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Bolstered by strategic macroeconomic and fiscal corrective measures, Ghana’s financial landscape is expected to stabilize by 2025, with the agricultural sector potentially playing a pivotal role in driving the country out of its economic woes, according to a World Bank Report.
2022 was marked by the most severe economic downturn in Ghana's history, characterized by a depreciating currency, surging inflation, and wavering investor confidence.
These issues took a significant toll on the country's economy, leading to defaults on loan repayments, including Eurobonds, commercial loans, and bilateral loans.
In "Price surge: unravelling inflation's toll on poverty and food security", the bank projects that Ghana's economic growth will slow to 1.5% in 2023 and then dip into negative territory in 2024 before recovering in 2025.
Pierre Laporte, World Bank country director for Ghana, Liberia and Sierra Leone, explained in the report that monetary policies will influence demand and consequently slow GDP growth.
"High inflation, increased interest rates, and macroeconomic uncertainties will keep private consumption and investment growth below pre-pandemic levels," he states.
This is expected to result in subdued non-extractive growth in the short term before regaining momentum and achieving full recovery by 2025.
The report goes beyond addressing immediate macroeconomic issues and recommends a series of structural reforms aimed at tackling the root causes of inflation, boosting economic growth, and enhancing resilience.
These include the sustainable collection of domestic revenue through streamlined tax incentive regimes and improved revenue administration.
Other measures involve tightening expenditure control, addressing energy sector shortfalls, rebuilding capital buffers, boosting foreign direct investment (FDI) inflows, and accelerating climate change adaptability.
Highlighting the impact of macroeconomic shocks on the poor, Kwabena Kwakye, a co-author of the report, explains, "The next two years will be very tricky for Ghana's poverty reduction efforts."
Just a few years ago, Ghana was among the fastest-growing economies in West Africa, and then-President Akufo-Addo successfully reduced inflation from 15.4% in 2016 to 7.9% in 2019.
Similar progress was made in reducing budget deficits by 2019 before the pandemic hit. World Bank estimates revealed that budget deficits dropped from 6.5% of GDP in 2016 to under 5% by the end of 2019.
However, starting in 2020, these gains were reversed, with the budget deficit and inflation escalating to record highs by the end of 2022, significantly affecting key sectors, including food security.
World Bank simulations indicate that by the end of 2022, nearly 850,000 Ghanaians had fallen into poverty due to rising prices and a drop in purchasing power.
“The typical Ghanaian household allocates nearly 43 percent of its expenditures toward food,” the report finds.
To address these challenges, the agricultural sector is expected to play a central role in Ghana's recovery.
Ashwini Sebastian, a senior World Bank agriculture economist, highlights the possibility of mitigating the impact of inflation on food security by enabling farmers to adjust to global demand and take advantage of market opportunities.
“Policies should therefore be evidence-based and aimed at alleviating the different constraints farmers face,” he notes.
The report proposes several agriculture sector-specific policy actions to cushion the sector in the medium-to-long term period.
These include channelling investments into agriculture research and technology transfers to boost productivity and reduce production costs while also improving the quality and safety of food.
Investment in climate-smart agriculture initiatives is also recommended to help farmers adapt to the country's dynamic weather patterns.
By implementing these measures, the authors of the report believe there will be higher domestic food production, and the country will be able to effectively integrate with continental and global food supply chains, yielding higher value and returns from the agricultural sector.
Currently, 57% of the land in Ghana is used for farming, contributing 54% to the country's GDP and accounting for 40% of export earnings.
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