Introduction

Ghana's economy is experiencing significant challenges, characterized by a historic cost-of-living crisis that particularly affects those in informal employment sectors in Accra.

This crisis has roots in a variety of economic pressures and policy failures, and its effects are being felt acutely by the nation's workers. Inflation has soared to unprecedented levels, and the inadequacies of economic policies have exacerbated the situation, pushing over 850,000 Ghanaians into poverty according to International Monetary Fund (IMF) report.

Central to this crisis is a stark reality articulated by the Trade Union Congress Boss: "The Ghanaian worker depends on loans to survive."

This statement underscores the desperate measures that many workers have been forced to adopt in order to cope with the rapidly deteriorating economic conditions. With wages stagnating and the cost-of-living skyrocketing, the reliance on borrowing has become a lifeline for many.

The Scope of the Crisis

The critical economic situation in Ghana is highlighted by inflation reaching a 22-year record of 54 percent in December 2022, demonstrating a dramatic surge in the cost of living and affecting the affordability of goods and services for the general population. Although inflation has recently moderated to 25 percent, it remains significantly higher than that of most of our neighbouring countries, which have managed to keep their inflation rates in single digits. This inflationary spike is not an isolated phenomenon, but part of broader economic turmoil fuelled mainly by economic mismanagement through fiscal imprudence and monetary policy failures.

Global Influences

The global economy has experienced various disruptions that have had a ripple effect on countries like Ghana. Key factors include fluctuating global oil prices, supply chain interruptions due to the COVID-19 pandemic, and geopolitical tensions, such as those arising from conflicts in key regions. These factors have led to increased costs for imports, on which Ghana heavily relies, particularly for essential items like food and medical supplies.

Local Factors

Locally, the economic scenario is exacerbated by several policy shortcomings, mismanagement of the economy, corruption, and fiscal policy failures. High levels of government debt and fiscal deficits have limited the government's ability to invest in essential public services and infrastructure.

Moreover, the closure of international capital markets to the Ghanaian government due to excess borrowing has decreased foreign exchange inflow, putting additional pressure on the Ghanaian cedi. The cedi depreciated significantly, over 50% between September 2022 and April 2023, and further by 18% in 2024, worsening the living conditions of workers in an import-dependent economy.

The Burden of High Borrowing Costs

The high cost of borrowing is a major factor in the financial struggles of Ghanaian workers. Data from the Bank of Ghana shows that the average APRs for household loans can be exceedingly high, with some banks, such as First Atlantic Bank Limited and Stanbic Bank Ghana Limited, reporting APRs of 43.64% and 50.92% respectively. On average, the cost of borrowing is almost 40%.

These high interest rates reflect the banks' response to the elevated risks in the lending environment, driven by economic instability, high default rates with nonperforming loans (NPL) at 24.6% in 2023, and the negative effect of domestic debt exchange. For everyday Ghanaians, this translates to higher costs for accessing credit, further squeezing their already strained finances.

Dependence on Loans

As highlighted by the Trade Union Congress Boss, "The Ghanaian worker depends on loans to survive." This dependence is due to a significant loss in purchasing power of workers' incomes, high taxes on citizens, and other unfavourable economic conditions. With incomes failing to keep pace with the rising cost of living, many workers are forced to take out loans to cover everyday expenses, thereby increasing their financial vulnerability.

The daily financial burdens faced by Ghanaian workers are multifaceted. The high cost of transportation, driven by fluctuating fuel prices and inadequate public transport infrastructure, consumes a large portion of their income. Rent prices have also skyrocketed, making housing increasingly unaffordable for many. Food prices, a critical component of daily expenses, have surged due to inflation, further straining household budgets. Additionally, workers grapple with the high cost of healthcare, education, and utilities, which continue to rise despite stagnant wages.

To manage these expenses, workers increasingly rely on loans. However, the high interest rates on these loans, averaging almost 40%, exacerbate their financial strain. As banks adjust their lending rates to reflect elevated risks in the economic environment, driven by instability and high default rates, the cost of borrowing remains prohibitively high. This situation creates a vicious cycle of debt and hardship, where workers take out loans to manage their daily needs but struggle to repay them due to exorbitant interest rates and rising living costs.

The reliance on loans to meet basic needs underscores the severe economic challenges faced by Ghanaian workers. It highlights the urgent need for comprehensive economic reforms to address the root causes of inflation, stabilize the currency, and create an environment where wages can keep pace with the cost of living. Without these changes, the cycle of debt and financial vulnerability will continue to deepen, further eroding the quality of life for Ghanaian workers.

Impact on Poverty

The confluence of rising inflation, economic instability, and high borrowing costs has had a profound impact on poverty levels in Ghana. Over 850,000 Ghanaians were pushed into poverty in 2022 due to these economic conditions. The increased cost of living, particularly in terms of food, healthcare, and housing, has made it increasingly difficult for a significant portion of the population to meet basic needs. This scenario is particularly dire for those working in the informal sector, who typically lack social safety nets and whose earnings are not stable or protected against such economic shocks.

Vulnerabilities of Specific Groups

The inflation crisis disproportionately affects vulnerable groups, including women, the elderly, and children, who are often dependent on the informal sector for their livelihoods. These groups are less likely to have savings or assets to cushion against economic shocks, making them more susceptible to immediate and severe impacts of inflation, such as food insecurity and reduced access to healthcare.

Conclusion

Ghana's current economic woes are a stark reminder of the profound impacts that economic mismanagement and policy failures can have on a nation's citizens.

The combination of high inflation, economic instability, and exorbitant borrowing costs is pushing more Ghanaians into poverty and exacerbating the struggles of those already living on the margins.

Addressing these issues requires robust policy reforms, improved fiscal discipline, and targeted support for the most vulnerable populations to alleviate the economic pressures and restore stability.

The reliance on loans to meet basic needs underscores the urgency for comprehensive economic strategies to protect the livelihoods of Ghanaian workers and promote sustainable economic growth.