Ghana has solidified its position as a burgeoning tech powerhouse in Sub-Saharan Africa, outperforming regional giants Nigeria and Kenya in the newly released Fitch Solutions 2026 Digital Readiness Risk Index.
The index, which evaluates nations based on their technological infrastructure, regulatory environment, and the digital literacy of their workforce, places Ghana among the top-tier performers on the continent.
The report highlights Ghana’s aggressive push toward a “cashless” economy and the successful integration of digital IDs as key drivers for its superior ranking.
Leading the West African digital race
While Nigeria remains the largest economy in Africa and Kenya is often cited as the “Silicon Savannah,” the 2026 Index suggests that Ghana offers a more stable and less risky environment for digital investment.
Fitch Solutions noted that while Nigeria boasts a massive market size, it continues to grapple with infrastructure deficits and regulatory volatility. In contrast, Ghana’s “Digital Ghana Agenda” has created a more predictable landscape for international tech firms and fintech startups.
Key strengths: connectivity and policy
Several factors contributed to Ghana’s high score.
One is mobile money interoperability. Ghana’s early adoption and refinement of mobile money systems have led to higher financial inclusion rates compared to its peers.
The second is infrastructure investment. Recent expansions in 4G and 5G network coverage, particularly in urban hubs like Accra and Kumasi, have reduced the “digital divide.”
The third is the cyber-security framework. The report praised Ghana’s proactive legislative stance on data protection and cyber-security, which has boosted investor confidence.
The “risk” factor
The “Risk” component of the index is where Ghana saw its most significant lead. Fitch Solutions highlighted that Kenya and Nigeria face higher geopolitical and macroeconomic risks that can disrupt digital services. Ghana’s relative political stability and recent fiscal reforms have made it a “safe haven” for digital service providers looking to scale in West Africa.
Economic implications
Industry experts believe this ranking will trigger a surge in Foreign Direct Investment (FDI). “Being ranked above Nigeria and Kenya is a massive signal to the global tech community,” said a local digital economy analyst. “It tells venture capitalists and multinational corporations that Ghana isn’t just a participant in the digital age; it is a leader.”
However, the report also issued a caveat; to maintain this lead, Ghana must address the high cost of data and electricity, which remain significant barriers to universal digital access.
Government’s response
The Ministry of Communications and Digitalisation welcomed the report, describing it as a validation of the government’s efforts to digitize public services and create a robust digital economy.
As 2026 unfolds, the competition for digital supremacy in Africa is heating up. With this latest ranking, Ghana has firmly planted its flag as the destination of choice for the next wave of Africa’s technological evolution.
Some market watchers are worried over the government’s heavy reliance on gold exports to build the country’s reserves, identifying it as a key underlying risk to the implementation of the 2026 Budget.
They point to volatility in international gold prices as a major vulnerability.
These concerns echo warnings from Fitch Solutions, which says risks to Ghana’s economic growth outlook remain tilted to the downside.
The UK-based firm identifies gold prices as the principal vulnerability, noting that its Commodities Team expects prices to average a record US$3,700 per ounce in 2026.
Analysts caution that while elevated gold prices may provide short-term fiscal relief, a sudden correction in global markets could weaken external buffers and place renewed pressure on the cedi.
This, they argue, underscores the need for a more diversified reserve-building strategy that is less exposed to commodity price shocks.
In an interview with Citi Business News, finance and tax analyst Nelson Cudjoe Kuagbedzi urged the government to reduce its overdependence on commodity exports, even as some commodities continue to perform strongly.
“Cocoa has done very well, we have also exported crude oil, remittances have contributed significantly, and inflows from the International Monetary Fund (IMF) have supported the reserves we have built. However, we cannot rely solely on commodity exports because of their inherent price volatility. We do not control international commodity prices, but where prices are favorable, we should take advantage of the windfall and continue to build reserves to support the stability of the cedi,” he said.
He further noted that broadening the export base would help cushion the economy against external shocks and enhance long-term macroeconomic stability.
Fitch Solutions is projecting strong economic growth for Ghana in 2026, forecasting that the country will outperform several emerging-market peers on the back of solid macroeconomic gains made in 2025. The outlook was shared by Mike Kruiniger, Assistant Director at Fitch Solutions, during the Price Waterhouse Coopers (PwC) post-budget forum held last week, in Accra. Kruiniger described Ghana’s growth trajectory as “particularly impressive,” noting that the 2026 budget supports a continuation of the positive trends seen this year. “We see the 2026 budget as broadly supportive of growth, and this aligns with our forecast that Ghana’s real GDP growth will rise from an already strong 5.8% in 2025 to 5.9% in 2026,” he said. He added that private consumption and a rebound in fixed investment recovering from the sharp contraction in 2023 will drive next year’s performance. Fitch Solutions expects medium-term growth to remain healthy at around 5%, supported by strong domestic demand. According to Kruiniger, Ghana’s growth outlook is not only solid by its own historical standards but also stands out globally. The country is set to outpace several major emerging markets in 2026, including mainland China, Indonesia and Kenya. But the research firm also warned of emerging risks. Kruiniger cautioned that the escalating Islamist insurgency across the Sahel could pose a threat to Ghana’s otherwise optimistic economic outlook. He explained that although Ghana has so far been shielded from violent spillovers thanks in part to its northern terrain and stronger state presence instability in the region is worsening, especially in Mali. “Our base case is that Ghana will remain largely insulated from major attacks,” he said. gillian anderson nude Chiara Teocchi “But if militants were to cross into northern Ghana, the government would likely need to ramp up military spending, which is currently among the lowest in sub-Saharan Africa.”
The security warning comes at a time when Ghana is working to consolidate its post-debt restructuring recovery, stabilise inflation, and strengthen investor confidence going into the 2026 fiscal year.
Ghana’s economic prospects are looking up, with Fitch Solutions revising the country’s 2025 growth projection upward to 4.9 percent from its earlier projection of 4.2 percent.
As contained in its September 2025 Monthly Outlook, the 0.7% optimistic upward revision is driven by improving macroeconomic stability, supported by easing inflation and a relatively firm cedi.
This is 0.5% more than the Government of Ghana’s projection of 4.4% as captured in the 2025 Budget: 0.6% higher than the World Bank’s revised estimate of 4.3% and 0.9% higher than the International Monetary Fund’s growth projection of 4.0%.
Fitch’s revision signals renewed investor optimism about Ghana’s economic prospects, anchored on improving price stability, resilient agriculture, and stronger policy credibility.
Ghana’s economy remains on a steady recovery path, despite challenges such as fiscal consolidation, still high lending rates, and flat oil production. The stable currency and lower global energy prices are expected to boost consumer confidence and domestic demand.
A key driver of the economy, the agricultural sector, has been a top performer, expanding by 8.0% over the one year up to July 2025, driven by improved agricultural output. This growth is expected to continue, contributing to the country’s economic stability.
Challenges Ahead:
Meanwhile, some economists warn that sustaining the momentum will depend on fiscal restraint, continued structural reforms, and a stable exchange rate environment and have therefore urged the economic managers to diversify Ghana’s economic production base to generate sustainable growth, citing the need to support local farmers and drive demand for Ghanaian produce.
“Our production base is too narrow. We import almost everything. And as the growing middle class comes up, we are becoming much more import dependent rather than self-sufficient”, Professor Festus Ebo Turkson said while speaking during a UK-Ghana Chamber of Commerce and Deloitte Ghana seminar last week, cautioning that, Ghana’s economy remains too dependent on imports and vulnerable to external shocks.
Prof. Turkson argued that diversifying Ghana’s economy production base starts with supporting local farmers and driving deliberate demand for Ghanaian produce. This demand, he said, must not be left to market forces but should be intentionally cultivated through government policies.
“Adding value to and demanding local produce will boost their productivity. Once we produce enough for export, we can then produce for import substitutes,” he noted.
This falls directly in line with the call made by the Government Statistician on the government to expand local food production, maintaining effective policy coordination among others to anchor the current success in achieving single-digit inflation.
Dr. Alhassan Iddrisu emphasised that the achievement, while significant, is only the beginning.
“We can actually do this by continuing to do what we are doing, which is keeping the inflation down,” he said on Channel One TV’s The Point of View on Wednesday October 8, adding “This will include keeping public spending discipline, supporting local food production and also maintaining policy coordination.”
He warned against complacency, noting that although inflation has fallen, prices are still rising just at a slower pace.
“This is not the time to relax at all. In fact, inflation of 9.4% still means that on average, we are seeing the general price level increasing by 9.4% between September of last year and September of this year,” he explained.
Dr. Iddrisu described the return to single-digit inflation as progress, but said the real challenge now is ensuring that it can be sustained over the long term.
On human capital, Prof Turkson explained that Ghana’s human resource quality has improved from a “low” to a “moderate” scale over the past two decades a good foundation for light manufacturing.
“What we need now is to tailor education to the needs of industry,” he said, calling for investment into soft infrastructure to enhance youth training and promote the use of appropriate, labour-intensive technologies.
Incentivizing firms to create jobs
Prof Turkson further suggested that providing incentives for firms that adopt technology while creating jobs would guarantee a steady stream of revenue needed to fuel further growth.
“This is the way we can develop. That is what we call transformation,” he concluded.
Enhancing Ghana’s investment climate
Meanwhile, Cheryl Otoo, a Senior Manager at Deloitte Ghana, highlighted Ghana’s regulatory complexity and infrastructure deficits as two of the biggest constraints to investment. To this, Wisdom Kpano, Partner at Deloitte Ghana, recommended that the government channel resources into agriculture and agro-processing, renewable energy, and oil and gas – sectors with high potential for inclusive growth.
Also, Nicolas Jørgensen Gebara, CEO of the European Chamber of Commerce in Ghana, pointed to mining and digital transformation, especially in the context of the government’s 24-Hour Economy Policy, while Osman Aziz, Senior Investment Officer at Venture Capital Trust Fund, underscored the need to bridge the gap between education and industry needs.
For Prof. Turkson, resolving these systemic bottlenecks and creating an enabling environment for private sector growth must be central to government policy.
Outlook
The Cedi’s appreciation has strengthened Ghana’s credit outlook, with the debt-to-GDP ratio falling below 50% for the first time in years. Bank of Ghana Governor, Dr. Johnson Asiama ,has noted, expressing optimism that the reforms underway will consolidate gains made so far and make the cedi the currency of choice for domestic transactions
While Fitch expects growth to hold at around 5.0% in 2026, underpinned by falling inflation, anticipated monetary easing, and increased public expenditure as Ghana’s IMF-supported programme winds down, the World Bank projects growth to strengthen further to 4.6% in 2026 and 4.8% in 2027, underscoring a positive medium-term outlook.
Also, as Fitch projects inflation to decline to 8.0% by the end of 2025, down from 11.5% in August, marking the lowest rate in four years, the World Bank expects Ghana’s inflation to close 2025 at 15.4%, a projection that contrasts with the official rate of 9.4% as at September 2025, down from 21.5% a year earlier.
The Bank’s forecast appears conservative, given the country’s recent disinflation trend.
Nonetheless, the report expressed optimism that inflation will continue easing, dropping to 9.4% in 2026.
However, the Bank of Ghana, in its latest Monetary Policy Report, also reaffirmed expectations for inflation to remain within the single-digit range by year-end.
After a strong appreciation to peak reach around GHC10.02 to US$1.0 averagely, the Ghana cedi has broken the chain to run loose since August this year to sell at GH¢13.10 at Forex Bureaus, translating into a depreciation of 18.51 percent over less than the six weeks up to Tuesday, September 9, 2025.
Many analysts have attributed the sharp fall to strong corporate demand and tight foreign exchange supply as the Bank of Ghana has moderated its forex liquidity injections on the foreign exchange market with supply lower than in May, June and July 2025 after the International Monetary Fund caution in previous month against excessive government intervention on the foreign exchange market.
Market trend indicates that liquidity has been tight on the foreign exchange market as the market continues to correct itself. As of Friday, September 5, 2025, the local currency was going for c12.90 on average at the forex bureau but has since surged to GH¢13.10. However, analysts have warned this trend may continue if the forex supply is not increased.
Instructively, Fitch Solutions had earlier revised its end-of-year forecast of the cedi-to-dollar at GH¢13.0, from its previous projection of GH¢15.5 to US$1.0, predicting a 12.9% appreciation against the US dollar in 2025.
Consequently, President John D. Mahama has assured businesses and investors of greater currency stability, stressing that the government’s focus on fiscal discipline, prudent expenditure management and stronger macroeconomic fundamentals will provide a more predictable environment for trade and investment.
“I believe that it is about stopping rapid depreciation of the currency. When you have steep depreciation of about like we had in 2024, 25% depreciation in the currency in the first half of the year, it makes planning difficult. And so yes, Bank of Ghana BoG has been intervening in the forex market, but they’ve withdrawn,” he said during his maiden Media Encounter last week.
“The Cedi is making an adjustment, and I believe that it will settle at a certain rate, and we’ll make sure that any depreciation that occurs in the value of the Cedi is within a margin of about 5% per annum,” President Mahama added.
The Cedi saw a sharp appreciation against major international currencies earlier this year but has slowed in recent weeks sparking fears over a reversal of the gains made.
President Mahama projected that the cedi depreciation will remain moderate in the coming months, staying within a band of around 5% per annum, describing the recent currency fluctuations as part of a natural adjustment process rather than a sign of renewed instability, confirming that, the Bank of Ghana (BoG) has ceased interventions in the foreign exchange market.
Meanwhile, the Vice Chancellor of the Methodist University of Ghana, Professor William Baah-Boateng, has welcomed the President’s acceptance of moderate depreciation as encouraging for the economy.
“If the president aims to keep the exchange rate beyond 5% then that is excellent. Now we are doing about GH¢12. When you take 5% of GH¢12, you are looking at about 60 pesewas. So, if the cedi hovers around GHc2.60, then it is the same as stability. If we can work around that, then that is what we will all be happy about,” he explained.
The economist also praised Ghana’s recent progress on inflation management, attributing it partly to the cedi’s appreciation and improved food supply during the ongoing harvesting season.
“So far, we have done well when it comes to inflation because the appreciation of the cedi has contributed. Also, now we are in the harvesting season, and we have food in abundance,” he noted.
However, he cautioned that demand for foreign exchange could rise in the coming weeks as imports surge ahead of the festive season.
“But what we have to work on is meeting the foreign exchange demand that will come as a result of imports for the festivities. If the central bank can meet that, then we will be able to maintain it at that level,” he advised.
Economic institutions revise Ghana’s 2025 growth forecast, with gold exports playing a stabilizing role amid global uncertainty.
Adnan Adams Mohammed
Within the past two-weeks, Fitch Solutions and World Bank, both having globally respected economic views have released separate revised projections of Ghana’s economic growth projection for this year.
Fitch Solutions, last week, reaffirmed its projection that Ghana’s Gross Domestic Product, a measure of Ghana’s total economic output, will grow by 4.2% in 2025. This projection is 0.3% higher than the World Bank’s revised projection of 3.9%.
Ftich’s projection also slightly exceeds the International Monetary Fund’s forecast of 4%, but is far lower than Standard Bank’s projection of 5.4%, the highest growth rate projection so far for Ghana in 2025. The African Development Bank Group meanwhile has projected a 4.3% growth.
The UK-based research and sovereign ratings firm attributes its upbeat outlook to historically high gold prices, which are expected to cushion the Ghanaian economy against a global slowdown triggered by rising tariffs.
“Higher gold prices are anticipated to strengthen government revenue, enhance foreign exchange earnings, and help sustain currency stability”, Fitch said in its latest report.
The report also points out that Ghana is relatively less vulnerable to increasing trade restrictions from the United States, given that its primary exports—gold and crude oil—are not directly affected by the tariffs introduced by President Trump’s administration.
Moreover, the US constitutes only about 4% to 5% of Ghana’s total exports. In contrast, Ghana’s trade relations are more heavily oriented toward China and European countries, particularly Switzerland and the Netherlands.
While acknowledging potential risks from broader global economic headwinds, Fitch Solutions believes the anticipated gains from gold exports will likely offset these challenges by bolstering international reserves and supporting exchange rate stability through central bank interventions.
Fitch’s report on Ghana’s economic growth projection comes a week after the World Bank Group revised its projection downwards by 0.4 percent to 3.9% from its earlier projection of 4.3%.
The Bretton Woods institution explained that; persistent inflationary pressures and ongoing external vulnerabilities are key reasons for the downgrade. Highlighting climate-related risks (particularly, unpredictable weather patterns that have disrupted cocoa production in Ghana), it also warned that, climate-induced events such as floods and droughts continue to erode national budgets across Africa by up to 9%, causing economic setbacks of between 2% and 5% as contained in the April 2025 edition of its Africa’s Pulse report.
In the medium-term, the World Bank remains cautiously optimistic about Ghana’s prospects, projecting a rebound to 4.6% growth in 2026 and 4.8% in 2027. It rates Ghana among a few African economies showing early signs of recovery in 2025.
“Business activity in Mozambique and Ghana rebounded in February 2025,” the Group noted in the new report published last week. “The modest uptick in Ghana was driven by increased demand and a resurgence in new business engagements.”
High-frequency indicators, particularly the Purchasing Managers Index (PMI), suggest an uptick in business activity. Ghana’s PMI rose from 47.9 in January to 50.6 in March, indicating improved demand, easing supply bottlenecks, and renewed investor confidence following the December 2024 presidential elections.
Across the region, Sub-Saharan Africa’s economic growth is expected to rise slightly from 3.3% in 2024 to 3.5% in 2025, with further acceleration to 4.3% by 2026–2027.
However, the continent’s overall trajectory remains constrained by weak performances in its three largest economies—Nigeria, South Africa, and Angola. Excluding these, the rest of Sub-Saharan Africa is projected to grow by 4.6% in 2025, rising to 5.7% by 2027.
Still, the World Bank warned that elevated downside risks—including global policy uncertainties, climate shocks, and fiscal constraints—pose ongoing threats to a sustained and inclusive recovery across the continent.
In related news, the International Monetary Fund (IMF) sharply cut its global growth forecast 2.8% in 2025, a significant drop from the 3.3% forecast made in January as contained in the published IMF’s April 2025 World Economic Outlook (WEO), which cites escalating trade tensions with the United States announcing a wave of new tariffs with trading partners responding with their own countermeasures, creating ripple effects across global supply chains and investor sentiment.
It also cites mounting policy uncertainty as the main culprits behind the slowdown.
“Since the release of the January 2025 WEO Update, a series of new tariff measures by the United States and countermeasures by its trading partners have been announced and implemented, ending up in near-universal US tariff hikes on April 2 and bringing effective tariff rates to levels not seen in a century.
“This on its own is a major negative shock to growth. The unpredictability with which these measures have been unfolding also has a negative impact on economic activity and the outlook and, at the same time, makes it more difficult than usual to make assumptions that would constitute a basis for an internally consistent and timely set of projections.
“Given the complexity and fluidity of the current moment, this report presents a “reference forecast” based on information available as of April 4, 2025 (including the April 2 tariffs and initial responses), in lieu of the usual baseline. This is complemented with a range of global growth forecasts, primarily under different trade policy assumptions.
“The swift escalation of trade tensions and extremely high levels of policy uncertainty are expected to have a significant impact on global economic activity. Under the reference forecast that incorporates information as of April 4, global growth is projected to drop to 2.8 % in 2025 and 3% in 2026—down from 3.3% for both years in the January 2025 WEO Update, corresponding to a cumulative downgrade of 0.8 percentage points, and much below the historical (2000–19) average of 3.7%,” part of the report read.
In advanced economies, growth is now expected to slow to 1.4% in 2025, with the U.S. economy seeing a notable downgrade—now projected at 1.8%, nearly a full percentage point below previous estimates.
In emerging markets and developing economies, growth is expected to slow down to 3.7% in 2025 and 3.9% in 2026, with significant downgrades for countries affected most by recent trade measures, such as China. Global headline inflation is expected to decline at a pace that is slightly slower than what was expected in January, reaching 4.3% in 2025 and 3.6% in 2026, with notable upward revisions for advanced economies and slight downward revisions for emerging market and developing economies in 2025.
The IMF flagged intensifying downside risks, warning that a deeper trade war, rising financial instability, and fragile policy buffers could worsen the economic landscape. Vulnerable emerging markets could face capital flight, currency pressures, and increasing debt burdens.
The Fund also noted that a reversal or de-escalation of current trade policies could offer a reprieve and potentially revive global growth.
“Intensifying downside risks dominate the outlook. Ratcheting up a trade war, along with even more elevated trade policy uncertainty, could further reduce near- and long-term growth, while eroded policy buffers weaken resilience to future shocks. Divergent and rapidly shifting policy stances or deteriorating sentiment could trigger additional repricing of assets beyond what took place after the announcement of sweeping US tariffs on April 2 and sharp adjustments in foreign exchange rates and capital flows, especially for economies already facing debt distress.
“Broader financial instability may ensue, including damage to the international monetary system. Demographic shifts and a shrinking foreign labor force may curb potential growth and threaten fiscal sustainability. The lingering effects of the recent cost-of-living crisis, coupled with depleted policy space and dim medium-term growth prospects, could reignite social unrest. The resilience shown by many large emerging market economies may be tested as servicing high debt levels becomes more challenging in unfavorable global financial conditions.
“More limited international development assistance may increase the pressure on low-income countries, pushing them deeper into debt or necessitating significant fiscal adjustments, with immediate consequences for growth and living standards. On the upside, a de-escalation from current tariff rates and new agreements providing clarity and stability in trade policies could lift global growth,” it added.
The report calls for coordinated policy action, urging nations to work together to restore predictability in trade, strengthen debt sustainability, and address long-term structural challenges like demographic shifts and migration.
In the midst of growing uncertainty, Fitch Solutions has described investors’ sentiment towards the Ghanaian market as weak.
The international rating agency noted that foreign Investors remain cautious about uncertainty around Ghana’s debt restructuring processes.
In its latest assessment of Ghana dubbed “Bleak Investment Outlook Dims Ghana’s Short-Term Growth Prospects”, It alluded that the current unfavorable trend towards Ghana’s instrument to the rapid depreciation of the local currency (cedi) since last year, coupled with ongoing uncertainty around Ghana’s external debt restructuring process under the G20 Common Framework, will keep foreign investors cautious.
“Indeed, yields on the country’s Eurobonds traded at an elevated 34.4% (as of July 6), indicating that sentiment towards the Ghanaian market remains weak”, according to the UK-based rating agency, Fitch Solutions.
“Moreover, we project that growth in Ghana’s most salient source markets – including the EU, UK and US – will soften over 2023”, it explained.
Fitch is not in tuned with Ghana’s restrictive monetary conditions, claiming that, such coupling with still-elevated inflation in the markets will dampen appetite for overseas expansions.
These dynamics, it said, inform the view that Foreign Direct Investment inflows into Ghana will fail to return to pre-pandemic levels in 2023, further clouding the short-term outlook for fixed investment.
Ghana’s economic collapse cannot solely be blamed on COVID-19 pandemic and the Russian/Ukraine war, Fitch Solutions has discounted government’s overused excuse.
It explains that, even before these external shocks hit the global economy, Ghana’s debt was above the sustainable level as measured against the International Monetary Funds threshold of debt to Gross Domestic Product ratio of 70 percent and below.
The international investors’ research firm argue that, Ghana went back to the international capital market in early 2021 in desperation for cash. This attracted investors to take advantage of the sweet rates Ghana was selling its Eurobonds, this led to investor investors oversubscribing Ghana’s bonds which later resulted in currency sell off, and afterwards the country started witnessing symptoms of hiding chronic economic disease of escalating exchange rate and inflation since early 2022
“I think the answer is, it’s been aggravated by the Covid-19 pandemic and the war in Ukraine. Those two are not the only cost to Ghana’s woes”, Senior Country Risk Analyst, Mike Kruiniger, responding to a question at a recent Sub Saharan Africa Macroeconomic Update event said. “Both external and internal shocks caused the macroeconomic imbalances in the country.”
“Ghana’s debt servicing costs were already rising pretty rapidly prior to the pandemic with the government having to work on pretty large scale of spending projects including restructuring of the banking sector and providing free secondary education to everyone in Ghana”, he explained.
Mr. Kruiniger also blamed the high borrowing on the international capital market as one of the country’s problems.
“Ghana went back to the international capital market in early 2021, with this seamless desperation for cash. Investors started to flood the country which led the currency to sell off and after that, we’ve seen all the problems that Ghana has been facing since early 2022”.
He concluded that though the Covid-19 and the Russian Ukraine war have contributed to Ghana’s crisis, they are not only the reasons behind Ghana’s economic challenges.
Meanwhile, the Institute of Economic Affairs pointed that indiscipline in managing the country’s finances has caused the high fiscal deficits and consequently high inflation and currency instability, forcing innocent Ghanaians and businesses to pay for the mismanagement.
The think-tank expressed it worry in a paper published and titled “Institutionalising Fiscal Discipline and Macroeconomic Stability for Sustained Growth in Ghana: The Constitutional Pathway.”
Lead Researcher at the Intitute, Dr. John Kwakye, noted that Ghana has a long history of fiscal indiscipline and this is evident in its fiscal deficits being almost consistently higher than those of its peers in Africa.
“Our deficits tend to escalate in election years when we elevate election-related spending. Then we borrow to finance the deficits and cause our public debt to escalate to unsustainable levels. We have been in that situation numerous times. Our debt reached the first crisis situation around 2004, when it ballooned to over 100% of GDP”.
“We had to seek relief under the HIPC Initiative, which caused the debt-to-GDP ratio to drop to a sustainable level of 26% in 2006. Thereafter, we returned to our culture of fiscal indiscipline, which caused the debt to rise yet again. And today, the debt-to-GDP ratio is back to an unsustainable level of over 100%”, he explained.
He added that the country must do everything possible to safeguard or institutionalise fiscal discipline under the constitution, else it will always record macroeconomic instability.
Also, associated with the high fiscal deficits has been high inflation and currency instability, which the IEA called for immediate action.
According to Dr. Kwakye, Ghana has had much higher inflation rates than its peers, adding, the cedi has experienced much higher depreciation over the years.
Again, he said “government domestic borrowing to finance the deficits has elevated interest rates to levels that have crowded out the private sector, inhibiting investments and stifled economic growth. High fiscal deficits and the associated demand pressures have also spilled over to the external sector, leading to high current account deficits”.
The economist opined that, prevalent fiscal indiscipline and its associated macroeconomic instability, and over-borrowing to spend on goods and services are what have taken the country to the IMF about 17 times.
“We have been caught up in an unending cycle of high fiscal deficits, high interest rates, high inflation, high current account deficits, rapid exchange rate depreciation, and unstable growth. It is our prevalent fiscal indiscipline and associated macroeconomic instability and debt crises that have taken us to the IMF seventeen times”.
The banks suffering from fall in capital levels due to the domestic debt exchange program (DDEP) may resort to target lending, Fitch Solutions has said,
The investor firm predicts that, industries with low non-performing loans (NPLs) ratios and positive outlook, especially the mining sector may receive lending from the banks.
While the mining sector has a low NPL ratio of 4.0%, with a positive outlook forecast for gold mining in Ghana which accounts for 95% of the country’s mineral revenue; the construction sector, which has about 35% NPL ratio ( thus, one-third of all loans are non-performing) as estimated by Fitch, is expected to receive less lending from local banks.
“Local banks will be more inclined to lend to industries with low non-performing loans (NPLs) ratios and positive outlook, especially since we expect to see a rise in NPLs in the coming quarters, given the challenging macroeconomic backdrop and slowdown in loan growth”, Fitch Solutions said in its latest report.
“We think that the Mining & Quarrying sector stands out as it has a low NPL ratio of 4.0%, and as we forecast a positive outlook for gold mining in Ghana (which accounts for 95% of the country’s mineral revenue)”, it explained.
On the other hand, it said nearly one-third of all construction loans are non-performing, which suggests that banks are unlikely to increase their exposure to this sector amid challenging economic conditions.
According to Fitch Solutions, the domestic debt restructuring programme has led to a significant fall in the capital levels of banks in Ghana and could threaten the solvency and stability of the sector.
It said: “Banks are entering this phase with a mixed capital picture, with some banks very close to the minimum regulatory capital level of 13.0%”.
Fitch Solutions also pointed out that capital buffers have fallen considerably in 2022, despite a sudden rise in December.
The fall, it noted, was largely driven by mark-to-market losses on investments and increases in risk-weighted assets of banks, due to the depreciation of the cedi and growth in loans and advances.
However, capital levels narrowly avoided falling below the minimum requirement in December 2023, likely as a result of banks retaining more of their earnings, in preparation for expected losses in profits and capital in 2023.
“The debt restructuring and fall in capital could lead to higher funding costs for banks if they become less creditworthy, and could significantly impact the banking sector’s solvency and stability”, Fitch Solutions warned.
The warning by Fitch Solutions dovetails into similar sentiments expressed by the Bank of Ghana recently.
Admittedly, Bank of Ghana at its Monetary Policy Committee meeting press briefing, last week, indicated that macroeconomic challenges and the recent domestic debt exchange programme (DDEP) have weakened banks’ capital buffers.
The situation, according to the Governor of the central bank, Dr Ernest Addison, requires urgent measures to forestall financial stability risks.
“The macro-prudential risk assessments conducted during the last MPC meeting indicated increased pressure on profitability and solvency of banks prior to the implementation of the DDEP”.
“The preliminary data available at this MPC, show that the pre-pandemic capital buffers in the banking sector have been weakened somewhat by the recent macroeconomic challenges and the DDEP, although banks remain liquid”, he explained.
Consequently, the governor noted that, “These require contingency measures by banks, supported by the regulatory reliefs to contain potential risks to financial stability.
“The Bank of Ghana will continue to monitor these developments going forward, and stands ready to act very swiftly to safeguard the stability of the financial sector”.
The government is unlikely to issue Eurobonds at attractive yields in the short term even if it secures an International Monetary Fund support programme this month or in the next couple of months.
In its February 2023 Africa Monitor Report, Fitch Solutions, said the rising interest rates which has been hiked to 28% at the beginning of last year make domestic borrowing more expensive.
“First, Ghana faces external financing constraints. Indeed, the country has been cut off from the international capital market since late-2021 due to subdued investor confidence. While an expected IMF deal in Quarter 1, 2023 will gradually improve market sentiment, it is unlikely that the government will be able to issue Eurobonds at attractive yields in the short term”.
“In addition, the IMF programme (expected to be worth $3 billion over a three-year period) would only finance a portion of the targeted deficit”, it explained further.
Secondly, Fitch Solutions, said the rising interest rates make domestic borrowing more expensive, adding, “given that Ghana already faces elevated interest payments, a substantial increase in domestic debt issuance would weaken fiscal dynamics further.
Furthermore, it said the domestic debt exchange programe would make domestic banks more cautious in lending to the government in 2023.
Nonetheless, it pointed that the government’s expansionary spending plans will result in a rising public debt-to-Gross Domestic Product (GDP) ratio.
Indeed, it expects the public debt-to-GDP ratio to continue on an upward trajectory until 2028 (reaching 94.4%), after which it will start to moderate.
Risks to outlook
It said there is a risk that the IMF could express concerns about Ghana’s 2023 budget given the elevated spending target.
This could lead to the government having to revise their fiscal plans, which would draw out the negotiation process.
