Ghana’s economic indicators are on a positive trajectory for 2024 and beyond, according to the World Bank’s 8th Economic Update for Ghana, titled “Strengthening Domestic Revenue Systems for Fiscal Sustainability.”

Despite recent challenges such as an accelerating pace of exchange rate depreciation and slower-than-expected inflation reduction, the report highlights Ghana’s substantial progress in addressing the severe macroeconomic imbalances that emerged in 2022.

Over the past year, Ghana has made significant strides towards restoring fiscal and debt sustainability, reducing inflation, and strengthening financial stability. The lingering effects of previous macroeconomic challenges have resulted in modest growth in 2023 at 2.9%, which, while low, surpassed initial projections.

Inflation also saw a considerable decline, falling to 23.2% in December 2023 from a peak of 54.1% in December 2022. This progress is largely attributed to the Bank of Ghana’s firm monetary policy and more stable exchange rates.

Michelle Keane, the World Bank Acting Country Director for Ghana, Liberia, and Sierra Leone, emphasized the importance of maintaining the momentum of reforms.

“Ghana’s macroeconomic crisis in 2022 has set back poverty reduction efforts, with poverty levels estimated at 30.3% in 2023. It is crucial to maintain the momentum of the reforms, while mitigating the impact on the poor, to help sustain Ghana’s economic rebound. In parallel, we must lay the foundations for more sustainable and resilient economic growth by implementing comprehensive structural reforms to foster economic diversification and promote long-term inclusive growth.”
Michelle Keane

The report emphasizes the need for high-quality fiscal adjustment to minimize the impact on growth, the poor, and vulnerable populations. Key recommendations include reestablishing the fiscal rule, strengthening public financial management, and accelerating revenue mobilization to restore macroeconomic stability and support sustainable long-term growth.

Sector-Specific Reforms

Sector-specific reforms are also crucial to ensure financial sustainability in agriculture and energy, as well as to rebuild capital buffers in the financial sector.

Structural reforms are highlighted as essential for revitalizing growth and fostering economic diversification and transformation. Enhancing infrastructure quality and accessibility can boost trade, competitiveness, connectivity, and productivity.

Additionally, facilitating access to long-term financing and improving the business climate could create a conducive environment for private sector growth. Building human capital and improving service delivery for underserved regions and populations can enhance productivity and attract both Foreign Direct Investment (FDI) and local investment in high-value, labor-intensive manufacturing and services.

“These measures collectively aim to enhance fiscal transparency, accountability, and resilience, ensuring sustainable economic growth; and should be complemented by initiatives to expand targeted social protection programmes to promote social inclusion,” said Kwabena Gyan Kwakye, the author of the Economic Update.

A special focus of the report is on domestic revenue mobilization, noting that Ghana’s tax collection has been low relative to its peers. Between 2017 and 2021, Ghana’s average tax collection was 13.2% of Gross Domestic Product (GDP), well below the Sub-Saharan Africa average and 8.0 percentage points short of the country’s estimated tax capacity of 21.2% of GDP.

The report identifies inefficiencies within Ghana’s tax policy framework and compliance mechanisms that, if addressed, could ensure macroeconomic stability and generate the resources necessary for sustainable long-term growth and poverty reduction efforts.

To enhance revenue mobilization, the report suggests rationalizing large tax expenditures that have contributed to the overall decline of tax revenues. This would involve striking a balance between reducing revenue losses and mitigating potential distributional and social impacts. “Rationalising tax exemptions will entail removing those deemed to be unjustified or falling short of their stated goals. The Ministry of Finance should first assess the impact of Tax Exemption removals on poverty – and suggest appropriate mitigating measures,” said Elijah Gatuanjau Kimani, co-author of the report.