Ghana economic growth: from disaster to success.

There are known in English by the word of “Excecutive Director”, the powerful gentlemen of the IMF who have the privilege to analyze the economic evolution of all IMF members. The results of their analysis exposed in the Conference rooms, are very quickly put away. For me they are gold mines, which indirectly show the economic dynamics of the countries under study. In this article, I traced the economic history of Ghana through the recommendations of the so called “Executive Directors” of the IMF. I found many interesting things, namely how in ten years, Ghana did transform a sluggish economy into an emerging one.

The Economy in 2000: widespread instability

The report from the IMF on Ghana in 2001 highlighted the practice of inconsistent macroeconomic policy. In the case of Ghana in 2000:

1) Monetary and fiscal policy were too expansionary and created inflation.

2) The public deficit was made worse by the losses incurred from state companies of the oil – the energy and water sector.

3)  Increasing wages were also mentioned as a direct cause of the public deficit explosion.

The economy in 2002: between trials and errors and structural adjustments

1) Monetary policy remained restrictive, giving priority to the fight against inflation.

2) Fiscal policy was mixed. In one hand Ghanaian State was engaged in a comprehensive program of consolidation of public spending, in another hand, the increase of payroll  continue to weigh heavy in the balance. Even though the level of revenue mobilization did increase, (price increase of state service, widening of the tax base), this was not sufficient.

3) Tax reforms at public enterprises have not yet achieved their objectives. As a result the public debt remained high.

The economy in 2003-2004: the year of the economic take-off

1) The restrictive monetary policy initiated since 2001 has started to bear fruit. Inflation has been reduced consistently. The restrictive policy of the Central Bank and good management of the flexible exchange rate did not to allow excessive capital inflows to destabilize the economy through an appreciation of the exchange rate. The stock of foreign exchange reserves continued to grow with the economy.

2) In 2004, the tax policy succeeded in reducing the budget deficit in a consistent way, but did not make it to disappear. The strong economic growth of the year has increased the revenues of the State

3) The total payroll continued to be “capricious” with a slight increase. Economic growth as the theory provides reduced the ratio of national debt. At the structural level, the adoption of a new pricing policy in oil-water and electricity sectors finally begins to give its first signs of success. The size of government began to shrink leaving the room for a private sector that can be efficient if it has easy access to bank financing.

The economy between 2005-2007: sustained economic growth

Ghana continued on its good economic trajectory. Macroeconomic policy remained rigorous. Fiscal indiscipline of the year 2006 is quickly corrected.

1) Inflation is considerably reduced.

2) The public deficit and national debt are thanks to high economic growth are revised downward.

3) Structural reforms (financial, wage) continue on their launched pad. For the first time in the history of the country, the private sector contributed in a big scope to economic growth. It was indeed able take advantage of the financial reform of the system, and to play its partition in the increase in demand.

The economy between 2007 and 2008: And the story goes on!

The Ghanaian economy continued its extraordinary growth, powered by a “bubbling demand.”  During this period, Ghana went from low income to middle-income country.

1. Inflation was back due to an increase in the price of oil and food goods and the effect of overheating in the economy. The explosion of a growing demand deepened the current account deficit.

2. Fiscal policy was once again expansionary; the deficit increased inflating the deficit of the current account.

3. Reforms structural state companies were on track. The Central Bank managed to stabilize the exchange rate by adapting it to the new external condition of world economic crisis. The expansion of the private sector has been accompanied by a rapid increase in credit.

The economy in 2008-2009: Feeling the pain of the great recession

1. Inflation is back, through an increase in public spending. It is the first time in 10 years that the Central Bank had not been able to counteract the effects of an extravagant fiscal policy.

2. The Executive Committee of the IMF insisted that the authority of be on track in consolidating public spending.

 The economy in 2010: back to the stability of economic growth

1. Inflation is controlled in 2010 in a single unit through a restrictive monetary policy. The management of flexible exchange rate has been thoroughly well implemented. The reserves increased with a rise in the price of exports (including oil)

2. The consolidation of public spending was not performed in a consistent manner.

3. Structural policy, gave an important role to the private sector. The mobilization of financial resources did increase the level of liquidity.

Years 00/99 03/02 06/05 09/08 10/09
Growth (%)Real GDP 3.7/4.4 5.2/4.5 6.4/5.8 4.0/8.4 5.7/4
Budget deficit (%PIB) 9.7 /8.00 4.4 /6.8 7.5/2.6 5.8/8.5 5.8/8.4
Inflation (%) 25%/12% 27/25 10.0/14.8 19.3/16.5 19.3 /8.6
Reserves (months of imports) 0.8/1.5 3.2/1.9 2.8/2.8 2.8/2.2 2.8/3.2
Real exchange rate -33/0.5 1.4/-0.6 NA -11.2/1.3 NA

Table1. Evolution of the Ghanaian economy between 2000 and 2010

Conclusion: In ten years, Ghana has succeeded to transform a disastrous economy into a model of economic emergence. The mutation of the Ghanaian economy has significantly reduced the level of extreme poverty. The instruments of this economic success lie in a good practice of monetary policy by the Central Bank. Inflation has been reduced to a single digit. Fiscal policy, remains the main challenge of the country. It has been hard to eliminate public deficit, while restructuration of state owned companies was accomplished with success. The liberalization of the banking sector helped the private sector to take on more economic activities. Political stability of the institutions did encourage the inflows of Foreign Direct Investment. The considerable work of lobbying from previous Governments (Rawlings-Kuffor) has made the country a mandatory transit for all US Presidents (Clinton-Bush-Obama). However, the greatest merit of the country has been to follow the recommendations of the IMF “Excecutive Board of Director”.

Francis Konan

Economist at “Les Afriques”

A graduate of the University of Economics and management of Vienna (Austria) graduated from the Institute of advanced studies in Vienna (Austria), a graduate of the Faculty of Economics & management of the University of Abidjan (Cocody). For all comments follow my blog:


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