approximately US$24.7billion. This is also equivalent to 37.0% of GDP. The domestic debt was, however, slightly higher at GH¢149.8billion at the end of 2020, about 39.1% of GDP. The financial sector debt also stood at GH¢15.3billion in December 2020, but was GH¢100million lower from the September 2020 data. This is however equivalent to 4.0% of GDP.

Labour unrest

Amid economic difficulties, it can be forecast that labour unrest may threaten stability in the economy. Already, members of the Trades Union Congress have voiced concerns over the four-percent salary increase proposed by government. Though in nominal terms four percent may be small, workers should consider the plight of the economy. The sheer number of public sector workers and the amount of tax revenue used in paying them makes it impossible for them to receive any appreciable salary increase in the COVID period. Currently, there are 700,000 workers on government payroll, with about 60 percent of tax revenue used in paying their salaries and other expenses. As a result of this, I expect organised labour to give government some breathing space, so that plans to resuscitate the economy will be sustained.


Further, post-COVID economic recovery will have to deal with rising unemployment, especially among the youth. Thus, government’s decision to employ 11,000 youth in the next few months is very encouraging. In the mid-year budget statement at Parliament last Thursday, Finance Minister Mr. Ken Ofori-Attah announced an overall job-creation target of one million featuring SMEs and youth employment initiatives. These are encouraging signs that, over time, the economy will recover and rebound.

Furthermore, to overcome the labour unrest and rising unemployment, government must demonstrate prudence in managing public expenditure while taking steps to enhance revenue mobilisation by sealing the revenue leakages and tax evasion. Currently, PAYE and port taxes constitute the two major sources of revenue for Ghana. These two sources are inadequate, for which reason government needs to be innovative in tax generation.

Obviously, when the world economy shut down and imports reduced Ghana faced a drastic revenue shortfall that disrupted the initial economic forecasts. As I indicated in an earlier article, the very people clamouring for the country to be ‘fixed’ are probably among those who pay little or no tax.  An otherwise good call, ‘fix the country’ backfired because it was sinister at birth and laden with politics. Government’s communication for once succeeded in overturning that agenda for a general advocacy that all Ghanaians should fix our negative attitude to national development.

Cocoa sector to the rescue

Amid economic hardships, positive developments in the cocoa sector this year give cause for celebration.  According to cocoa industry analysis, Ghana’s biggest cocoa harvest in a decade is stimulating record domestic borrowing by the Ghana Cocoa Board. In June 2021, farmers harvested 965,493 metric tonnes compared with a target of 900,000 tonnes for the whole crop year that ends in September. This initial harvest places Ghana easily within reach of the one million-tonne mark, which was last attained in 2010-11. So far, Ghana Cocoa Board has sold 11.7 billion cedis (US$2billion) of six-month bills between January and May – the highest in the five-month period since 2011 according to Bloomberg.

Ghana Cocoa Board, which is the only buyer of cocoa in Ghana, usually borrows from overseas banks but the 2020-21 production has exceeded target – stretching the US$1.3billion syndicated loan that was raised at the beginning of the season in October 2020 according to Ray Ankrah, the head of finance and administration at Ghana Cocoa Board. Further, the regulator is also planning to raise US$1.5billion through syndicated loans for the season that begins in October, Ankrah said.  Undoubtedly, the cocoa subsector is showing strong signs of recovery – which may improve both micro and macroeconomic performance

Another cause for celebration is that, despite the economic meltdown, Ghana has US$11billion import cover for five months. This means that if even there is revenue shortfall, Ghana can import for five months uninterrupted. But my problem is the extent to which we continue to depend on imports – though in the past two years Ghana has recorded some marginal trade surplus. Therefore, government must make and tailor policies to boost local production. There has to be continuous investment in the One District-One Factory programme if Ghana is to reduce dependence on foreign imports.

For the sake of power

Just for the sake of gaining political power, you wish your country would be turned into an Afghanistan or a Somalia; you wish your economy would be down and irredeemable. In the unlikely event that your country becomes Afghanistan, which country will you preside over and which people will you rule? Or is it the case that any new government must always start economic management from scratch, having nothing to build on from the previous government.

After 26 years of democratic governance, Ghana must grow beyond such destructive politics and opposition. What exactly is our democracy known for after 26 years? Perhaps, changing governments every eight years? In more mature democracies, opposition connotes offering credible alternatives to a government in power so as to formulate sound policies for economic and social progress.

By providing credible policy alternatives, an opposition can be proud that it contributed toward nation-building.  Unfortunately, the kind of opposition we have is more focused on destroying a sitting government rather than offering credible alternatives. As our democracy aspires to become the ideal form, constructive opposition should become the standard. Amid the fiscal and social difficulties, I wish Ghana’s economy a speedy recovery.

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