Ghana

In 2022, Ghana's economic growth decreased as a result of the sovereign crisis. In December, Ghana ceased to make payments on its external debt to official bilateral and external commercial creditors, leading to mounting arrears. The agreement reached with the International Monetary Fund in mid-May 2023 is the first step towards a comprehensive debt-restructuring process that will involve the G20 group, including China, and domestic debt issued to banks that have already suffered substantial haircuts.

In the third quarter of 2022, Ghana's GDP growth slowed to +2.9% from +6.4% the previous year. Non-extractive industries led the downturn because they were hit the hardest by the widespread slowdown brought on by falling corporate and consumer confidence. However, a pick-up in growth of extractive operations is projected to have kept GDP growth at around +3.1% in 2022, reflecting better global commodity prices and the return of small-scale gold mining after a drop in withholding taxes on raw gold.

In 2023, growth is forecast to drop to +2% as a result of the current crisis, the planned fiscal consolidation and domestic debt restructuring, as well as the challenging external situation. The non-extractive sector is projected to grow at less than +1%, the lowest pace since the 1980s, while the extractive sector will grow by more than +6% due to rising commodity prices and the return of foreign investors. If the population were to increase by more than +2%, however, this would indicate a decline in living standards for individuals.

Central bank reserves dropped to a critically low level in the past quarters and the local currency (Cedi) has depreciated significantly. Exports of gold and oil helped reduce the current account deficit from 3.2% of GDP in 2021 to 2.1% in 2022, more than offsetting the impact of rising imports. However, intense balance of payment pressures resulted since Ghana was cut off from international capital markets, faced capital withdrawals and had trouble rolling over central bank FX liabilities. Gross international reserves fell to USD1.1bn (0.5 months of imports) at the end of February 2023, almost USD5bn below the level of mid-2021, largely due to FX interventions by the Bank of Ghana to reduce volatility. As a result of these factors, the value of the Cedi has dropped by more than -50% since the end of 2021.

Despite significant tightening of monetary policy, inflation has risen sharply over the past year. The central bank has hiked its policy rate by a total of 15pps since early 2022 (to 29.5% in March 2023) and boosted the reserve requirement from 8% to 14% since inflation has been running much beyond its target range of 6-10%. In December 2022, inflation reached 54% due to a number of factors, including a rise in global energy and food costs as well as the lingering impact of fiscal and monetary stimulus during the pandemic, a decline in the value of the currency and massive monetary financing by the government. By April 2023, inflation dropped to 41% and the Cedi has been on an appreciating path against the USD in the second quarter.

Ghana's performance in terms of civil liberties, rights and political stability exceeds most African peers. General elections in Ghana are also generally judged free and fair by independent poll observers. The high electoral turnout rate (79% in the 2020 presidential election) testifies to the state’s credibility and to the country’s democratic achievements. Ghana’s strong record of accomplishment in democracy and rule of law is expected to prevent any serious social disorder, although the post-pandemic rise in unemployment and poverty, along with rising food and energy prices, spurred discontent in 2022, when hundreds of demonstrators marched through the capital city of Accra to protest the growing cost of living caused by Ghana's economic problems. High domestic costs, poor working conditions in the public sector and a lack of economic possibilities for young people all contribute to public unhappiness with the government. Future demonstrations may be temporarily disruptive but mostly peaceful and concentrated in urban centers.  

As long as the New Patriotic Party (NPP) is in power and the National Democratic Congress (NDC) is in opposition, political life in Ghana will be defined by their bitter competition. With only 137 seats and the assistance of one independent member out of a total of 275, the NPP's working majority in parliament makes it difficult to pass contentious legislation. Policymaking will be delayed throughout the rest of the government's term because of the difficulty of reaching consensus on key legislation (particularly revenue-mobilizing acts).

As a result of anti-incumbency sentiment and public anger with the current government over decreasing living standards, a transfer of power at the December 2024 election is likely. Nonetheless, policy may continue to concentrate on sustaining macroeconomic stability regardless of who remains in office, thanks to Ghana's long history of democratic rule.