According to the latest Economic Update by the World Bank titled "Price Surge: Unraveling Inflation's Toll on Poverty and Food Security," Ghana's economy is projected to regain its full potential by 2025. However, the report highlights the country's challenging economic outlook, and recovery is expected to be slow.
In 2023, economic growth is forecasted to decelerate to 1.5%, and in 2024, it is anticipated to remain subdued at 2.8%. The report attributes these challenges to a combination of domestic imbalances and external shocks experienced in 2022, leading to macroeconomic difficulties. These challenges include currency depreciation, rising inflation, and decreased investor confidence. Existing fiscal vulnerabilities, such as mounting debt, rigid budgets affected by high energy costs, and low public revenues, were further exacerbated by unfavorable global economic conditions.
Pierre Laporte, the World Bank Country Director for Ghana, Liberia, and Sierra Leone, explains that corrective fiscal and monetary policies will influence total demand and slow down non-extractive GDP growth. Consequently, high inflation, increased interest rates, and macroeconomic uncertainties will likely keep private consumption and investment growth below pre-pandemic levels. However, the report predicts that growth will gradually recover to its potential by 2025 as fiscal consolidation's drag diminishes, and macroeconomic stabilization and structural reforms take effect.
To address these challenges and boost economic growth and resilience, the report recommends the Ghanaian government undertake various structural reforms:
1. Increase domestic revenue sustainably by streamlining tax incentive regimes and enhancing revenue administration.
2. Implement tighter expenditure controls to improve budget execution accuracy and prevent new arrears accumulation.
3. Address energy sector shortcomings to ensure fiscal sustainability, extending, expanding, and effectively implementing the Energy Sector Recovery Programme.
4. Rebuild the financial sector's capital buffers to promote financial stability and development, considering the impact of the Domestic Debt Exchange Programme on banks' capital buffers.
5. Enhance the investment climate to attract more Foreign Direct Investments through improved transparency, accessibility, and quality of business regulation and regulatory governance.
6. Prioritize investments for climate change adaptability based on recommendations from the World Bank's recent Country Climate and Development Report (CCDR) to maximize resilience benefits at a reasonable cost.
The report emphasizes that macroeconomic shocks, especially inflation, disproportionately affect the poor. To ensure sustainable poverty reduction and shared prosperity, the government should focus on bringing the economy back on track and enhancing safety nets to protect the most vulnerable. Suggestions include expanding and increasing transfers of the Livelihood Empowerment Against Poverty (LEAP) program to help the poorest cope and build resilience against future shocks.
Additionally, the report points out that high inflation in 2022 had significant effects on food security and poverty in Ghana, eroding the purchasing power of households and leading to a decline in living standards and worsened poverty and food insecurity.
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