IMF Sub-regional outlook: Economy shows promise despite regional headwinds
The International Monetary Fund has painted a promising picture of Ghana's economic future.
The country's growth story is gaining momentum, with GDP projections revised upward from 3.1% to 4% for 2024, signaling stronger economic activity than initially anticipated.
Inflation, which has been a significant concern, is on a clear downward trajectory.
In its latest Regional Economic Outlook report for Sub Saharan Africa, the fund indicated that the rate is expected to decrease to 19.5% in 2024, with a further substantial drop to 11.5% projected for 2025, bringing relief to the economy.
The nation's fiscal health is also improving, with the budget deficit narrowing to 4.7% of GDP.
This trend is set to continue, with the deficit expected to further reduce to 3.7% of GDP by 2025. Similarly, the debt burden is easing, with the debt-to-GDP ratio projected to decrease from 82.5% to 79.5% between 2024 and 2025.
Ghana's external position is strengthening as well. The country's gross international reserves are building up, expected to cover 2.8 months of imports in 2024.
This coverage is set to improve further, reaching 3.4 months of import coverage by 2025, enhancing the country's trade position and economic stability.
Complex economic landscape
The report highlighted that Sub-Saharan Africa is navigating a complex economic landscape marked by both progress and persistent macroeconomic vulnerabilities.
Countries in the region are trying to implement difficult and much-needed reforms to restore macroeconomic stability in the aftermath of repeated negative shocks and the ensuing need for support.
Overall, internal and external imbalances have started to narrow, mainly reflecting policy adjustments, but the picture is varied; about one-half of countries still exhibit high imbalances. Monetary tightening has curbed inflation, which is within target in about half of the region.
Significant fiscal consolidation has stabilized the average debt-to-GDP ratio, albeit at a high level. External positions have strengthened, with sovereign spreads narrowing and more countries returning to Eurobond markets.
However, challenges persist. Inflation remains in double digits in nearly one-third of countries. Debt service capacity is low, and rising debt service burdens are eroding the resources available for development spending.
Foreign exchange reserve buffers are often insuffi-cient, and concerns about overvaluation and competitiveness persist.
Three main hurdles In their efforts to reduce these imbalances, policymakers face three main hurdles. First, regional growth, at a projected 3.6 percent in 2024, is generally subdued and uneven, although it is expected to recover modestly next year.
Resource-intensive countries continue to grow at about half the rate of the rest of the region, with oil exporters struggling the most.
Factors dampening growth include conflict, insecurity, drought, and electricity shortages. Second, both domestic and external financing conditions continue to be tight, with many countries unable to access or afford financing.
Third, complex underlying pressures linked to high poverty, lack of inclusion and job opportunities, as well as weak governance, compounded by rapid increases in the cost of living and the short-term effects of macroeconomic adjustment, are causing significant hardships in many countries.
The resulting social frustration and political pressures make it increasingly challenging to implement reforms.
Governments face a difficult balancing act in reducing macroeconomic vulnerabilities while also addressing development needs and ensuring that reforms are socially and politically acceptable.
Countries with high imbalances may have to implement large and front loaded adjustments given tight financing constraints.
Nevertheless, there are many countries with more moderate imbalances that may be able to pursue smaller and more gradual policy adjustments.
But even countries with relatively low imbalances (about one-fifth of the total) need to pay heed to rebuilding fiscal and external buffers, as conditions allow.
Protecting vulnerable Protecting the most vulnerable from the costs of adjustment and ensuring that reforms create sufficient jobs will be critical to mobilize public support.
Carefully designed communication and consultation strategies, appropriate reform design, and improvements in governance to rebuild public trust will also help ease the task of policymakers.
While difficult, implementing reform strategies to unlock more durable and inclusive growth, including by promoting economic diversification and economic opportunities for women, will reduce both vulnerabilities and social frustration.