Ghana gained 0.6 points on its overall score in the 2022 economic freedom index, making the West African nation the 9th freest economy among 47 countries in the Sub-Saharan Africa region.
Ghana’s economic freedom score of 59.8, ranks its economy the 89th freest globally in the 2022 Index and its overall score is above the regional average but below the world average. With an overall score of 70.9, Mauritius is currently the freest economy in SSA, according to the index released by The Heritage Foundation, a Washington-based think tank.
Ghana has made significant strides in economic freedom since 2017, and has since moved to the top of the ‘Mostly Unfree’ category, despite a “collapse” in its fiscal health.
“Over the past five years, Ghana’s economic growth had been decelerating, but it turned upward in 2021. The expansion of economic freedom over the same five years has resumed its upward trajectory. Aided by significantly higher scores for rule of law (property rights, judicial effectiveness, and government integrity), Ghana has recorded a 3.6-point overall gain of economic freedom since 2017 and has climbed to the top of the ‘Mostly Unfree’ category. The burden on the economy from taxes and government spending is relatively light, but fiscal health has collapsed”.
The Heritage Foundation
According to The Heritage Foundation, COVID-19 dealt a massive blow on Ghana’s economy and the think tank ranked government’s response to the crisis 99th among the countries included in its Index in terms of its “stringency”. The ranking takes into consideration four major variables: rule of law, regulatory efficiency, government size and open markets.
Rule of Law
The Heritage stated that property rights in Ghana are recognized and enforced, but the process for getting clear title to land is often difficult, complicated, and lengthy. The think tank also highlighted the prevalence of corruption among the public service and the judicial system.
“Ghana’s legal system is based on British common law and local customary law. There is a history of government intervention in the court system, which suffers from a lack of training as well as delays and inadequate resourcing. Bribery is most pervasive in the judicial system and across public services”.
The Heritage Foundation
Nevertheless, Ghana made some gains in the rule of law in this year’s rankings. Property rights score rose to 60.7, judicial effectiveness recorded a score of 57.0, and government integrity improved to 45.4.
Government size
The Heritage Foundation measured government size using the tax burden, government spending, and fiscal health. With regards to tax, the Heritage stated that the top individual income tax rate has been cut to 30 percent, and the top corporate tax rate is 25 percent. Other taxes include value-added and capital gains taxes.
Per the report, the country’s tax burden score remained unchanged at 82.2, but government spending score declined to 83.8, whilst the fiscal health score also declined to 7.8.
“The overall tax burden equals 14.1 percent of total domestic income. Government spending has amounted to 23.2 percent of total output (GDP) over the past three years, and budget deficits have averaged 10.1 percent of GDP. Public debt is equivalent to 78.0 percent of GDP”.
The Heritage Foundation
Regulatory efficiency
All the indicators under regulatory efficiency deteriorated in this year’s ranking. Business freedom score declined to 60.9, labour freedom dropped to 55.4 and monetary freedom also declined to 70.8.
The Heritage Foundation stated that Electricity is administered through an inefficient state-owned power distribution system and “Bureaucracy is onerous, and there is a general lack of government transparency”.
The think tank indicated in its report that the fact that about one in three Ghanaians is illiterate, limits the country’s productivity. It further noted that the government is trying to divest 27 highly indebted and loss-making state-owned enterprises including the Tema Oil Refinery, Electricity Company of Ghana, and Ghana National Petroleum Corporation, as part of measures to improve their efficiencies.
Open markets
According to The Heritage Foundation, Ghana has four preferential trade agreements in force. The trade-weighted average tariff rate is 11.0 percent, and five non-tariff measures are in effect. “The government generally does not discriminate against foreign investors except in key sectors, but the overall investment regime lacks efficiency and transparency. The financial sector has undergone restructuring, but access to financing remains limited”, the think tank stated.
Under open markets, the trade freedom score improved to 63.0, however, investment freedom and financial freedom scores of 70.0 and 60.0, respectively, remained unchanged. Currently, Ghana is Africa’s biggest producer of gold and second-largest producer of cocoa in addition to being rich in diamonds and oil.
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