AfDB report tells Ghana to pursue reforms aimed at strengthening macroeconomic stability
A report released by the African Development Bank (AfDB) has recommended that Ghana pursue reforms aimed at strengthening macroeconomic stability and supporting structural transformation efforts.
The report identified and explained three factors that caused the low level of structural transformation in Ghana’s economy.
First, it said, jobs in Ghana are concentrated and moving to the least productive sectors (personal services, agriculture, wholesale and retail, and manufacturing).
Second, it added, Ghana underexploits the factors favorable to structural transformation: the quality of institutions is deteriorating, the low diversification of exports limits the benefits of trade openness, the country lacks infrastructure, human capital is moderately developed, and urbanization has failed to bring about the expected structural transformation.
“Third, the country faces bottlenecks linked to the predominance of the informal sector, the high vulnerability to climate change, the limited access and high cost of credit, and the high share of young NEET,” it said.
The report indicated that since the 1990s, Ghana has experienced sustainable economic growth, but this growth has been associated with weak structural transformation and recently has become unstable.
The report said Ghana moved from low-income to lower middle-income country status in 2010, thanks to oil production and sound and stable policies.
The post-COVID-19 economic recovery was weak, with real GDP growth moderating to 3.8 percent in 2022, from 5.1 percent in 2021, and estimated at 2.9 percent in 2023, primarily due to macroeconomic instability, tightening global financial conditions, and the spillover effects of multiple shocks, it said.
These shocks led to a sharp depreciation of the Cedi and a debt crisis in December 2022, it added.
The report released on Wednesday, July 31 observed that financial needs for structural transformation in Ghana are huge but within reach.
To accelerate its structural change and catch up with the best performing developing countries, it said, Ghana needs to mobilize USD 4.87 billion per year, until 2030, for the Sustainable Development Goals (SDGs); and 0.85 billion, until 2063, for the African Union (UA) 2063 Agenda, of which the country has only managed to mobilize a third. Ghana must increase its tax-to-GDP ratio by 3.8 percentage points for SDGs and by 0.7 for AU 2023 Agenda and allocate more resources to high need sectors (education and energy).
“A more business-friendly environment to stimulate investment (domestic/foreign) in key sectors for structural transformation and a coherent urbanization framework could help accelerate the process.
“Ghana must pursue reforms aimed at strengthening macroeconomic stability and supporting structural transformation efforts. On the one hand, monetary, budgetary and exchange rate policies must be oriented to further control inflation by bringing it back towards its target, reduce pressure on exchange rates (more stability), reduce the public deficit by rationalizing public spending (reduce non-productive expenditure) and mobilizing more internal resources, and stimulating inclusive and sustainable growth.
“On the other hand, key reforms should include improving coordination and sequencing of public sector development initiatives in line with the country’s fiscal position; fast tracking the ongoing debt restructuring, enhancing scope for concessional finance, and deepening financial markets to increase access to affordable credit; and strengthening stakeholder engagement and coordination of development assistance to maximize synergies and impact.”
Read the full report here
