Paris Club debt relief will not solve Ghana’s economic crisis

By Phillip Anjorin
Article Paris Club debt relief will not solve Ghanas economic crisis

According to Ghana Statistical Services, inflation hit a 21-year record of 50.3 percent in 2022, from 7.14 percent in 2019. Like in the early 2000s, Ghana needs help stabilizing its economy. Boosting the country’s internally generated revenues by prioritizing agriculture and digital financial inclusion can be a game changer. The two sectors, in a corrupt-free society, can improve the economy. The Paris Club debt relief will not solve Ghana’s economic issues. Hence, the country must look into its internal resources for sustainability.

As of November 2022, statistics from the Bank of Ghana revealed that the country’s debt-to-GDP ratio stands at 93.5 percent. The high rate means Ghana risks economic slowdown and financial panic in the international market. Experts say the debts were aftereffects of some poorly-timed campaign promises the government fulfilled. For instance, the economy is not buoyant enough to handle the nursing and teacher trainee allowances reintroduced in 2017.

In response, the Nana Akufo-Addo administration has agreed to restructure its external debt to lessen the debt's economic effect. Also, the International Monetary Fund has reached advanced talks with Ghana to provide a $3 billion bailout for their economic policy and reform plans. However, Ghana should think long-term to avoid another fall in financial sustainability.

The government should promote favorable policies on digital finance inclusion to support investment and entrepreneurship in Ghana. The government’s reduction of e-levy on mobile transactions from 1.75 percent to 1 percent on every GH¢100 ($9) in January shows a will to listen to citizens' outcry. However, the rate is still harsh for digital payment users to tolerate.

The service sector alone contributed up to 45.9 percent of Ghana’s GDP in 2021. Considering users’ financial states, digital finance can boost the country’s economy. Nigeria, for instance, charges a one-off 50 (0.5 percent) tax on every 10,000 ($22). Since refining the levy rate in 2020, e-levy has contributed more than $278.8 million to Nigeria’s economy. The revenue breakdown reveals a stark improvement from meager rates in previous years. E-levy payments generated $142.6 million in 2020 alone, compared to $48.6 million in 2019. A reasonable tax rate will be easier to obtain from the ever-increasing sector users in Ghana.

Agriculture can also boost Ghana’s economy. However, agricultural growth has declined in the country since oil production in commercial quantities began actively in 2010. The country currently experiences the Dutch disease, which is the adverse effect of the oil boom on other sectors.

For instance, the agriculture sector’s contribution to the country’s economy has dropped from 23.66 percent in 2011 to 17.32 percent in 2019. Despite its agricultural potential, the government spends $2 billion annually to import essential foods like rice, poultry, and vegetable oil.

Like other African countries that suffer the ‘Dutch diseases,’ Ghana has also surrendered self-sufficiency in agriculture while pursuing ‘oil money.’ Over time, the development imbalance across the sectors depleted the nation’s economic prosperity. The government must return to its ‘good old days’ of abundant agricultural production by investing heavily in the sector.

The agricultural sector alone holds about 52 percent of Ghana’s labor force. Countries like Brazil and Thailand that prioritize agriculture witness steady economic growth.

Public officeholders’ corrupt activities also drain the limited resources that can boost the country’s economy. In 2021, the Ghana Integrity of Public Service Survey report showed that public officials received nearly $422 million as bribes from Ghanaians. Also, the Ghana Integrity Initiative revealed in 2018 that the country loses 30 percent of its GDP annually to corruption.

The government introduced the Office of the Special Prosecutor to counter fraud in 2018. The office’s independence enabled it to investigate over 75 corruption cases, including five high-profile cases, in 2022 alone. Unfortunately, there was a time the government failed to pay the anti-corruption officials their salaries for 17 months. If the Ghanaian government is intentional in its fight against corruption, it must empower the anti-graft agency with the necessary funds to operate.

Many people tout Ghana as an investment hub and a model country for other African nations. But the country’s economic crisis could reverse national development to its earlier days of the 2000s if nothing is done. The government must fight corruption.

Adequate investment and favorable tax policies will also improve productivity in agriculture and the digital sector. Failure to work on the existing loopholes will render external help ineffective, even with Paris Club's intervention.

Phillip Anjorin is a writing fellow at African Liberty.