The ambitious structural reforms initiated by the government of Ghana this year could propel the economy into long-term growth, while lifting the country to a top Low and Middle-Income Country (LMIC) level.
Ghana is undergoing a significant and radical process of changing its economic rules, structure, and institutions to improve its performance, efficiency, and ability to grow. The government is redefining the status quo to establish a new normal, where Ghana achieves lasting and consistent growth, while its status and ratings improve in the international community.
The World Bank recognized this effort by the government and affirmatively declared that indeed Ghana can transform in a generation.
“Ambitious reforms have the potential to transform Ghana within a generation, tripling its per capita income by 2050.”
World Bank
According to the World Bank, “by implementing comprehensive policies and institutional reforms that enhance productivity, improve the quality of infrastructure services, and elevate human capital and workforce skills, the country can sustain economic growth exceeding 6.5 percent, fully offsetting headwinds from demographic trends and the decline in natural resources.”
This path will elevate Ghana among the top performers in the Lower-Middle-Income Country (LMIC) group in terms of productivity, public and private investment, human capital growth, and labor force participation. Even with moderate reform efforts, economic growth can still be maintained at 5.5 percent, the Bank alluded.
Ghana’s Ambitious Structural Reforms
Ghana’s reforms are significant – long-term changes in a country’s economic and governance systems – and they are a key part of its recovery program supported by the IMF. These reforms are focused on restoring fiscal discipline, enhancing resilience to economic shocks, and improving governance, with specific measures including modernizing tax administration, strengthening public financial management, and addressing weaknesses in the energy and cocoa sectors.
One of the key objectives of Ghana’s current IMF-support program was to implement ambitious structural reforms in specific areas of the Ghanaian economy.
The government has successfully laid the foundations for the necessary reforms to give the country a different outlook and direction. The reforms will translate the economy from an input-based growth to a productivity and development focus.
“Ambitious reforms have the potential to transform Ghana’s economic growth model from the one based on factor accumulation and natural resource depletion to the one driven by productivity and human capital.”
World Bank
An expert remarked that a reform can be structural but ‘timid’ (small changes to an existing regulation), or it can be ambitious but not structural in its goal (change the fundamental ‘fabric’ of the economy). However, in policy discussions, the most effective structural reforms are often those that are implemented ambitiously.
The government of Ghana is treading on an exciting and intensive path to long-term growth and to becoming a top LMIC country. Caution is, however, given to avoid complacency, but rather promote hard work, discipline, transparency, and focus.
Projected Impact of Ambitious Structural Reforms
The World Bank has projected the potential outcome impact of Ghana’s current ambitious structural reforms.
Ghana’s ambitious structural reforms, if effectively implemented, can, within a generation, significantly boost GDP growth, adding 1.2 percentage points to the baseline (that is, business as usual without reforms). Ghana’s total factor productivity can be elevated in non-resource sectors to the level of the top LMIC performers.
Furthermore, ambitious reforms that augment the quality of education and human capital to attain the level of the top LMIC performers can gradually increase GDP growth starting in 2035, to achieve an additional 0.8 percentage points by 2050 as the graduates join the workforce.
According to the World Bank, if the government can increase the investment rate (inflow into the economy to support in-house productivity) from 20 percent to 25 percent, then GDP growth can progressively contribute above the baseline starting in 2031. This increase in investment can yield a 0.4 percentage point contribution to GDP within ten years, eventually tapering to a 0.2 percentage point contribution in 2050 due to diminishing returns to capital.
Again, reforms that lead to implementing policies and economic conditions that encourage a larger percentage of the working-age population, to either be employed or actively seeking work, will match or exceed the participation rates observed around the year 2000. Reversing the decline in Labor Force Participation, especially for females, can add an average of 0.3 percentage points to GDP growth over the next 25 years, partially offsetting demographic challenges.
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