Current financial and macroeconomic trends
Real GDP growth slowed to 3.3% in 2022 from 5.4% in 2021 due to macroeconomic instability, global financial tightening, and spillover effects of Russia’s invasion of Ukraine. Inflation was an estimated 31.5% in 2022, up from 10% in 2021, driven by food and energy prices and depreciating local currency. The Bank of Ghana tightened monetary policy; the policy rate was hiked to 27% in 2022 from 14.5% in 2021. The fiscal deficit widened slightly, to 9.3% of GDP from 9.2% in 2021, due to higher spending. Public debt hit 93.5% of GDP in 2022, up from 82.0% in 2021, driven by primary fiscal deficits and exchange rate depreciation. The current account deficit narrowed to 2.8% of GDP from 3.2%, driven by an improved trade balance. The capital and financial accounts recorded deficits. Foreign exchange reserves declined to $6.2 billion in 2022 (2.9 months of import cover) from $9.7 billion in 2021 (6.9 months). The financial sector remained sound. At 14.2%, the capital adequacy ratio is above the target of 13.0% but declining. Credit risk, measured by the nonperforming loans ratio, remained elevated at 14.8%, and real credit growth declined to 14.5% due to rising inflation. The poverty rate declined from 11% in 2021 to 10% in 2022. However, living standards have been negatively impacted by the rising cost of living and unemployment. The latter increased from 11.9% in 2015 to 13.4% in 2021, with youth (ages 15–24) unemployment an estimated 7.2% in 2021, up from 7.3% in 2020.
Outlook and risks
The outlook is tilted negative due to possible shocks from a prolongment of Russia’s invasion of Ukraine and a tighter global financial market. GDP growth is projected to fall to 1.7% in 2023 and to recover to 3.0% in 2024, in line with global demand trends. Inflation is projected to remain elevated at 44.7% in 2023 and to decline to 20.4% in 2024, driven by the base effect and food and energy inflation. The fiscal deficit is projected to narrow to 8.9% of GDP in 2023 and 9.0% in 2024 on account of new revenue enhancement measures. The current account deficit is projected to widen to 3.0% of GDP in 2023 and to narrow to 2.5% in 2024 following global growth trends. Headwinds include delays in international financial support, volatility in key export commodity prices, and financial stress. Possible mitigation measures include international financial assistance, enhanced fiscal consolidation, economic diversification, and private sector growth.
Climate change issues and policy options
Ghana’s Green Growth Index is estimated at 51%, or about halfway to its green growth target. This indicates that with the right green growth policies and strategies, Ghana could achieve economic growth while reducing vulnerability and building resilience to climate change. This requires boosting financing from public and private sources. An estimated $1.9 billion a year in financing is needed to meet the country’s Nationally Determined Contribution. The main source of climate finance has been the public sector, which contributed $100 million, leaving a gap of $1.8 billion a year for 2020–30. The private sector has the potential to raise climate finance equivalent to 8.8% of GDP. The government is exploring practical solutions to close the financing gap, including private equity, carbon markets, and climate impact bonds. It is also working on policies and regulations to enable participation in the global climate finance market. Ghana could explore ways of attracting sovereign welfare and pension funds. Factors constraining private climate finance include risks and barriers associated with inadequate regulations. Natural capital (renewable and nonrenewable) increased slightly between 1995 and 2018, suggesting the potential to leverage private finance with natural capital.