Ghana’s economy will enter a recovery phase this year as the government is expected to increase expenditure in an election year, rating agency, Fitch, has predicted. 

It said the recovery would be driven by stronger private consumption.

Going into the 2024 elections; many have expressed concerns that the government would overspend its budget, a situation which would derail the gains that have been made under the IMF programme.

With every election year characterised by huge budget overruns, the government has been cautioned to put in efforts to stay within its projected expenditure in the 2024 budget. 

But Fitch is projecting that an increase in government expenditure in an election year would help set the economy on a recovery phase.

It said inflation would moderate further as a result of statistical base effects and greater exchange rate stability, which would support purchasing power and boost household spending.

“We expect that the government will increase expenditure ahead of the December 2024 general election.”

“That said, growing consumer imports will weigh on the contribution of net exports to overall growth, thus we do not anticipate a return to the pre-pandemic five-year average growth rate of 5.3% in 2024,” it stated.

IMF Concerns

During her three-day visit to Ghana, the IMF Managing Director, Kristalina Georgieva, said she was leaving the country with the strongest conviction that Ghana was going to stay within its programmed expenditure despite 2024 being an election year.

She said she received firm assurances from all authorities that the country would not deviate from the programme.

“I heard it from virtually everyone, I heard it from the President, the Vice-President, the Minister of Finance and the Central Bank Governor so I’m leaving Accra with a strong confidence that the programme will be implemented,” she said in response to a question from the Graphic Business at a press briefing in Accra.

She said she could confirm that the government was strongly committed to implementing the programme and go through with the agreed reforms.

At a recent economic update, the Minister of Finance, Dr Mohammed Amin Adam, also gave an assurance that he was going to hold the expenditure line despite this year being an election year.

He said he has the commitment of the President and his colleague ministers and was therefore confident that the government would stay within the 2024 budget and IMF programme.

Ghana’s economy  

Ghana’s economy has been faced with its toughest challenges in decades characterised by high inflation which peaked at a 22-year high of 54.1% in 2022, unstable currency, high interest rates, slow-down in economic growth and an unsustainable public debt which surpassed 90% of GDP in 2022.

This prompted the government to formally seek help from the IMF and after meeting all the prior actions and requirements, the Board of the IMF approved Ghana’s programme in May 2023.

Ten months after implementing the programme, macro-economic stability appears to be re-emerging again.

Latest figures by the Ghana Statistical Service (GSS) indicate that on a provisional basis, overall GDP for 2023 grew by 2.9% compared to a target of 2.3% in the 2023 Mid-Year Review Budget.

Inflation also declined by 30.9 percentage points to 23.2% in December 2023, before picking up slightly to 23.5% in January 2024 and declining again to 23.2% in February 2024.

The cedi also cumulatively depreciated against the US Dollar by 27.8% at the end of December 2023 down from the depreciation rate of 50% at the end of November 2022. For the first three months of the year, the Cedi has depreciated by 6.8% as of March 20, compared to 22.1% recorded in the same period in 2023.

External side

On the external side, the current account recorded a surplus of US$0.46 billion at the end of 2023 compared to a deficit of US$1.52 billion at the end of December 2022.

The trade balance also ended in 2023 with a surplus of US$2.6 billion compared to a surplus of US$2.9 billion at the end of 2022. 

The surplus trend continued in 2024 with a trade surplus of US$392 million at the end of February 2024.

Gross International Reserves (GIR) including encumbered assets and petroleum funds stood at US$5.9 billion (2.7 months of import cover) at the end of December 2023 from US$6.3 billion (2.7 months of import cover) at the end of December 2022.

The GIR improved to US$6.2 billion at the end of February 2024 compared to US$5.9 billion in 2022.

On the monetary side, the Bank of Ghana (BoG) lowered the policy rate by 100 basis points to 29% in January 2024 after consistently increasing it. 

In response, although interest rates moderated from 35.5% (91-day TB) in December 2022 to 19.7% in April 2023, the rates increased to 29.36% as of the end of December 2023.

The first 12 auctions in 2024 have witnessed a consecutive decline in interest rates with the 91-Day Treasury Bill rate at 26% as of March 25.

On the fiscal side, the public debt trajectory is improving as the debt-to-GDP ratio reduced to 71.4% of GDP at the end of 2023 from 73.5% of GDP at the end of 2022.