Ghana’s economic recovery is projected to remain sluggish over the next five years, with real Gross Domestic Product (GDP) growth staying significantly below pre-crisis levels until at least 2029.
This concerning forecast, revealed in a report by the Institute for Fiscal Studies (IFS), poses serious challenges to job creation and employment generation, especially among the country’s youth.
According to the IFS, Ghana’s GDP growth rate is expected to range between 4.0% and 5.0%, with an average annual rate of 4.4% from 2024 to 2029. This projection falls short of the robust growth seen before the economic downturn, raising concerns over the nation’s ability to absorb its growing labor force. The economic think tank has urged the incoming government to take strategic action to bolster growth beyond current projections to mitigate unemployment.
“The Institute is, however, aware of the country’s weak fiscal position. We therefore recommend that the government approaches this through expenditure prioritization in favor of critical real sectors. We recommend first and foremost the agriculture sector.”
IFS
The Case for Agriculture-Led Growth
The IFS highlights agriculture as a key sector with the potential to stimulate accelerated economic growth and create mass employment. Given Ghana’s natural endowments, including favorable weather conditions and significant arable land, the sector has the capacity to support large-scale agricultural production.
The report points out that Ghana’s agricultural land spans approximately 126,037.4 square kilometers as of 2021, according to World Development Indicators (WDI) from the World Bank. This vast land area, combined with the country’s favorable climate, presents a strong foundation for agricultural expansion.
The IFS argues that investment in agriculture could serve as a catalyst for economic transformation. By focusing on modernizing the sector, enhancing productivity, and improving value addition, Ghana could drive inclusive growth while addressing unemployment challenges. This would require a strategic shift in government spending toward agriculture and related industries.
The Need to Reset Ghana’s External Sector
Beyond the real sector, the IFS also calls for a fundamental reset of Ghana’s external sector, particularly in terms of the ownership structure of the country’s two major merchandise exports.
Ghana’s merchandise exports have historically played a crucial role in shaping trade and current account balances. However, the IFS notes that export performance has had little impact on the strength of the cedi relative to foreign currencies.
Between 2017 and 2019, Ghana’s average annual merchandise exports stood at $14.815 billion. During this period, the trade balance averaged $1.751 billion, while the current account balance stood at a deficit of $1.970 billion. Despite these figures, the cedi depreciated against the US dollar at an average rate of 8.7% annually.
In 2020 and 2021, average merchandise exports declined slightly to $14.6 billion, leading to a worsening trade balance of $1.571 billion and a further deterioration in the current account balance to a deficit of $2.338 billion.
The IFS argues that the exchange rate depreciation is not significantly influenced by merchandise exports or their impact on trade and current accounts, at least within the period under review. Instead, the Ghanaian government has largely relied on international borrowing to manage the stability of the cedi.
Rethinking Economic Strategies
With economic growth projected to remain below pre-crisis levels, the IFS report underscores the need for the government to rethink its economic policies. The recommendation to prioritize agriculture aligns with broader calls for economic diversification and self-sufficiency.
Additionally, addressing Ghana’s external sector challenges requires structural changes, particularly in how export revenues are managed and reinvested into the local economy. A shift toward increasing local participation in key export industries could enhance Ghana’s ability to retain foreign exchange earnings and stabilize the cedi in the long term.
As Ghana prepares for a new phase of economic governance, the IFS’s recommendations highlight critical areas requiring urgent intervention. Whether the government heeds these calls and takes bold steps to revitalize growth will determine the country’s economic trajectory in the coming years.
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