The World Bank has stated in a report that Ghana will recover its economic potentials by the year 2025, stressing that the macroeconomic challenges in Ghana was as a result of combination of domestic imbalances and external shocks in 2022.
The report explained that the year 2022 was marked by currency depreciation, rising inflation, and tumbling investor confidence. According to the report, economic growth is projected to slow down to 1.5% in 2023 and remain depressed in 2024 at 2.8% but the economy is expected to recover to its potential growth by 2025.
“As a result of efforts to address macroeconomic instability, corrective fiscal and monetary policies are expected to influence total demand and slow down non-extractive GDP growth. High inflation, increased interest rates, and macroeconomic uncertainties will keep private consumption and investment growth below pre-pandemic levels, leading to subdued non-extractive growth in the short term; but growth will begin to recover to its potential by 2025 as drag from fiscal consolidation fades and macroeconomic stabilization and structural reforms start bearing fruit.”
World Bank
The World Bank’s latest Economic Update noted that pre-existing fiscal vulnerabilities such as mounting debt burden, a rigid budget weakened by high energy sector costs and chronically low public revenues, were deepened by difficult global economic conditions.
Moreover, the report titled: “Price Surge: Unraveling Inflation’s Toll on Poverty and Food Security” indicated that Ghana faces an extremely challenging outlook, and the economic situation is likely to remain challenging before it rebounds.
Recommendations By the Report
The report recommended that in addition to managing the immediate macroeconomic crisis, the authorities would be well served by embarking on structural reforms to tackle its root causes, boost economic growth, and build economic resilience. The report called for Ghana to sustainably collect more domestic revenue, notably by streamlining tax incentive regimes and improving revenue administration.
It further suggested that Ghana could implement tighter expenditure controls to improve budget execution accuracy and prevent new arrears accumulation. The report added that the government needs to fully address the energy sector shortfalls, which continue to threaten fiscal sustainability, and it calls on the government to extend, expand, and thoroughly implement the Energy Sector Recovery Programme.
According to the World Bank Report, rebuilding the financial sector’s capital buffers, will promote financial stability and development. “As based on recently published audited financial statements, the DDEP has eroded banks’ capital buffers and some banks are undercapitalized or insolvent,” it said.
It also urged the government to boost the inflow of FDI by enhancing the investment climate through improvements in transparency, accessibility and quality of business regulation and regulatory governance.
On climate change adaptability, the report recommended that the government draws from recommendations of the World Bank’s recent Country Climate and Development Report (CCDR) to prioritize investments that maximize resilience benefits at an affordable cost.
Macroeconomic Shocks Affect The Poor The Most
World Bank economist and co-author of the report “Expanding and increasing transfers of the Livelihood Empowerment Against Poverty (LEAP) could ensure the poorest are able to cope and build resilience to future shocks”, Kwabena Gyan Kwakye, also noted that macroeconomic shocks, particularly inflation tend to affect the poor the most. He averred that the next two years will be very tricky for Ghana’s poverty reduction efforts. “Without bringing the economy back on track, no meaningful poverty reduction can happen. Concurrently, safety nets to protect the most vulnerable need to be enhanced to ensure sustainable poverty reduction and shared prosperity,” he said.
The report also indicated that high inflation in 2022 has had significant effects on food security and poverty in Ghana and has eroded the purchasing power of Ghanaian households, leading to a deterioration in living standards and ultimately, worsening poverty and food insecurity.
Meanwhile, simulations suggested that in 2022 nearly 850,000 Ghanaians were pushed into poverty due to rising prices and the loss in purchasing power.
“In the longer term, to mitigate the impact of inflation on food security, policymakers must enable farmers to adjust to global demand and take advantage of market opportunities” said Ashwini Sebastian, Senior Agricultural Economist, and co-author “This is particularly relevant since many of the poor are farming households. Policies should therefore be evidence based and aimed at alleviating the different constraints farmers face.”
Kwabena Gyan Kwakye
Medium-to-long term policy actions may include the channelling of investments in agriculture research and technology transfers to help increase productivity and reduce production costs, as well as improve the quality and safety of food.
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