On May 17, 2023, the International Monetary Fund (IMF) published a comprehensive report on Ghana's prevailing economic challenges. The report goes beyond mere fiscal figures, explaining how the increasing unemployment rates, high-cost food prices, and poor healthcare services touch the lives of Ghanaians. To overcome these challenges, Ghana must restore macroeconomic stability and debt sustainability. To achieve these, Ghana needs to focus on generating revenue internally, adopting the G20 Common framework, and eliminating bureaucracy for entrepreneurs starting businesses.
The IMF report shows that Ghana's economic growth slowed down in 2022. The country’s Gross Domestic Product (GDP)—the total monetary value of all goods and services produced, dipped by 2.9 percent in 2022 from 6.4 percent in 2021. Despite two years of GDP decline, each social expenditure saw less than 4 percent of that GDP allocated to health and education. The outcome is substandard education, health, and social safety, exacerbating income inequality and poverty.
The same report also indicates Ghana’s difficulties in generating sufficient income to meet its yearly GDP projections despite discovering oil and producing gold. Many of these industries, most state-owned, operate inefficiently. Instead of coming up with revenue-generating strategies, the government borrowed from both internal and external bond markets. The result of the reckless borrowing is currently unsustainable levels of debt.
The government’s decision to borrow has had dire consequences on the lives of citizens. Borrowing increased inflation, which entails a general increase in the prices of goods and services. Consequently, the local currency, the Cedi, has experienced depreciation against major foreign currencies. This inflation has forced Ghanaians to close their businesses, increasing unemployment rates.
Also, investors lack confidence in the Ghanaian market because high inflation reduces the actual returns on investors’ money. It means investors lose money if they invest in the Ghanaian market. The excessive borrowing led to the nation negotiating a $3 billion economic bailout with the IMF. The bailout comes after the government completed a similar IMF program in 2019, making this bailout Ghana's 17th return to the IMF.
For Ghana to escape economic recession and avoid future bailouts, the country’s government must take proactive measures.
Ghana should use performance indicators to track its recovery plan. Progress reports offer real-time insights into the plan. Indicators like net international reserves and the present value of newly contracted debt let policymakers gauge impacts and adjust strategies. Net international reserves are foreign exchange reserves left after debt payment. The current value of newly contracted debt is the money that should be paid now to completely repay a debt later, considering a specific interest rate.
For example, if $10,000 is borrowed for five years at 10 percent interest, the present value, $6,209.21, is today's payment to repay in five years. Investing $6,209.21 right now would provide sufficient funds to repay the borrowed $10,000 and interest in five years.
The current value of newly contracted debt helps compare different borrowing options or evaluate the cost of debt. By relying on data-driven insights, decision-makers can make well-informed choices, identifying what aspects of the recovery plan yield positive results and what requires further attention.
Also, the Ghanaian government must actively embrace the G20 Common Framework for substantial economic revitalization. A collaborative approach could open doors to valuable support, guidance, and resources that will ensure the country’s advancement toward sustainable growth.
The G20 Common Framework is designed to address the challenges distressed countries, including Ghana, face. The framework recommends that national governments establish donor coordination frameworks. The purpose is to align development finance programs with a unified national plan and facilitate collaboration among traditional and non-traditional donors. This integrated approach fosters more effective and efficient outcomes for sustainable development.
Lastly, the government should engage the private sector by simplifying licensing procedures and digitalizing government services to foster innovation and efficiency.
Reducing bureaucracy and empowering private enterprises can boost investment and business expansion. Excessive regulations like complex licensing procedures and administrative hurdles, such as the non-digitalization of government services, stifle entrepreneurial initiatives and hinder business growth. The government can encourage more entrepreneurs to enter the market and stimulate economic activity by simplifying the processes for starting and operating businesses. This ease of doing business could help attract domestic and foreign investors.
Ghana’s economic crisis demands urgency on the part of the government. Embracing the IMF recovery plan by adopting performance-based indicators, engaging the G20 Common Framework, and empowering the private sector offers hope for prosperity. Overall, Ghana can overcome the current economic predicament and build a stronger future for its citizens by holding state administrative officials accountable.
Gideon Adjei-Mawutor is a writing fellow at African Liberty.