The African Development Bank Group has forecast Ghana’s economy to rebound at 4 percent in 2021 after the economy suffered setbacks from the COVID-19 pandemic. The AfDB, however, expects growth to rise marginally to 4.1 percent in 2022.

The Bank in its latest forecast launched on Friday, March 12, 2021, described the country’s economic outlook in the short to medium term as good. The Bank expects the positive growth to be contingent on an increase in demand for Ghana’s exports, and improved business confidence.

It also cited the successful implementation of the Ghana COVID–19 Alleviation and Revitalization of Enterprise Support (CARES) program as key to this recovery.

Growth projections by other institutions

Meanwhile, the Bank of Ghana expects the Ghanaian economy to rebound strongly at 5 percent in 2021. Preliminary data from the Finance Ministry show that Ghana recorded a growth of 0.9 percent in 2020.

Last year, the economy contracted for two consecutive quarters by 3.2 and 1.1 percent respectively in the second and third quarters. However, the good news is that even before the arrival of the vaccines, economic activity in the country was showing signs of a rebound.

This is reflected in the country’s growth projections of most of the top-rating agencies and international organizations for the 2021 fiscal year. Some of these include Moody’s Ratings Agency (4%), the World Bank (1.4%), and Cordros Capital (4.2%). Also, the International Monetary Fund (IMF) forecast a 4.2 percent growth for Ghana in 2021.

Other macroeconomic indicators

Meanwhile, the African Development Bank expects inflation to ease to 8.2 percent in 2021 and 8 percent, in 2022. This will fall within the midpoint of the Bank of Ghana’s target band of 6–10 percent. Also, African Development expects the fiscal deficit to narrow to 7.2 percent in 2021 and 5.7 percent in 2022. The Bank expects this to result from an increase in revenue collection as the economy recovers.

Nonetheless, the Bank forecast the current account deficit to widen to 2.8 percent of GDP in 2021 and 3.2 percent in 2022. This is as a result of a rebound in the county’s import volumes to pre-pandemic levels.

Debt sustainability

The Bank warned that downside risks to the outlook emanate from a possible second wave of the virus and heightened fiscal and debt pressures.

“Ghana’s ability to push economic growth to its pre-crisis level is expected to be constrained by fiscal and debt risks. The country is only expected to return to its fiscal responsibility budget deficit threshold of 5% of GDP in 2024”.

The public debt as of the end of 2019 had cost escalation risks because almost 50% of external debt was commercial. It also showed refinancing and foreign exchange rate risks, since 90% of the domestic debt has short- to medium-term maturities. The Bank said that the US Dollar dominated 70% of Ghana’s foreign currency debt.

Financing options

To overcome these risks, the government must complement domestic resource mobilization needs with external financial assistance, including concessional loans.

Also, the Bank urged the government to actively engage its creditors in exploring other financing options. This should include renegotiating and restructuring debt, and debt service suspension. The Bank added that the government of Ghana should do this while maintaining the foreign exchange reserves buffer.

Projections for Africa

Meanwhile, the Bank projects a 3.4% growth for Africa in 2021 after the continent contracted 2.1% in 2020. The Bank’s President, Dr. Akinwumi A Adesina, called for the need to recognize the fundamentals of Africa’s debt burden and prioritize it . The outlook however faced major risks due to skyrocketing debts on the continent.

“We need to address Africa’s debt and development finance challenges in partnership with the international community. Much larger financial support is needed, and private sector creditors need to be part of the solution. The time for one last debt relief drive for Africa is now”.
Dr. Adesina