By Joshua Worlasi AMLANU & Ebenezer Chike Adjei NJOKU
The Bank of Ghana has stated that the nation’s economic gains could face headwinds from global developments, adding that a coordinated approach to fiscal and monetary policies is necessary to prevent external spillovers.
In its first meeting of 2025, the Bank’s Monetary Policy Committee (MPC) highlighted both domestic improvements and external risks that could disrupt the country’s economic stability.
“The Committee noted that global economic conditions broadly improved in 2024. Global inflationary pressures have gradually eased over the period, which has led to easing the monetary policy stance across several countries,” a statement from MPC read.
Despite these positive signals, the MPC warned that policy shifts in advanced economies – particularly the United States – could have significant implications for emerging markets like Ghana.
“On top of the projected steady growth for 2025, the international markets have priced in a much stronger US economy stemming from policies to be implemented by the new US administration,” it noted.
“This has already instigated a stronger US dollar with implications for emerging markets and developing economies, including Ghana,” it added.
A stronger dollar could exert pressure on the cedi, increase import costs and pose inflationary risks – requiring a careful balancing act from policymakers. The central bank stressed the importance of alignment between fiscal and monetary policy to mitigate these risks.
“Complementary fiscal and monetary policies will therefore have to be carefully set to prevent spillovers to the Ghanaian economy,” the Committee stated.
Cedi pressures, external factors
The cedi faced intermittent pressures in 2024, largely due to foreign exchange demand for energy-related payments, uncertainty over external bond restructuring and election-related jitters. While the cedi depreciated by 24.8 percent in the first three quarters, it regained some stability in the final months of the year, closing with a 19 percent depreciation against the US dollar.
“By end of the third quarter, the currency had depreciated by 24.8 percent on a year-on-year basis. In the last quarter, commercial banks’ participation in the gold purchase programme for foreign currency, positive sentiments from the progress made in the debt restructuring and continued tight liquidity management caused the currency to appreciate,” it noted.
The external sector remained strong, with the nation recording a trade surplus and an improved balance of payments position largely driven by increased gold and crude oil exports. Gross international reserves rose to US$8.98billion by end-2024, covering four months of imports – well above the US$5.92billion recorded in 2023.
However, the MPC pointed out that the nation’s economic stability remains vulnerable to external shocks. “While the external sector conditions are expected to provide an anchor to exchange rate stability, key risks in the outlook including challenges in the energy sector will have to be closely monitored”.
Inflation and policy response
Inflation remained a critical concern for policymakers, with the rate fluctuating throughout 2024. After peaking at 25.8 percent in March, it declined to 20.4 percent by August but ended the year at 23.8 percent – largely due to rising food prices.
“The climate-related factors, including the dry spell in some parts of the food-growing regions of the country and the late onset of rains, negatively affected production, while supply chain weaknesses generally affected food prices,” the MPC stated.
The Committee expects the disinflation process to resume, but emphasised that progress will depend on effective fiscal discipline from the new administration.
“While the inflation outturn for the year 2024 deviated from target, it is expected that the disinflation process will resume – contingent on renewed efforts at fiscal consolidation, which is anticipated in the new administration’s economic policy agenda and the yet-to-be-presented 2025 budget statement,” the Committee said.
To maintain economic stability, the central bank decided to hold its monetary policy rate at 27 percent, signalling a cautious approach in managing inflation while supporting growth.
Sustaining gains
The economy outperformed expectations in 2024, with GDP growth reaching 6.3 percent in the first three quarters – up from 2.6 percent in the previous year. The expansion was driven by a strong recovery in gold production, increased private sector credit and rising investor confidence.
“The stronger-than-projected growth and generally improved macroeconomic conditions are spilling over positively to the banking sector,” it observed.
However, risks remain in the financial sector, particularly with rising non-performing loans (NPLs) which increased to 21.8 percent by December 2024; up from 20.6 percent in the previous year. The Committee emphasised the need for banks to strengthen their capital buffers.
“To sustain this effort, the Bank of Ghana will continue to ensure that banks with capital gaps adhere to their committed recapitalisation plans to shore-up solvency,” the Committee stated.
