ACCRA, July 22, 2024 - The World Bank’s 8th Economic Update for Ghana, titled "Strengthening Domestic Revenue Systems for Fiscal Sustainability," indicates that despite recent increases in exchange rate depreciation and slower-than-expected inflation reduction, Ghana’s economic indicators remain on track for 2024 and beyond.
The report highlights the steady progress Ghana has made over the past year in addressing severe macroeconomic imbalances that emerged in 2022. Efforts to restore fiscal and debt sustainability, reduce inflation, and strengthen financial stability have contributed to this improvement. Growth in 2023 was recorded at 2.9%, higher than initial projections, while inflation declined to 23.2% in December 2023 from a peak of 54.1% in December 2022. This progress is attributed to the Bank of Ghana’s firmer 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 need to focus on the quality of fiscal adjustment to minimize its impact on growth and vulnerable populations. Recommendations include reestablishing fiscal rules, strengthening public financial management, and accelerating revenue mobilization to restore macroeconomic stability and support long-term sustainable growth. Additionally, sector-specific reforms are emphasized to ensure financial sustainability in agriculture and energy while rebuilding capital buffers in the financial sector.
Structural reforms are seen as key to revitalizing growth and fostering economic diversification and transformation. For example, improving infrastructure quality can boost trade competitiveness, connectivity, and productivity. Facilitating access to long-term financing and enhancing the business climate could create a conducive environment for private sector growth. Building human capital and improving service delivery for underserved regions can enhance productivity and attract both Foreign Direct Investment (FDI) and local investment in high-value manufacturing and services.
“These measures collectively aim to enhance fiscal transparency, accountability, resilience ensuring sustainable economic growth; they should be complemented by initiatives expanding targeted social protection programs promoting social inclusion,” said Kwabena Gyan Kwakye, Economist and author of the Economic Update.
The special topic of the report focuses on domestic revenue mobilization noting that Ghana’s tax collection has been low relative to its peers. Between 2017-2021 average tax collection was 13.2% of GDP well below Sub-Saharan Africa average eight percentage points short country’s estimated tax capacity of GDP The report identifies inefficiencies within tax policy framework compliance mechanisms If addressed these could help ensure macroeconomic stability generate resources necessary sustainable long-term growth poverty reduction efforts
Despite efforts bold tax policy measures administration reforms necessary improve fiscal position budget credibility Adoption ambitious Medium Term Revenue Strategy lays foundation robust reforms towards Areas identified rationalizing large expenditures contributing overall decline revenues would require striking balance between reducing losses potential distributional social impacts
“Rationalizing Tax Exemptions will entail removing those deemed unjustified or falling short their stated goals Ministry Finance should first assess impact removals poverty suggest appropriate mitigating measures,” said Elijah Gatuanjau Kimani co-author
###