Ghana stages remarkable turnaround with growth steady and inflation down
Ghana has undergone a remarkable turnaround under its new administration. Under the previous rule, Ghana’s economy was left struggling against low and erratic GDP growth, punishingly high inflation and a troubling debt to GDP ratio. Its fiscal deficit routinely exceeded 8%.
When the New Patriotic Party took office at the end of 2016, it did so on a wave of hope for economic improvements.
Ken Ofori-Atta’s legacy may well be the successful conclusion of an ambitious programme of IMF reforms, allowing Ghana to exit its IMF programme in April 2019.
Ghana entered the programme in 2015, when its tumbling currency made its debt obligations unsustainable. The programme has left Ghana’s lenders much better capitalised, with the ability to support growth through lending.
Ofori-Atta oversaw the establishment of the Fiscal Council and Financial Stability Council to ensure the non-reversibility of the reforms. The fiscal council should ensure Ghana’s fiscal deficit does not exceed 5%, and that its debt to GDP ratio is kept below 65%.
The results have been vastly improved economic fundamentals. Annual GDP growth has steadied at around 6%, inflation has plummeted from 19% in 2016 to around 8% in September 2019, comfortably inside the Ghanaian central bank’s target rate. The fiscal deficit was down to 3.8% in 2018.
The vulnerability entailed in Ghana’s high level of external indebtedness is still constraining its credit rating, as ratings agencies are concerned about the vulnerability of the Ghanaian cedi. But while the country’s currency has weakened steadily over the past few years, thanks in part to the growing strength of the dollar, its instability has markedly reduced.
Work remains to be done. The finance ministry, with Ofori-Atta at the helm, is still working hard to eradicate corruption and to improve its tax collection, but the international investment community is impressed. A head of country research at an emerging markets focused investment house said: “The degree to which the country’s economy has been turned around — restoring economic growth, bringing inflation under control and controlling public indebtedness — in the four years since it entered the IMF programme has been nothing short of remarkable.”