Today marks another significant day in the history of Ghana as the country commemorates its 64th Independence Anniversary. This day does not only represent a celebration of a country’s ability to take its own decisions. But it’s an occasion of stock-taking of past events, reviewing present situations, and carefully planning for the future. Ghana has gone through an arduous journey of relentless efforts in the past 64 years. This, therefore, makes the economic history of the country very interesting – full of lessons for the current and future generations.
State of Economy between 1957-1967
Ghana had a relatively stable and prosperous economy after gaining independence from Britain in 1957. It was the world’s leading producer of cocoa and among the fastest-growing economies in Sub-Saharan Africa.
The Convention People’s Party (CPP) rolled out the policy of import-substituting industrialization. The aim was to produce import substitutes as well as process many of Ghana’s exports.
Nkrumah’s plans were ambitious and grounded in the desire to reduce Ghana’s vulnerability to world trade. He tried to move Ghana from a primarily agricultural economy to a mixed agricultural-industrial one. The CPP did all these under its socialist ideology.
Nkrumah relied on cocoa revenues to secure funds for the establishment of industries. Regrettably, the price of cocoa collapsed in the mid-1960s. This destroyed the fundamental stability of the economy. The trade balance deteriorated, the country recorded a poor credit rating and a fall in the saving/GNP ratio from 18% in 1958 to 8% in 1966.
Unsurprisingly, Ghana recorded three consecutive years of zero or negative growth in per capita GDP between 1964 and 1966. The economy contracted by 4.3% in 1965 with inflation averaging 22.7%.
Meanwhile, Pervasive corruption exacerbated these problems. Consequently, a group of military officers overthrew Nkrumah in February 1966.
State of Economy between 1968-1978
Ghana’s economic challenges continued to escalate following the overthrow of Dr. Kwame Nkrumah. The period under the National Liberation Council (NLC) and the Progress Party (PP) was a difficult time for the country.
The country’s debt soared coupled with weak commodity demand and currency overvaluation. The ideological stance of the NLC and PP was pro-private capital contrary to Nkrumah’s “socialist” policies. They introduced IMF-sponsored monetary reforms, devalued the currency, and liberalized the external sector.
The NLC rolled out disinflationary policies aimed at stabilizing the macro-economy. There was a reduction in domestic investment, tighter control over import licenses, and a devaluation of the Cedi.
The objective of stabilization was largely achieved. GDP growth increased from –4.3% in 1965 to 6.0% by 1969 and averaged 7.0 % during 1969-71. The balance of trade moved into surplus and the current account and government budget deficits were also reduced. Inflation fell from 22.7% in 1965 to 6.5% by 1969, and to 3.0% by 1970. By 1972, the economy experienced reduced growth and increasing fiscal and current account deficits. The progress made had retrogressed significantly as the economy returned to almost its state in 1965.
State of Economy between 1979-1989
This period marked one of the most difficult eras in the history of Ghana. In the early 1980s, the economy neared a total collapse. This period was characterized by high inflation, a decline in tax revenues, a fall in wages, and rising current account deficits. Inflation went to a record high of 116.5% in 1981. Productivity, imports, government resources, and overall living standards declined significantly.
The current account deficit of US$ 2.7 million in 1975 increased to US$ 294 million by 1983. This resulted in the depletion of gross international reserves. It also led to an accumulation of external debts with arrears amounting to 90% of annual export earnings in 1982.
In 1983, there was a combination of a severe Sahelian drought, sporadic bush fires, huge capital flights, and continued deterioration of the economy. The mass deportation of over one million Ghanaians from Nigeria in 1983 compounded the precarious situation.
This forced the Provisional National Defence Council (PNDC) to seek help from the World Bank and IMF. This led to the rollout of the Economic Recovery Program (ERP). It also marked the beginning of Ghana’s reforms. The April 1983 budget contained a significant devaluation of the Cedi and an increase in the prices of basic food-stuffs.
The ERP emphasized the promotion of the export sector and fiscal restraints to eradicate budget deficits. The effects of the ERP on the domestic economy, however, led to a lowered standard of living for most Ghanaians. Nevertheless, the PNDC gained the support of the international financial community for adhering to the conditions of the program.
Consequently, in January 1989, the government introduced the Program of Action to Mitigate the Social Costs of Adjustment (PAMSCAD). This program served as a safety net for population groups vulnerable to the effects of the economic reforms.
State of Economy between 1990-2000
Although the Economic Recovery Program (ERP) of the 1980s was largely successful, it began losing its luster by the middle of the 1990s. At this time, the economy, which was heavily dependent on foreign aid was beginning to lose steam and thus required rerouting its route.
Ghana’s growth slowed down to 3.3% in 1990, averaging 4.16% between 1990 and 1993 as compared to as high as 8.65% GDP growth in 1984. Other macro trends such as inflation averaged 29.1% between 1990 and 1995.
However, from 1996 to 1999, the inflation rate experienced a persistent decline averaging 25.37%. The fiscal balance moved from a surplus of 1.8% of GDP in 1991 to a deficit of 4.9% of GDP in 1992. And the deficit further shot up in 1996, due to election-related expenditure by the government. The net present value of long-term debt in Ghana was approximately US$3.8 billion in 1998, representing 187% and 51% of exports and GNP respectively.
As a result, the government implemented several medium to long-term frameworks to build growth momentum again. This included the implementation of the Medium-Term Expenditure Framework (MTEF) to consider expenditure within a three-year period.
Also, the government set up the National Development Planning Commission (NDPC) in 1990 mandated to consolidate the gains achieved by the Economic Recovery Program (ERP) and set a new path for development in the 21st century.
This would later prepare grounds for the emergence of the first phase of the Ghana Vision 2020 from 1993-1996. This was aimed at transforming the country into middle-income status within the next twenty-five years. It was also within this same period, precisely in 1992 that Ghana’s democracy was birthed and a new constitution formed to transition the country from military rule to a democratic rule.
State of Economy between 2001-2011
After the 2000 elections, the new government discontinued the Ghana Vision 2020 by the previous regime and instituted a new framework instead in 2001. The new replacement was the Ghana Poverty Reduction Strategy (GPRS I: 2002-2005), which focused on poverty-related spending and redistributive policies. Another version of its kind was the GPRS II: 2006-2009, which focused on a growth-led poverty reduction path and ultimately poverty eradication.
The Debt-to-GDP ratio reached an all-time high of 79.2% in 2000. Like a thunderbolt, the new government declared the country HIPC (Highly Indebted Poor Country) and Ghana had its debts canceled. This declined substantially to 41.2% in 2004 due to the HIPC relief offered to the country. Subsequently, the debt-to-GDP ratio reduced to as low as 18.6% in 2006.
Surprisingly, despite the help offered by the Bretton Wood institutions for the country to engineer its way out of the crisis that had been brewing since the 1960s, debt levels begun pacing up afterwards. Despite the reforms over the past years, the country’s debt levels still went beyond sustainability.
Following the trend of one government charting its development path from another, the change in Government in 2009 was not an exception. The Ghana Shared Growth Development Agenda (GSGDA I: 2010-2013) became the main development framework employed.
The country’s GDP growth trajectory began pacing up from 4.0% in 2001 to 14.05% in 2011, about 10% growth difference within the decade. The high shoot in growth in 2011 was propelled by the country’s discovery of oil in commercial quantities and onward exploration.
State of Economy between 2012-2021
Within this period, GDP growth began backpedalling from the peak in 2011 to its lowest ebb for nearly three decades in 2015, registering as low as 2.18%. This turn of events was due to a combination of factors ranging from declining commodity prices, energy rationing, and a fiscal crisis in 2013.
This notwithstanding, it was in the year 2015 that Ghana became the first sub-Saharan African country to have met goal 1 of the Millennium Development Goals (MDGs) when it halved extreme poverty levels.
Since 2015, Ghana’s GDP has gradually picked up reaching 8.14% in 2017. Inflation, on the other hand, declined from 17.45% in 2016 to 7.18% in 2019, after the rebasing of the economy. In 2019, the depreciation of the cedi featured prominently, registering a fall of 12.9%. Also, the fiscal deficit was 4.7% below the ceiling of 5% as stipulated by the Fiscal Responsibility Act (FRA).
However, macroeconomic targets for 2020 were derailed as the COVID-19 pandemic destabilized the country’s finances. COVID-19-induced expenditures soared the country’s Debt-to-GDP ratio beyond sustainable levels at 74.4% in November 2020. The fiscal deficit was forecasted to grow at 9.6% at the end-2020 while GDP grew at 1.9%.
Although, the country seemed to have come out of what was deemed a precarious situation, entering 2021 with fears of a resurgence of the pandemic led to bans on social gatherings and other essential economic activities in the hospitality industry.
With the influx of the COVID-19 vaccine and the ongoing dissemination, the country’s growth is projected to bounce back to close to pre-pandemic levels. And the return to a fiscal consolidation path in the medium term has begun unfolding.
Today is another call for all and sundry to brace-up and fight for economic independence and prosperity for the future generation.
HAPPY 64TH ANNIVERSARY TO MOTHER GHANA FOR ITS UNRELENTING FIGHT FOR ECONOMIC RESILIENCE AND FREEDOM!!!
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