Ghana’s current economic challenges have presented an opportunity for the country’s government to rethink the structure of its economy, says Dr. Priscilla Twumasi Baffour, a Senior Lecturer at the Economics Department of the University of Ghana.
Dr. Baffour notes that if the structure of the economy is not changed, the country will continue to face macroeconomic challenges whenever there is a shock, be it internal or external. This analysis echoes that of many economic analysts who have been concerned about the vulnerability of Ghana’s economy and its dependence on a narrow range of commodities for foreign exchange.
Speaking on NorvanReports’ Twitter Space Conversation on Sunday, April 23, 2023, themed “The Current Economic Crisis: Is There Any Silver Lining; What is Ghana Missing?”, Dr. Baffour highlighted several factors that have contributed to Ghana’s economic vulnerability, including import dependency, inefficient tax handles, and persistent budget deficit financing. According to her, these issues undermine the resilience of Ghana’s economy, and the country must address them if it hopes to achieve sustained growth and development.
Dr. Baffour argues that the current economic challenges facing Ghana offer an opportunity for the country to change the way it does things. She notes that without significant changes to the structure of the economy, Ghana will continue to experience challenges, even if it receives temporary relief from multilateral institutions like the International Monetary Fund (IMF). This is a sentiment that has been echoed by the IMF itself, which has called for Ghana to undertake structural reforms to address the underlying weaknesses in its economy.
One of the main challenges facing Ghana’s economy is its reliance on imports. According to the World Bank, Ghana’s imports of goods and services accounted for 56.7% of its GDP in 2021. This level of import dependency makes the country vulnerable to fluctuations in global commodity prices and currency exchange rates, which can have a significant impact on its economy. Dr. Baffour notes that reducing import dependency will require significant investments in domestic production and the development of local industries.
Another issue facing Ghana’s economy is inefficient tax handles. Dr. Baffour notes that the country has struggled to mobilize domestic resources to finance its development agenda. This has been due in part to the complexity of the tax system and a lack of enforcement. Addressing these issues will require significant reforms to simplify the tax system and improve enforcement.
Persistent budget deficit financing is another challenge facing Ghana’s economy. According to the Bank of Ghana, the country’s budget deficit stood at 7.8% of GDP in 2022. This level of deficit financing is not sustainable over the long term and could lead to inflation and other macroeconomic challenges. Dr. Baffour notes that reducing budget deficits will require the government to prioritize fiscal discipline and take steps to increase revenue generation.
Dr. Priscilla Baffour’s analysis highlights the need for Ghana to undertake significant structural reforms to address the underlying weaknesses in its economy. These reforms will require significant investments in domestic production, the development of local industries, and the simplification of the tax system. While these reforms may be challenging in the short term, they offer the best chance for Ghana to achieve sustained growth and development over the long term.