Ghana’s economy, a key driver of development in West Africa, has been navigating a complex landscape of fiscal and monetary challenges in 2024. With a rich mix of natural resources, a vibrant entrepreneurial culture, and a dynamic labor force, the country holds significant potential for growth and stability.

However, global economic pressures, combined with domestic structural weaknesses, have posed significant obstacles. The escalating public debt, persistent inflation, and limited fiscal space threaten to derail progress, while sectoral disparities reveal critical areas requiring immediate attention. Against this backdrop, it is imperative to analyze the current state of Ghana’s economy and propose sustainable solutions for inclusive growth.

Fiscal Challenges

Ghana’s fiscal position remains precarious, with a budget deficit expected to reach 8.2% of GDP by the end of the year, exceeding the government’s target of 7.5%. The public debt has escalated to GH₵750 billion, which represents approximately 83% of GDP, compared to 80% in 2023. Alarmingly, debt servicing consumes 58% of government revenue, leaving minimal fiscal room for critical investments.

Efforts to mobilize revenue have fallen short, with the tax revenue to GDP ratio stagnating at 12.8%, significantly below the Sub-Saharan African average of 16%. The introduction of new taxes has faced resistance from both businesses and citizens, further complicating revenue generation efforts.

Monetary Challenges

On the monetary front, inflation, although moderated from its peak, remains unacceptably high at 26.4% as of November 2024, down from 32% in November 2023. The cedi has depreciated by 12% against the US dollar this year, increasing the cost of imports and eroding purchasing power.

The Bank of Ghana’s policy rate remains at a high 30%, reflecting efforts to control inflation while inadvertently constraining private sector credit access.

Sector-by-Sector Analysis

Agriculture

Agriculture remains a cornerstone of Ghana’s economy, contributing 18.5% of GDP. The sector grew by 4.8% this year, supported by an increase in cocoa production, which reached 900,000 metric tons, up by 5% from 2023. However, persistent challenges such as post-harvest losses estimated at 25% of total produce and high input costs undermine the sector’s potential.

Industry

The industrial sector’s contribution to GDP stands at 33.4%, with growth slowing to 2.9% in 2024, down from 4.3% in 2023. Manufacturing activity has stagnated due to high energy costs and limited access to credit, while the mining and quarrying subsector, including gold, recorded a marginal decline of 0.5%, driven by global market volatility.

Services

The services sector continues to be the largest contributor to GDP at 48.1%, growing at a moderate 3.5%. Financial services have demonstrated resilience, but the tourism subsector experienced an 8% decline, attributed to high airfare costs and reduced international travel amid global economic uncertainties.

Energy

The energy sector’s challenges persist, characterized by inefficiencies and debt accumulation. The Electricity Company of Ghana (ECG) reported a revenue shortfall of GH₵5.2 billion in 2024, while independent power producers continue to raise concerns over delayed payments, threatening energy supply stability.

Proposed Solutions

To address these challenges, the following steps must be prioritized:

1. Debt Restructuring: Engage in transparent negotiations with external creditors to reduce debt servicing costs and create fiscal space for development priorities.

2. Revenue Mobilization: Broaden the tax base through enhanced digitalization and reduce tax exemptions. Improving the VAT compliance rate from 65% to 85% could yield an additional GH₵10 billion annually.

3. Agricultural Modernization: Invest in post-harvest infrastructure to minimize losses and provide targeted subsidies to farmers. Building export-oriented value chains will bolster foreign exchange earnings.

4. Industrial Revitalization: Provide concessional financing to manufacturing firms and reduce energy tariffs to lower production costs and stimulate growth.

5. Monetary Policy Realignment: Implement targeted subsidies for essential commodities to ease inflationary pressures while maintaining prudent monetary policies to stabilize the cedi.

6. Energy Sector Reform: Restructure ECG to improve efficiency, enhance revenue collection, and attract private sector investments in renewable energy.

7. Tourism Promotion: Relaunch Ghana’s tourism brand with affordable packages and promote domestic tourism to generate additional revenue.

8. Non-Interest Finance: Expand the adoption of non-interest finance models, which align with ethical investment principles and provide alternative funding mechanisms. Instruments such as Sukuk (Islamic bonds) can mobilize resources for infrastructure development without exacerbating debt burdens. Non-interest finance also promotes financial inclusion, offering Sharia-compliant solutions to the unbanked population and fostering sustainable economic growth.

Conclusion

The challenges facing Ghana’s economy are substantial but not insurmountable. A concerted effort that combines fiscal discipline, structural reforms, and targeted investments can set Ghana on a path of sustainable growth. IFRIG remains committed to offering research-backed solutions that align with Ghana’s development goals and Islamic financial principles. As we enter 2025, it is essential to prioritize strategies that foster resilience, inclusivity, and long-term prosperity for all Ghanaians.