Reviving the Ghanaian economy, which is contending with stagflation, low Gross Domestic Product (GDP) growth, high levels of debt, and fiscal deficits, is indeed a complex and challenging task.
Like many other countries facing similar issues, Ghana can pursue short-term and long-term strategies to reform its economy toward sustainable growth.
Here are some key steps to consider:
1. Fiscal and debt management:
Debt Restructuring: Negotiate with creditors to restructure and extend debt maturities, allowing for more manageable repayments and reduced interest rates.
Finance Minister Ken Ofori-Atta, during the presentation of the 2024 budget statement, described the Domestic Debt Exchange Programme as done and dusted.
According to him, “We have successfully concluded the Domestic Debt Operations and are making steady progress on external debt restructuring”.
This is after the nation underwent five exchanges under the DDEP with an overall exchange of GH₵203.4 billion, resulting in a breathing space of GH₵61 billion over 2023.
The Finance Ministry, in their investor presentation in October 2023, indicated that “no further exchanges are being considered” as far as the completion of the DDEP is concerned.
The external debt restructuring parameters involve bilateral debt and commercial debt (Eurobonds). The external restructuring is to complement the DDEP as part of efforts to achieve a sustainable debt level.
Austerity measures: Implement fiscal discipline by reducing non-essential government spending, eliminating wasteful subsidies, and improving the efficiency of public services.
Revenue diversification: Expand the tax base, improve tax collection, and introduce new sources of revenue, such as value-added tax (VAT) and property taxes. In Ghana, the current standard VAT rate stands at 15% for all transactions within the country unless specific exceptions apply. This rate has been in effect since the first quarter of 2023, following the amendment of the VAT Act.
Transparency: Improve transparency and accountability in government spending to build public trust and attract foreign investment.
2. Monetary policy:
Inflation Control: The central bank should continue to employ tight monetary policy to combat inflation, which is often associated with stagflation. Ghana’s annual consumer inflation rate slowed to a 14-month low of 35.2% in October 2023, down from 38.1% in September.
The latest inflation rate is the lowest since September 2022.
Interest rates: Maintain favourable real interest rates to attract foreign investment and encourage savings. At its meeting on 19–21 July, the Monetary Policy Committee of the Bank of Ghana (BoG) increased its monetary policy rate by 50 basis points to 30.00%. The move surprised markets on the upside, as it had been expected that it would once again stay put after holding in May.
Exchange rate management: Maintain a competitive exchange rate to stimulate exports and reduce reliance on imports. The Bank of Ghana interbank exchange rate as of November 17, 2023, is trading at GH₵ 11.56 to a dollar. However, on the forex exchange market, the cedi is trading at GH₵12.67 to a dollar as of the close of business on November 17, 2023.
Bank of Ghana Exchange Rates pic.twitter.com/D9qcDTKOwD
— Bank of Ghana (@thebankofghana) November 20, 2023
3. Structural reforms:
Deregulation: Further liberalize key sectors of the economy, such as energy and telecommunications, to attract private investment and foster competition.
Trade facilitation: Streamline trade processes and reduce trade barriers to boost exports.
Infrastructure investment: Invest in critical infrastructure, such as transportation, energy, and technology, to reduce bottlenecks and improve overall productivity.
4. Human capital development
Education and skills: Enhance education and vocational training to build a skilled workforce to meet the demands of a growing and diversified economy.
Healthcare: Improve healthcare services and public health to increase labour force productivity and reduce health-related costs.
5. Economic diversification:
Reduce the heavy reliance on oil, gold and cocoa exports by promoting other sectors like manufacturing and technology.
Support small and medium-sized enterprises (SMEs) to foster entrepreneurship and innovation.
Investor confidence: Create a stable and predictable investment environment by implementing and enforcing clear and consistent policies and regulations.
Encourage foreign direct investment (FDI) through investment-friendly policies and incentives.
Social safety nets: Implement social safety nets to protect vulnerable populations during economic reforms. For example, increasing the government’s LEAP Program to reduce poverty by improving and smoothening consumption and promoting access to services and opportunities among the extremely poor and vulnerable.
Technology and innovation: Promote innovation and technology adoption to enhance productivity and competitiveness.
Regional and international collaboration: Collaborate with regional and international organizations to access financial assistance, expertise, and market opportunities.
Public awareness and support: Engage with the public, businesses, and civil society to gain their support for economic reforms.
Combatting stagflation and achieving sustainable growth in Ghana will require a comprehensive and coordinated effort from the government, the private sector, and the international community. It will take time, and progress may be gradual, but with the right policies and sustained commitment, Ghana can work toward economic stability and growth.