Ghanaians endure hardship as country’s Misery Index jumps to 60.8 in July
The index reflects the tough economic conditions currently being experienced by Ghanaians as they grapple with currency depreciation, high inflation and a rising external debt burden
Ghana’s Misery Index climbed to 60.8 in the month of July nearly doubling the 31.51 score recorded at the end of 2021. This also compares to Nigeria’s 62.79 computed for the month of July 2022.
The index reflects the tough economic conditions currently being experienced by Ghanaians as they grapple with currency depreciation, high inflation and a rising external debt burden.
How to calculate the misery index
The Misery Index is an economic indicator that seeks to track a variety of economic statistics to quantify the degree of economic misery experienced by regular people in a given economy.
To calculate the misery index, the formula Per Hanke’s (2011) is the sum of the unemployment rate, inflation rate, lending rates, less the country’s GDP Growth rate. Otherwise represented as follow: Misery Index = Unemployment rate + Inflation + Bank Lending rates – GDP growth rate).
Misery in Ghana
To Investigate the level of Misery in Ghana, Nairametrics explored data from Ghana’s Statistical Service and the Bank of Ghana. Thus, using the latest available reports for inflation (31.7%), Unemployment Rate (19%), Lending rate (13.4%) and GDP growth rate,
- Ghana’s latest Misery Index of 67.4 = 31.7% + 19% + 13.4%– 3.3%
Given the data, it is evident that inflation and the lending rate are the primary drivers of Ghana’s economic hardship.
It is worth noting, however, that the high loan rate reflects the Bank of Ghana’s attempts to contain inflation.
A summary of the components of Ghana’s Misery Index is provided below.
- Inflation – 31.7%
In July 2022, Ghana’s inflation rate increased from 29.8% to 31.7%. This was the quickest pace seen since November 2003 and the eleventh consecutive month that the rate has exceeded the upper limit of the target range set by the central bank, which is between 6% and 10%.
This rapid inflation has been linked to trade disruptions caused by the Russian-Ukraine war, as well as a drop in the value of the cedi, which increased the cost of imported products such as cooking oil and gasoline.
The Ghanaian cedi has dropped by a whopping 47.10% against the US dollar since the start of the year, making the cedi the world’s second-worst performing currency after the Sri Lankan rupee.
Compared to Nigeria’s inflation rate of 18.6% in June 2022, Ghana’s inflation is significantly more troubling and sizable.
- Unemployment 13.4%
Ghana’s 2021 Population and Housing Census puts the unemployment rate at an all-time high of 13.4%, almost triple the 6% recorded in 2010.
This indicates that more than 1.55 million people of the west African country’s economically active population, are out of work.
Nonetheless, Ghana’s Unemployment rate remains relatively low when compared to Nigeria’s 33.3% Jobless rate.
- Lending rate 19%
Ghana’s central bank maintained its interest rate at 19% during its most recent MPC meeting three weeks ago, citing worries about economic growth.
However, in an effort to combat runaway inflation, the bank has raised its interest rate by 550 basis points since the end of last year.
Nonetheless, despite the Bank of Ghana’s aggressive posture, inflation appears to be widespread across Ghana’s economy.
Furthermore, the effects of the high-interest rate would trickle down to Ghanaians in terms of the higher cost of borrowing further aggravating the economic hardship.
- Growth rate 3.3%
The Ghanaian economy is slowing, and its deceleration is fairly broad-based. Ghana’s GDP growth in Q1 2022 was 3.3% year-on-year compared to 7.0% for Q4 2021.
The country has since recovered from the contractions brought on by the COVID-19 pandemic, although the first quarter’s growth is the weakest since then.
Even though Ghana has still had positive growth, this growth is not enough to make up for the shortcomings of the other economic variables used to calculate the misery index.
Before the pandemic and the Russia-Ukraine war, some Nigerians saw Ghana as a better alternative than Nigeria due to Ghana’s better economic indicators and stronger currency, however, given current data, this is no longer the case.
A cursory analysis of the data would show that Nigeria’s misery in the 7 months of the year worsened by 6%, while Ghana’s economic misery has worsened by an eye-popping 92.9%
Therefore, if the trend continues, individuals may swiftly relocate from Ghana to their nearby neighbour, Nigeria, or other more promising economies.