Global and Regional Context

The world economy is at a very difficult juncture and there are fears that it risks falling into a recession. This has been the result of overlapping negative shocks of the pandemic, the Russian Federation’s invasion of Ukraine as well as the rapid and synchronous monetary policy tightening around the world, including across advanced economies. Although necessary for price stability, it has contributed to a significant tightening of global financial conditions, and a substantial drag on economic activity. This is compounding the long-term effects of the adverse shocks of the past three years that have led to substantial losses, particularly for Emerging Market and Developing Economies’ (EMDE) investment and output. These losses could grow larger if downside scenarios materialize.

Russia’s invasion of Ukraine led to disruptions in exports of key food commodities, which exacerbated food price inflation in many poor and vulnerable countries, with exchange rate depreciation adding pressure on domestic prices. High food prices have increased food insecurity, including for children, which could lower long-term productivity as malnutrition early in life can permanently impair learning abilities.

In addition to trade disruption, rising violence and adverse weather events have led to more disruptions, especially in farming, deepening food insecurity and heightening famine risks in several Low-Income Countries. Climate change may further increase food insecurity in regions with large numbers of subsistence farmers that lack the resources to adjust production. In the case of Ghana, food production is directly affected by climate change while food supply from the northern borders is threatened by conflicts in the Sahel region. Rising food prices, even if temporary, can cause long term damage to education, health, and income.

Global growth is projected to decelerate to 2.1 percent in 2023 from 3.1 percent in 2022 amid continued monetary policy tightening to rein in high inflation, before a tepid recovery in 2024, to 2.4 percent. The pace of growth would be the third weakest in nearly three decades, only next to the episodes of global recessions caused by the pandemic in 2020 and the global financial crisis in 2009. Growth in advanced economies is set to decelerate substantially for 2023, to 0.7 percent, and to remain feeble in 2024, due to monetary tightening, less favorable credit conditions, softening labor markets, and still-high energy prices. In EMDEs, aggregate growth is projected to edge up to 4 percent in 2023, almost entirely due to a rebound in China following the removal of strict pandemic-related mobility restrictions.

In Sub-Saharan Africa (SSA), growth will further slow to 3.2 percent in 2023 from an estimated 3.4 percent in 2022, reflecting various country-specific challenges and heightened external economic headwinds. While many economies across the region are still coping with repercussions of earlier adverse economic and climate shocks, recoveries have slowed due to weaker external demand, further tightening of global financial conditions and domestic policy tightening. Food price increases, which accounted for more than half of overall inflation, pushed average inflation in SSA to 13 percent—almost three times above its pre-pandemic rate.

The slowing growth, persisting high inflation and tightening financial conditions amid high levels of debt increase the risk of stagflation, financial strains, continued fiscal pressures, and weak investment in many countries. In addition to the risks around monetary tightening and global financial conditions, several other developments could worsen the trajectory of the global economy. First, the collapse of multiple banks this year highlights the possibility of more disorderly failures, which could lead to systemic banking crises and protracted economic losses. In addition, higher or more persistent inflation—especially, more persistent core inflation—could trigger further monetary tightening. In the longer term, the slowdown in the fundamental drivers of growth may be exacerbated by trade fragmentation and climate change.

Recent economic developments  

Ghana’s growth performance has been strong over the past decades, but the quality of growth has not improved, and recent macroeconomic hardships have taken a toll on the growth momentum. Pre-COVID, real GDP grew at an annual average of 6.1 percent (2017–19), thanks to robust expansion in the oil and gas sector. Following a period of economic turbulence after the discovery of oil and gas in 2007, Ghana implemented a series of effective macroeconomic reforms (between 2015 and 2018) such as fiscal consolidation program, consistently tight monetary policy stance that helped narrow the headline fiscal deficit to below 5 percent of GDP while inflation fell from 14.1 percent in 2015 to 7.1 percent in 2019.

On the external sector, robust export growth (of gold, cocoa, and oil) put the merchandise trade balance into surplus and contributed to reducing the current account deficit from 5.8 percent of GDP in 2015 to 2.7 percent in 2019, while service exports and FDI inflows grew rapidly during this period. However, the momentum behind these reforms started to wane after 2018, and macroeconomic management became less effective.

Fiscal Sector

Ghana’s fiscal deficit remained elevated in 2022. Even though some fiscal adjustment happened in 2022, it fell short of the authorities’ consolidation targets. The budget’s flagship revenue measure – the electronic levy (e-levy) missed targets by over 90 percent due to inadequate design and implementation delays. Furthermore, the government was unable to enforce large across-the-board expenditure cuts, while ministries, departments, and agencies (MDAs) undertook larger expenditure commitments than allowed within their budgetary allocations and allotments.

Fiscal consolidation efforts were hampered by budget rigidities and inadequate expenditure controls, leading to recurring arrears accumulation. The government continued to face elevated spending pressures from interest payments (7.1 percent of GDP), compensations of employees (6.2 percent of GDP) and statutory transfers (4.6 percent of GDP) leaving little room for discretionary expenditure and limiting the scope for consolidation.

Macroeconomic outlook and risks 

Growth is expected to decelerate further in 2023 and 2024 as macroeconomic instability, deleveraging in the financial sector, and tighter fiscal and monetary policies dampen aggregate demand and slow down non-extractive GDP growth. In the short-term, growth is expected to slow further to 1.5 percent in 2023 and remain muted in 2024 at 2.8 percent.

High inflation, general macroeconomic uncertainty, and elevated interest rates will keep private consumption and investment growth below pre-pandemic levels, leading to a suppressed nonextractive growth. However, extractives will be relatively resilient and offer counterbalancing support to growth with the opening of large new gold mines and a recovery in small scale gold mines, as well as a planned expansion in oil and gas production.

Agriculture growth is projected to remain modest because of high input prices and a disease affecting cocoa trees, while services growth will be impacted by the erosion in the purchasing power of consumers. Growth will begin to recover to its potential after 2025, as the drag from fiscal consolidation fades out, the macroeconomy stabilizes, structural reforms start bearing fruit and consumer and business confidence recovers.

The government’s 2023 budget sets forth an ambitious fiscal consolidation plan, combining both expenditure and revenue measures. The 2023 Budget Statement set the overarching goal of “resetting the economy and restoring macroeconomic stability”. The fiscal deficit (on a commitment basis) is projected at 7.5 percent of GDP in 2023 (this remains above the level mandated under Ghana’s fiscal rule – 5 percent of GDP – which will only be achieved in 2027 in the absence of debt restructuring.

In 2023, the authorities intend to finance the fiscal deficit from multilateral and other official sources, in the context of the IMF-supported program, and from the domestic T-bills market. The local bond market remains closed for securities with maturity beyond 1 year, following the domestic debt exchange program, and Ghana has lost access to the international capital market since 2021.

Disaggregating inflation-poverty impact channels during 2022 

Inflation does not affect all goods or services equally: so, its impact on households depends on which prices rise relatively more and how important they are for specific households. During 2022 all prices rose, implying that most households became worse-off. On average, between 2021 and 2022, the prices of goods and services increased by 32 percent and average prices for all classification of individual consumption by purpose (COICOP) categories experienced a stark price increase.

Russia’s invasion of Ukraine exacerbated preexisting pressures on food prices. Prior to the COVID-19 pandemic a massive locust swarm affected the cultivation of crops and livestock-feed across Africa. The pandemic exacerbated the impact of this via labor shortages (linked to restriction of movement) and a shift in food demand. The war in Ukraine further exacerbated these pressures as Russia and Ukraine are large exporters of foodstuffs, fertilizer and fuel. Between June 2021 and July 2022, palm oil and wheat prices rose by over 60 percent. During the same period, fertilizer prices, which are an essential input to agriculture, more than doubled.

The food production situation in Ghana during 2022 was mixed: some crops experienced a drop in while others saw an uptick. On the one hand, overall cereal production was depressed by lower production of high-output maize and millet. On the other hand, the production of starchy staples like yam and cassava, as well as legumes, increased. Many small farming households had to purchase food on the market because their production was reportedly impacted by dry spells (31 percent according to the FSNMS survey), crop pests and diseases (22 percent), civil insecurity (21 percent), effects of COVID-19 (21 percent) and floods (12 percent). Additionally, the country’s dependence on food imports for certain items (e.g., rice, wheat, and poultry) contributed to inflationary pressures, particularly as the price of these items increased on the international market and the cedi depreciated.