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Ghana’s economic indicators are on track for 2024 and beyond, according to the World Bank’s 8th Economic Update for Ghana, titled “Strengthening Domestic Revenue Systems for Fiscal Sustainability.” This positive outlook persists despite recent challenges, including accelerated exchange rate depreciation and slower-than-expected reductions in inflation.
The report highlights the progress Ghana has made over the past year in addressing the severe macroeconomic imbalances that emerged in 2022. It notes that the economy is improving in line with targets, thanks to efforts aimed at restoring fiscal and debt sustainability, reducing inflation, and enhancing financial stability.
Although growth in 2023 was relatively low at 2.9%—though higher than initial projections—inflation decreased to 23.2% in December 2023 from a peak of 54.1% in December 2022. This improvement is attributed to the Bank of Ghana’s stricter monetary policy and more stable exchange rates.
“Ghana’s macroeconomic crisis in 2022 has set back poverty reduction efforts, with poverty levels estimated at 30.3% in 2023. It is crucial to maintain the momentum of the reforms, while mitigating the impact on the poor, to help sustain Ghana’s economic rebound. In parallel, we must lay the foundations for more sustainable and resilient economic growth by implementing comprehensive structural reforms to foster economic diversification and promote long-term inclusive growth,” said Michelle Keane, World Bank Acting Country Director for Ghana, Liberia, and Sierra Leone.
The report underscores the importance of focusing on the quality of fiscal adjustments to minimize impacts on growth, the poor, and vulnerable populations. Recommendations include reestablishing fiscal rules, strengthening public financial management, and accelerating revenue mobilization to restore macroeconomic stability and support sustainable long-term growth.
Additionally, sector-specific reforms are highlighted as crucial for ensuring financial sustainability in agriculture and energy, as well as rebuilding capital buffers in the financial sector. Structural reforms are deemed essential for revitalizing growth, promoting economic diversification, and enhancing productivity. For instance, improving infrastructure quality and accessibility could boost trade, competitiveness, and connectivity.
The report suggests that facilitating access to long-term financing and improving the business climate could create a favorable environment for private sector growth. Investing in human capital and improving service delivery for underserved regions can further enhance productivity and attract both Foreign Direct Investment (FDI) and local investment in high-value, labor-intensive manufacturing and services.
“These measures collectively aim to enhance fiscal transparency, accountability, and resilience, ensuring sustainable economic growth; and should be complemented by initiatives to expand targeted social protection programmes to promote social inclusion,” noted Kwabena Gyan Kwakye, author of the Economic Update.
The special topic of the report focused on domestic revenue mobilization, revealing that Ghana’s tax collection has been comparatively low. Between 2017 and 2021, Ghana’s average tax collection was 13.2% of Gross Domestic Product (GDP), falling short of the Sub-Saharan Africa average and 8.0 percentage points below the estimated tax capacity of 21.2% of GDP.
The report identified inefficiencies within Ghana’s tax policy framework and compliance mechanisms. Addressing these inefficiencies could help ensure macroeconomic stability and generate resources needed for sustainable growth and poverty reduction. Areas for improvement include rationalizing large tax expenditures that have led to declining tax revenues, which involves balancing revenue losses with potential distributional and social impacts.
“Rationalizing tax exemptions will entail removing those deemed unjustified or falling short of their stated goals. The Ministry of Finance should first assess the impact of Tax Exemption removals on poverty and suggest appropriate mitigating measures,” advised Elijah Gatuanjau Kimani, co-author.
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