News Guide Africa

Tag: disinflation

  • Ghana’s economy navigates inflation easing and structural debt

    Ghana’s economy navigates inflation easing and structural debt

    By Adnan Adams Mohammed

     

    Ghana’s macroeconomic landscape reflects a delicate transition from emergency fiscal stabilization to long-term structural recalibration.

    Following a turbulent period marked by comprehensive sovereign debt restructurings, rapid currency depreciation, and double-digit price increases, key performance indicators suggest an economy finding its footing. However, underlying structural vulnerabilities, ranging from elevated borrowing costs to persistent energy sector liabilities, continue to temper broader growth expectations.

    Data from the Bank of Ghana and the Ghana Statistical Service highlights a notable deceleration in headline inflation from historic highs. This disinflationary trend has allowed monetary authorities to transition away from aggressive monetary tightening, stabilizing the benchmark policy rate at 14.0%. Backed by strong international prices for gold, resilient cocoa receipts, and steady donor inflows under ongoing multilateral support programs, the Cedi has experienced reduced volatility compared to previous adjustment cycles, bolstering foreign exchange reserves and consumer sentiment.

     

    Macroeconomic Indicator Previous Peak / Level Current Estimate Policy Implications

    Real GDP Growth 0.5% (2020) ~4.8% – 5.0% Driven primarily by non-oil services and industrial extraction.

    Monetary Policy Rate 30.0% (July 2023) 14.0% Easing liquidity constraints while maintaining an anti-inflationary bias.

    Public Debt-to-GDP ~61.0% ~45.5% Reflects restructurings, though debt-service ratios remain elevated.

    Current Account Deficit Surplus (~4.4% of GDP) Supported by trade surpluses in the extractive export sectors.

     

    Expert Perspectives on the Recovery

    The ongoing trajectory of the domestic economy remains a subject of active debate among monetary authorities, international development partners, and private enterprise operators:

    “The current policy stance is intended to steer inflation toward the central bank’s medium-term target while allowing policymakers more time to assess incoming data and its implications for the domestic economy”, Dr. Johnson Asiama, Governor of the Bank of Ghana.

     

    “We are moving into a phase of measured recovery, where fiscal stability and disciplined debt management take priority over rapid, unchecked expansion”, World Bank Regional Lead, Africa Economic Update.

     

    “While easing inflation helps bring down operational input costs, high interest rates and cautious consumer spending mean small businesses still face tight liquidity”, Kwame Addo, Private Sector Analyst & Trade Consultant

     

    “Ensuring that the macroeconomic gains filter down to the real economy requires sustained investment in domestic value-addition, particularly in agribusiness and light manufacturing”, Abena Mensah, Senior Fellow at the Center for Economic Policy

     

    Key Growth Drivers vs. Downside Risks

    ● Primary Growth Drivers: The non-oil services sector led by telecommunications, financial services, and digital trade continues to serve as the chief engine of domestic output. This is complemented by strong extractive yields from high gold production and an improved balance-of-payments position that provides crucial import cover.

    ● Fiscal and Structural Challenges: Although the primary budget deficit has narrowed under strict expenditure controls, high legacy debt-service obligations, tight domestic credit conditions, and elevated youth unemployment continue to restrict private sector capital investment.

    ● Energy Sector Liabilities: Accumulating arrears within the domestic power supply chain remain a notable implicit fiscal liability, requiring continued sector reform to prevent fiscal slip-ups.

    ● External Volatility: External commodity price fluctuations, particularly shifting global oil and cocoa prices, continue to present vulnerability to state revenue projections and foreign exchange supply.

    While macroeconomic stabilization initiatives have successfully curbed runaway inflation and reduced currency volatility, translating these top-line figures into widespread employment creation and improved living standards remains the chief hurdle for economic managers over the medium term.

     

  • Ghana Reference Rate hits 10% as banks pivot to real economy

    Ghana Reference Rate hits 10% as banks pivot to real economy

    By Adnan Adams Mohammed

    Ghana’s financial landscape is undergoing a radical transformation as the Ghana Reference Rate (GRR) plummeted to a historic low of 10.06% as at last week.

    The drop, fueled by consistent disinflation and aggressive monetary easing, has signaled the beginning of a “cheap credit” era, forcing banks to abandon their reliance on government securities and look toward the private sector.

    For years, Ghanaian businesses have complained of “crowding out,” where banks preferred the safety of high-interest Treasury bills over the perceived risks of lending to local entrepreneurs. However, with Treasury returns now falling in tandem with the GRR, that dynamic is shifting.

    The great pivot to the private sector

    Farihan Alhassan, a prominent banking executive, has noted that the era of “easy money” from government paper is fading. As yields on Treasury bills lose their luster, financial institutions are being pushed to deploy their liquidity into the real economy.

    “The low-interest environment is effectively forcing banks to go back to their core mandate: lending,” Alhassan stated. “We are seeing a strategic shift where credit is finally flowing into manufacturing, agriculture, and SMEs. The focus has moved from government desks to the shop floors of Ghanaian businesses.”

    Relief for borrowers, risks for lenders

    The drop to 10.06% is expected to trigger an immediate reduction in the cost of existing floating-rate loans, providing much-needed breathing room for debt-burdened companies and households. Analysts predict that if inflation continues its downward trend, the GRR could hit single digits by the end of the year.

    However, this transition is not without its detractors. While the prospect of affordable credit is being celebrated by the business community, some industry veterans are sounding the alarm on the potential for “costly consequences.”

    The “subprime” warning

    In a stark counter-narrative, the Managing Director of GCB Bank, Kofi Adomakoh, has warned that the rush to lend in a low-interest era could lead to a subprime lending crisis. The concern is that in the desperate search for yield, banks might lower their credit standards and lend to over-leveraged or unviable businesses.

    “Cheap credit is a double-edged sword,” the GCB MD cautioned. “While it fuels growth, it also creates an environment where risk can be mispriced. If we are not careful, the ‘low-interest era’ could seed the next crop of non-performing loans (NPLs) if credit is extended without rigorous due diligence.”

    A new economic chapter

    Despite the warnings, the prevailing sentiment on the streets of Accra is one of cautious optimism. For the first time in a decade, the dream of affordable capital for Ghanaian-owned industries seems within reach.

    The Bank of Ghana is expected to monitor the situation closely, balancing the need for economic stimulation with the stability of the banking sector. For now, the message to the private sector is clear: the vaults are opening, but the scrutiny will be tighter than ever.

    Key market movements:

    Ghana Reference Rate (GRR): 10.06% (Down from 12.5% in Q1).

    Forecast: Further cuts expected as inflation stabilizes.

    Banking Trend: Increased allocation to private sector credit portfolios.