The International Monetary Fund (IMF) has estimated a decline in external trade and imports for Ghana this year as uncertainties and volatilities continue to wave in the global economy.
The risk assessment matrix from the IMF comes at a time when Ghana reveals considerable potential for further economic expansion, thanks to the hard-earned economic growth and stability achieved in the previous year. This assessment from the IMF is to caution the government of shocks that could disrupt its growth policies.
The IMF suggested some of the risk sources to the Ghanaian authorities, as well as potential mitigation measures to continue building the robust and resilient economy promised to the people of Ghana.
The year, as it has begun, hints at more uncertainties, triggers, and commodity price volatility that can thwart Ghana’s efforts and policy targets and retard progress made.
Geopolitical Tensions
According to the IMF, intensification of conflicts, coupled with the weakening of multilateralism, may trigger commodity price volatility, increase migration pressures, reignite inflation, and weigh on growth by undermining confidence, investment, tourism, trade, and supply chains.
These sectors are specially targeted by the government in its inclusive growth initiatives to trigger expansion and diversification of the economy. The government also aims to provide business growth and jobs for the growing youth population.
The IMF termed these as high risk as they hold the potential of affecting Ghana’s food security. Ghana may not be able to import needed goods, particularly food, and the cost of imports may surge. However, the uncertain environment and investor risk aversion may be suppressed with cushioned programs.
Ghana must continue to build external buffers under the program, while continuing the implementation of its structural reforms to support domestic production, import substitution, and economic diversification. The authorities must improve governance and the business environment to attract investors.
Trade Uncertainty
As uncertainties in economic policies prolong and trade barriers increase, trade, investment, and growth blur. This could cause inflationary pressures, with persisting tax imposition tensions.
Also marked as a high risk, it can potentially cause disruptions in the trade of food, energy, and fertilizer, destroying Ghana’s disinflation trajectory and creating social discontent among Ghanaians as shortages and discomfort grow. Although the US Dollar appears weak in the interim, analysts estimate that it won’t stay weak for long. A stronger US Dollar accompanied by lower FDI, will put pressure on Ghana’s Balance of Payment (BoP).
To mitigate these, the IMF suggests that Ghana should reduce its trade concentration risk in addition to the external buffer build-up. Implement initiatives to boost competitiveness and diversify sectoral output, as well as promote self-reliance.
Commodity Price Volatility
The IMF projects a shift in supply and demand on the global level, driven by the geopolitical tensions and conflicts in commodity-producing countries. Major commodity prices may fluctuate, intensifying external and fiscal pressures, social unrest, and macroeconomic instability.
Flagged also as high risk by the IMF, possible issues with essential commodity imports or their costs remain a threat. A steep drop in commodity prices due to a global slowdown could weigh on Ghana’s exports and growth, raising social tensions in an already difficult economic situation.
With Ghana’s growth gains largely rooted in commodity exports, it raises strong concerns for the country’s economic managers. This could be the single shock that brings the Ghanaian economy to its knees, hence the need to diversify and ensure value addition to maintain a better footing.
The Ghanaian authorities should support domestic commodity production, processing (like fuel and gold refining, cocoa products), and diversification. The authorities must also enhance social protection to shield the vulnerable from price and supply shocks.
Domestic Risks
High living costs, weak growth, and inequality may fuel social unrest, hinder necessary reforms, and weaken Ghana’s capacity to address domestic and external shocks. The authorities must pay close attention to the high social discontent to solicit the support of all Ghanaians in building the economy.
The authorities must take measures to strengthen governance and anti-corruption frameworks, implement orderly fiscal consolidation, and strengthen social and financial safety.
The Fund recognizes the progress Ghana is making on its debt restructuring negotiation and implementation, and urges continuous engagement with creditors and provides needed data and information to mitigate the risk of undue delay to Board approval of program reviews.
Domestic policy slippage is a threat to the country’s own progress and a high likelihood of risk, according to the IMF’s assessment. The Fund, therefore, encourages firm commitment to the implementation of the program to ensure full fiscal and external adjustment, and continued exceptional financing. The authorities should closely interact with development partners to ensure adequate BoP financing.
According to the IMF, if attention is not paid to possible policy slippages with debt sustainability challenges and International Financial Institutions (IFIs) financing delayed, a BoP financing gap would emerge, the exchange rate and FX reserves would come under pressure, and inflation would rise.
The Fund calls on the authorities to successfully follow the programmed revenue path to widen fiscal imbalances with ensuing implications for the achievement of debt sustainability.
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