Economist and Political Risk Analyst, Dr. Theophilus Acheampong, has stated that Ghana should aggressively grow and diversify its small open economy to reduce reliance on primary commodities such as cocoa, gold and oil.

According to him, these are the major export earners for the country but are subject to significant price volatility. He underscored that Ghana has a great opportunity to pursue green growth policies in new industrial clusters such as the critical minerals value chain and renewables.

These can be supported by a reinvigorated Ghana Infrastructure Investment Fund (GIIF) and the Minerals Income Investment Fund (MIIF), among other players, he said.

This is the second time in the past three years – and 17th since independence in 1957 – that Ghana has turned to the IMF for help. However, the Economist and Political Risk Analyst argued that Ghana’s approaches to the IMF tell a story of recurrent failure of government to build the economy to withstand internal and external shocks.

He pointed out that Ghana’s lack of fiscal discipline and its recent history of dependence on foreign financing leave the country vulnerable to swings in investor sentiment and accompanying portfolio investment selloffs.

Ghana, he said, should use the IMF programme to negotiate some debt restructuring with commercial and multilateral creditors to address the current challenges.

“The country failed to take advantage of earlier schemes like the Debt Service Suspension Initiative (DSSI). Debt restructuring would create the space to spend on priorities such as food and fuel. However, the country must urgently reinstate the Fiscal Responsibility Act, 2018 – which was suspended during the pandemic – with the 5% cap on fiscal deficits in any given year. It must also publish an updated medium-term debt management plan that either caps or places a moratorium on the contraction of non-concessional loans for a while.”
Theophilus Acheampong

Need to implement reforms

Theophilus Acheampong also recommended that government should implement fully any agreed structural reforms to put the economy on a sound footing. This includes significant cuts in the largesse and waste in government and public service delivery in the areas of public finances, education, energy, and health.

The government must also insist on a strong social protection element, especially for cash transfer programmes such as Livelihood Empowerment Against Poverty (LEAP) and capitation grants for public basic schools, he advised.

He also urged Ghanaians, especially the two main parties, to stop over-politicizing economic issues because populism is clouding effective decision-making. He indicated that what the current crisis reveals again is the urgent need for broad-based national development plan or framework.

Deep-seated roots of economic challenges

By the year 2000, the government of Ghana had borrowed so much that the country was in debt distress. It then subscribed to the Heavily Indebted Poor Countries initiative of the International Monetary Fund (IMF) and the World Bank. By the time the initiative ended in 2006, Ghana’s total public debt stock was US$780 million (25% of GDP).

However, the debt stock has since risen to GH₵402 billion as of July 2022, representing 68% of GDP. In a recent article, Economist, Dr. Adu Owusu Sarkodie explained why Ghana’s debt stock grew astronomically in recent years. He argued that, beyond the normal drivers, there were three main reasons: the country’s energy sector debt, the financial sector clean-up exercise undertaken by the country’s central bank and the impact of the COVID pandemic.

Ghana is grappling with runaway inflation as prices of basic commodities have spiraled. Government finances are also at their weakest in years. Ghana’s local currency, the cedi, is now the world’s worst performer against the US dollar – a signal of the depth of the country’s economic crisis.