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Delivering on our promises

Economy

ECONOMY

The Nana Addo-led administration believes a strong economy creates opportunities, and inspires more people to start new businesses. In much the same way, a strong economy encourages existing businesses to make new investments, to grow, and expand. More and well-paying jobs are created, the private sector hires more people, and citizens prosper. Public sector-driven job creation interventions and initiatives also require a strong economy. Social services such as the National Health Insurance Scheme, free quality basic schools across every part of the country, the School Feeding Programme, good roads and a wider and cheaper transport network, affordable housing, stable and affordable electric power: all of these require a strong economy. The policies, initiatives and programmes of the government have been focused on creating a strong economy which will drive private sector initiatives, job creation, and provide support for social services.

Macroeconomic Performance

A growing economy generally means that the productive capacity of the economy is increasing and better opportunities are being created for employment and increase in the quality of life of citizens. Figure 1 shows the real Gross Domestic Product (GDP) in Ghana from 2014 to 2019.

Source: GSS, 2019.

 

Real GDP growth rebounded from 3.4% in 2016 to an on average of 7% in the past three years. This shows that the government has succeeded in turning the fortunes of the economy around and has set the country on a path in which it is better able to provide job opportunities for its citizens.

 

Inflation measures the rate of increase in the price levels of goods and services. Data from the Bank of Ghana shows that head-line inflation was 15.4% in 2016 but reduced to 12.4% in 2017, 9.8% in 2019 and 7.6% in 2019 as presented in Figure 2. This shows a steady decline in inflation and this is desirable because it implies the rate of increase in the prices of goods and services has been reducing. Thus, reducing inflation means there is preservation of the purchasing power of the citizenry.

 

Figure 2: Head-line Inflation Rate of Ghana [2016-2019]

The Monetary Policy Rate (MPR) of the Bank of Ghana is an indicative rate for bank in deciding their interest rates. If it is lower, it allows banks to set lower interest rates which encourage borrowing for investment. The Monetary Policy Rate is lowered when the Bank of Ghana is confident the economic fundamentals of the nation supports it. The recent trend in MPR is presented in Figure 3. Data from the Ministry of Finance shows that MPR was 25.5% in 2016, was reduced to 20.0% in 2017 and further to 17.0% in 2018. In keeping with the economic performance of the nation the MPR was further reduced to 16.0% in 2019 and as at May 2020 it stood at 14.5%. This trend is in keeping with the improvement of the economic fundamentals and sets the tone for reduction in interest rates by banks.

Figure 3: Monetary Policy Rate of Ghana [2016 – 2020]

It is in the interest of the managers of the nation’s economy to reduce the quantum of budget deficits. Running huge budget deficits imply the managers of the economy are not meeting their revenue targets and at the same time are not being disciplined with spending. For this reason, reducing budget deficits is an important aspect of macroeconomic management. According to data from the Ministry of Finance as presented by Figure 4, in 2016 the budget deficit of the nation was 6.5% of Gross Domestic Product (GDP). This was reduced to 4.8% in 2017 and to 3.8% in 2018. At the end of 2019 the budget deficit was 4.2% of GDP. The observed trend shows an improvement in managing revenue generation and spending by the government.

 

Figure 4: Budget Deficit of Ghana [2016 – 2019]

Public Debt Dynamics

It is important for the nation to appropriately manage its public debt in such a way that the debt levels do not become unsustainable. Too much indebtedness stifles investment because revenue generated must be used to service debt, leaving little for investment. Figure 5 shows the public debt of Ghana.

 

Figure 5: Public Debt Accumulation Trend (2016-Sept 2019)

Source: MOF.

 

As at end-September 2019, the nominal public debt stock was GH¢208,565.18 million comprising external and domestic debt of GH¢107,166.78 and GH¢101,398.4 respectively. If the financial sector bailout is omitted from the debt stock it stood at GH¢197,867.09 million by the end of September 2019. The rate of debt accumulation as at end-September 2019 was 20.51%, mainly driven by the micro finance institutions and Savings and Loans institutions bailout and the US$3,000.00 million sovereign bond issuance, depreciation of the Ghanaian currency against major trading currencies, and new disbursement on committed loans. Without the micro finance institutions and Savings and loans institutions bailout, the rate of debt accumulation would have been 14.33%. The trend thus shows a general reduction in the rate of public debt accumulation since 2016.

 

Consolidation of Economic Gains

One of the perennial problems the economy of Ghana has been facing in the Fourth Republic has been incurring huge budget deficits during election years. Historically, significant portions of the momentum and gains the economy experiences are wiped the year after election cycles and sometimes beyond that. The Nana Addo-led administration has put in measures to ensure that the macroeconomic gains of the nation are retained even in election years. The government is strictly enforcing the Public Financial Management (PFM) Act, 2016 (Act 921) and its companion PFM Regulation, 2019 (LI 2378) to promote transparent and credible management of the nation’s public finances.

 

The is showing commitment to enforcing Act 921 and LI 2378 by establishing and operationalizing the Presidential Fiscal Advisory Council to advise the President on transparent, accountable, and credible fiscal management; and establishing and operationalizing the Fiscal Risk Unite of the Ministry of Finance to identify key fiscal risks and propose mitigating measures to contain such risks.

KEYNOTE SUMMARY:

 

  • Real GDP growth rebounded from 3.4% in 2016 to an on average of 7% in the past three years.
  • Inflation rate trended downwards, moving from 15.4% in 2016 to 7.6% by end of 2019.
  • Monetary Policy Rate trended downwards, moving from 25.5% in 2016 to 14.5% as at June 2020.
  • Budget deficit has reduced from 6.5% of GDP in 2016 to 4.2% of GDP by end of 2019.
  • Rate of public deb accumulation trending downwards
  • Public Financial Management (PFM) Act, 2016 (Act 921) and its companion PFM Regulation, 2019 (LI 2378) to promote transparent and credible management of the nation’s public finances introduced.