The Bank of Ghana has identified weak revenue performance, pressures from employee compensation, and increasing energy sector payments as major fiscal risks that could impact the country’s economy for the rest of 2025.
According to the central bank’s September 2025 Monetary Policy Report, the conclusion of external debt restructuring negotiations may also create short-term external payment challenges, potentially affecting the local currency.
The fiscal policy implementation for January-July 2025 showed significant improvement, with a primary balance surplus of 1.0% of Gross Domestic Product, exceeding the target surplus of 0.5%. However, total revenue and grants recorded shortfalls in all broad categories, including non-oil tax revenues, oil and gas receipts, and Energy Sector Levy Account (ESLA) receipts.
To mitigate these risks, the Ministry of Finance has reaffirmed its commitment to maintaining budget credibility through realistic revenue targets, disciplined expenditure, and transparent fiscal operations. “We are determined to ensure that every cedi allocated in the budget corresponds with actual revenue performance and that we spend within our means,” said Deputy Finance Minister Thomas Nyarko Ampem.
“The Ministry of Finance’s commitment to budget credibility is crucial for restoring public and investor confidence in government finances. The 2026 national budget, set to be presented in November, is expected to focus on fiscal consolidation, job creation, and sustainable growth.”
Domestic VAT collections for the first five months of 2025 rose by 33.6% to GH¢8.31 billion, compared to GH¢6.22 billion recorded during the same period in 2024
That’s according to the Bank of Ghana’s July Monetary Policy Report, which also points to solid growth in retail sales over the same period.
This signals stronger consumer demand and improved tax compliance.
The report shows that retail sales increased by 35.7% cumulatively between January and May 2025, highlighting growing household spending and recovery in private consumption.
On a year-on-year basis, sales for May alone rose 38.6% to GH¢277.62 million, from GH¢200.27 million in May 2024. Month-on-month, retail activity improved by 4.6 percent, moving from GH¢265.46 million in April to GH¢277.62 million in May.
Domestic VAT collections also saw a robust performance in May, rising 30.1 percent year-on-year to GH¢1.77 billion. This can be attributed to the upward trend in both VAT and retail sales to enhanced economic activity, stronger consumer confidence, and improved tax administration.
According to the data, the uptick in consumer spending reflects a gradual rebound in domestic demand, supported by stable prices and moderate growth in disposable incomes.
However, market watchers believe that sustaining this positive momentum will depend on maintaining fiscal discipline, curbing inflationary pressures, and strengthening policy measures to support household purchasing power.
BoG reports economic stability with falling inflation and rising reserves.
By Adnan Adams Mohammed
The current strengthening of Ghana’s economy evident by significant improvements in its key economic performance indicators strongly shows growing confidence in the fortunes of businesses and consumers.
The Bank of Ghana data published last week, after the its Monetary Policy Committee, shows easing inflation, disciplined fiscal management, favourable external sector developments amidst tightening policy rate as key ingredients behind the country’s improving economic performance.
Headline inflation has declined consecutively in the first four months of the year by 2.6 percentage points to 21.2% in April 2025, driven by the lowering of both food and non-food inflation.
“A confluence of factors, including tight monetary policy stance, stepped-up liquidity sterilization efforts, downward revisions in ex-pump petroleum prices, and exchange rate stability have supported the gradual decline in inflation” BoG Governor, Dr Johnson Asiama explained last week when delivering the decision of the Monetary Policy Committee to retain its benchmark Monetary Policy Rate at 28%.
“The Bank’s core inflation measure, which excludes energy and utility prices, as well as inflation expectations of consumers, businesses, and the banking sector point to easing inflationary pressures.”
Similarly, the recently installed President John Dramani Mahama administration has reigned in the fiscal slippages that its predecessor government often fell prey to.
“Fiscal policy implementation so far has been broadly aligned with the 2025 Budget. In the first quarter of 2025, provisional data on budget execution indicated that although revenues fell below target, some expenditure rationalisation took place to accommodate the revenue shortfall” affirmed Dr Asiama.
“The primary fiscal balance (on commitment basis) has also improved in the first quarter. Continued maintenance of a strict fiscal consolidation for the 2025 Fiscal Year will further strengthen the ongoing recovery process and firm up macroeconomic stability.”
Key to the ongoing turnaround has been the external sector which has continued to improve, with a record provisional current account surplus of US$2.1 billion in the first quarter of 2025, driven mainly by higher prices and increased production volumes of gold and cocoa, and strong remittance inflows.
The current account surplus, together with net outflows in the capital and financial account, resulted in an overall Balance of Payments surplus of US$1.1 billion. The strong external performance resulted in significant reserve accumulation. Gross International Reserves (GIR) amounted to US$10.7 billion in April 2025, equivalent to 4.7 months of import of goods and services.
“Broadly, the external sector outlook remains favourable, largely anchored on expectations of increased gold and cocoa export receipts, as well as inflows from remittances” enthused Dr Asiama last week.
“The cedi has rebounded strongly against the major trading currencies driven by a combination of factors, including tight monetary policy stance, ongoing fiscal consolidation, record reserve accumulation, strict enforcement of foreign exchange market rules, and improved market sentiment.”
Indeed in the year to May 21, 2025, the cedi had appreciated against all the major currencies – 24.1 percent against the US dollar, 16.2 percent against the British pound, and 14.1 percent against the euro.
“The latest forecast points to continued easing of inflationary pressures on the back of tight monetary policy stance, exchange rate stability, and fiscal consolidation” the BoG Governor enthused.
“Inflation is expected to ease faster towards the medium-term target in the first quarter of 2026 as opposed to the second quarter as earlier envisaged, barring unanticipated shocks.”
This looks set to deliver palpable rewards. The BoG’s high frequency real sector indicators point to a sustained pickup in economic activity. The updated Composite Index of Economic Activity increased by 2.3 % year-on-year in March 2025, compared with 1.0% over the same period last year, mainly driven by exports, credit to the private sector, and construction activities.
In addition, the Ghana Purchasing Managers’ Index rose above the 50-benchmark as output and new orders increased, signaling improved growth prospects. Based on easing inflationary pressures and optimism about macroeconomic conditions, the latest confidence surveys conducted by the BoG showed significant improvement in consumer and business expectations going forwards, the highest in the last seven years.
BoG maintains policy rate, but market lending and treasury rates continue to decline.
By TomaImirhe
At the end of last week the Bank of Ghana’s Monetary Policy Committee (MPC) kept to the script expected by most monetary economists, when the central bank’s Governor, Dr Johnson Asiama, announced that the benchmark Monetary Policy Rate(MPR) was being maintained at 28%, for the next two months. This is the rate it had been hiked to at the end of March when the MPC voted for a 100 basis point increase from the erstwhile 27% it had inherited from the previous BoG administration.
Explaining the decision, DrAsiama noted that “The latest forecast points to continued easing of inflationary pressures on the back of tightmonetary policy stance, exchange rate stability, and fiscal consolidation. Inflation is expected toease faster towards the medium-term target in the first quarter of 2026 as opposed to the secondquarter as earlier envisaged, barring unanticipated shocks. “Despite these positive developments, the Committee observed that the current level of inflationremains high relative to the medium-term target and will require maintaining the tight stance toreinforce the disinflation process. Under the circumstances, the Committee, by a unanimousdecision, maintained the policy rate at 28.0%.”
The BoG now expects inflation to end the year at 11.9%, downfrom 21.4% currently, and fall further into its medium term target range of between 6% and 10% by the first quarter of 2026.
While borrowers will be disappointed that the recent strong gains in Ghana’s key performance indicators did not translate into a cut in the benchmark MPR, DrAsiama correctly pointed out that the restoration of macro-economic stability is already driving down interest rates across board, despite the central bank’s continued tight monetary policy to squeeze out stubbornly high headline inflation.
While average deposit rates have barely changed since the beginning of 2025, the Ghana Reference Rate – which is set by the Ghana Association of Banks and serves as the base lendingrate for the industry – fell from 29.31% at the start of this year, to 23.99% by April. Similarly, the average lending rate charged by banks, fell from 30.25% to 27.40% over the same period. This is despite the 100 basis points increase in the benchmark MPR in late March.
Pending the release of data for May, it is safe to assume that this trend of falling interest rates is continuing. Between January and April, the 91 day treasury bill rate fell much more sharply than lending rates, from 27.73% to 15.47%, while the 182 day bill declined from 28.43% to 16.23% and the 264 day bill fell from 29.95% to 18.62%. Instructively, at the most recent weekly tender of government treasury bills – concluded at the same time the MPC was deciding to retain the MPR at 28%– the 91 treasury bill interest rate reached a new low of 14.93%, with the 182 day bill rate having fallen to 15.55% and the 364 day bill having declined to 16.00%.
Based on interest rate trends over the previous couple of months this suggests that lending rates are likely to have fallen further during May too and look set to continue declining over the coming weeks, despite the MPR having been retained at 28%.
It is instructive that despite the ongoing decline in interest rates, lending rates remain positive in real, inflation adjusted terms, and the negative gap between treasury bill rates and inflation, although inordinate, looks set to dissipate as inflation edges lower towards the central bank’s target for end of 2025 of11.9%.
The Ghana cedi has emerged as the best performing currency in sub-Saharan Africa, supported by macroeconomic reforms, remittances, and rising cocoa prices.
Adnan Adams Mohammed
A financial analyst has defused assertions by some critics that the Ghanaian local currency, the cedi, is appreciating in value against major international trading currencies simply due to government’s use of the Bank of Ghana’s gold reserves to intervene on the foreign exchange market.
Dr Richmond Atuahene indicated that the Cedi’s performance should be seen as the outcome of a balanced blend of prudent policies and economic activity trends.
In recent weeks, the Cedi has gained strength to be the world’s best performing currency, according to Bloomberg’s analysis, after losing so much value to be the world’s weakest currency just a few years ago. As many Ghanaians are jubilating over this reversal of fortunes, most traders, and some critics of the government are downplaying the current government’s coherent economic policies and fiscal consolidation efforts resulting in the historic performance of the local currency. However, Dr Atuahene justifies his position against such criticism.
“The cedi’s gains are the result of multiple economic forces working together,” Dr. Atuahene noted in an interview last week. “The currency is not strengthened because it is only gold having an impact. Let me tell you on record, remittances have been revamped in this country.”
He explained that “A significant rise in foreign remittances has increased liquidity in the banking sector, improving banks’ access to forex and supporting overall currency stability.”
He also cited surging cocoa prices on the international market as another critical factor.
“Don’t forget cocoa. It will shock you to know that a year ago [in 2024], cocoa was sold at [US$)4,825 per metric tonne. Today, go to the market—we’re talking about [US$) 8,000,” he said.
Beyond remittances and exports, he pointed to macroeconomic policies such as fiscal discipline and tightened monetary policy as important drivers behind the cedi’s resurgence.
“All these things are the factors, in addition to the fiscal discipline, tightened monetary policy, and what have you. So, you can’t lay your hands on just the gold. Let’s get it that remittances are giving lots of banks forex” he added.
Meanwhile, the cedi is projected to continue its upward momentum this week, buoyed by improved market sentiment, Bank of Ghana (BoG) support, and renewed investor confidence, according to Databank Research’s weekly currency update. Last week, the local currency emerged as the top-performing currency among 15 sub-Saharan African countries, continuing its upward trajectory on the back of robust liquidity and stabilizing macroeconomic fundamentals. The Ghana cedi recorded notable appreciation across major currencies: 6.25% against the US dollar (USD), 7.61% against the British pound (GBP), and 5.81% against the euro (EUR).
In a significant endorsement of Ghana’s economic recovery efforts, S&P Global Ratings on May 9, 2025, upgraded Ghana’s long- and short-term foreign currency sovereign credit ratings from Selective Default (SD) to ‘CCC+/C’, while affirming local currency ratings at ‘CCC+/C’ with a stable outlook.
The ratings agency attributed the upgrade to improved economic growth, ongoing fiscal reforms, a stronger external position, and a growing track record of prudent public financial management, particularly through election cycles.
S&P’s decision reflects growing international optimism in Ghana’s economic trajectory, particularly under the stewardship of Finance Minister Dr. Cassiel Ato Forson.
With macroeconomic reforms taking root, foreign exchange conditions improving, and international credit ratings trending upward, analysts anticipate the cedi will maintain its strength in the near term.
“Investor sentiment is improving, and the central bank’s interventions continue to support the local unit,” Databank Research noted. “We expect further appreciation of the cedi in the coming week.”
The rating upgrade is expected to bolster Ghana’s external financing opportunities, reduce debt vulnerabilities, and provide a firmer foundation for long-term currency stability.
On the backdrop of the predicted elevated forecast for the Ghanaian economy, Dr Atuahene is hopeful that Ghana could derive significant benefits if the current appreciation of the cedi against major foreign currencies is maintained over the long term, highlighting the importance of currency stability for the broader economy, particularly in terms of economic planning and business confidence.
“The currency appreciation, if it happens to be long-term, is one of the best things that could happen to us for a very long time. Because we have been in this situation for a very long time. But if we can continue to sustain the stability of the cedi, it will change our situation” he stated.
Dr. Atuahene further noted that sustaining such stability hinges on maintaining key economic fundamentals.
“There are cardinal things—stable exchange rate, lower inflation, lower fiscal deficit, if you get all these components in, then your currency will be as good as anything, and that is good for businesses, import planning,” he said.
“The cedi’s rebound is underpinned by booming gold and cocoa exports, IMF-backed reforms, and monetary tightening.”
By Toma Imirhe
In a remarkable turnaround, the Ghanaian cedi has emerged as the world’s best-performing currency in 2025 – according to data from Bloomberg – appreciating nearly 16% against the U.S. dollar since April and trading at GH₵13.20 as of early May 2025.
This resurgence marks a stark contrast to its status as the worst-performing currency in 2022, when it lost over 55% of its value amid a debt crisis and inflationary spiral, with the exchange rate peaking at over GHc16 to US$1 subsequently. The cedi’s rebound has injected optimism into Ghana’s economy, easing inflation to 21.2% in April and revitalizing business confidence.
To be sure, many economists and financial market analysts, not drawn into politically motivated pessimism, had expected that the cedi’s sharp depreciation since late 2022 – including 19% depreciation in 2024 alone – would be stemmed upon the assumption of office of a more fiscally restrained and measured President John Mahama administration, but even they have been surprised by the sheer intensity of the currency’s rebound.
Several factors have driven the cedi’s dramatic rebound, one of them being the strategic interventions of the country’s central bank. The Bank of Ghana (BoG) has played a pivotal role through aggressive monetary tightening and forex market interventions. In March 2025, the BoG surprised markets with a 100 basis-point hike, raising the policy rate to 28% to curb inflation and attract foreign capital. By April, it injected US$490 million into the forex market, stabilizing liquidity and driving the interbank rate from GH₵15.36 to GH₵14.91 overnight. These measures, combined with a shift to spot-market forex auctions, have reassured businesses of dollar availability, reducing speculative dollar hoarding.
Another pivotal factor has been the commodity revenue windfall arising out of the ongoing price surges in two of Ghana’s main traditional exports, gold and cocoa. Ghana’s status as the world’s sixth-largest gold producer has proven transformative. Surging gold prices—from US$2,000 per ounce in 2024 to US$3,400/ounce in May 2025— boosted export revenues to US$11.6 billion in 2024,up from US$7.6 billion in 2023. This trend is now accelerating further. Instructively, Ghana earned US$2.72 billion from gold exports alone during first four months of 2025 up from US$900 million during the corresponding period of 2024.
Cocoa prices nearing US$10,000 per ton have further bolstered inflows, combining with gold, oil and non- traditional exports to take Ghana’s trade surplus to a long term high of US$4.3 billion in 2024 – despite continued cocoa production sluggishness and a backlog of unfulfilled supply contracts from the previous crop season that are now having to be met at barely a quarter of current market prices.
Yet another factor has been the impacts of the ongoing three year International Monetary Fund programme, which includes a US$3 billion financial bail out and an insistence on a return to demand management economic management policies to restore macroeconomic stability after the near-chaos that reigned from late 2022 to late 2023. The current government’s austerity measures—halting GHc 65 billion in arrears payments and reducing treasury bill yields from 28% to 15%— have curbed debt pressures and attracted renewed investor confidence. Political stability post-2024 elections, marked by President Mahama’s decisive reforms, have further solidified market trust.
There has been a key external factor too in that the dollar’s depreciation, driven by U.S. tariff wars and a falling Dollar Index (DXY) from 108 to 99 in 2025, have amplified the cedi’s relative strength. At the same time retaliatory tariffs from China and the EU have weakened global dollar demand, diverting capital flows to emerging markets like Ghana.
Going forward, government and optimistic financial analysts are looking up to the Gold Board initiative, the spike in gross international reserves to US$9.4 billion by the start of May, rising cocoa production – most of which is now being sold at close to the relatively high spot market prices – and the falling cost of imported petroleum products, to cumulatively discourage speculative demand for forex and further strengthen the cedi’s exchange rate over the coming months.
However, they acknowledge that potential pitfalls exist as the rebound remains fragile for now.
While the cedi’s rally is commendable, its longevity hinges on addressing structural vulnerabilities
One is Ghana’s commodity dependence amid global markets price volatility. Ghana’s reliance on gold and cocoa exports—accounting for 60% of forex earnings—leaves it exposed to price swings. A downturn in gold prices or cocoa yields (due to climate or disease) could reverse gains. The IMF warns that import dependency (especially on items such as, fuel and machinery) and a US$3.6 billion Eurobond repayment schedule between 2025 and 2028 could strain reserves
There are also monetary policy potential pitfalls. Despite inflation easing, the BoG remains cautious about rate cuts. Economists note that utility price hikes and lingering inflation threats – with inflation still more than twice the upper end of the 6–10% target – may delay monetary easing. Overly aggressive rate cuts could reignite inflation or speculative attacks on the cedi..
Then there are political and fiscal risks. Ghana’s public debt-to-GDP ratio, though improving, remains elevated at over 70%. The success of the Debt Sustainability Plan, to be unveiled in July 2025, is critical for maintaining investor confidence. Political strategy shifts or lax fiscal discipline could undermine reforms.
Finally the threat of global headwinds remains a clear and present danger. The U.S. Federal Reserve’s interest rate trajectory and China’s economic slowdown pose risks.
“Lower global food prices and a resilient local currency have contributed to easing inflation in Ghana.”
Adnan Adams Mohammed
Ghana’s rate of inflation declined to 21.2 percent in April, 2025, the lowest in eight months.
The improvement from the 22.4% recorded in March reflects the fifth consecutive month of disinflation.
This means consumer prices fell by 0.8% month-on-month during the period under review as analysts attribute the improvement to a stronger local currency which has helped curb import-related price pressures.
Both food and non-food inflation moderated during the period, contributing to the downward trend.
Food inflation slowed to 25.0% in April from 26.5% in March, while non-food inflation decelerated to 17.9% from 18.7%.
“The Consumer Price Index (CPI) for April 2025 was 258.6, up from 213.3 recorded in April 2024. This represents a year-on-year inflation rate of 21.2%, meaning that the general price level in April 2025 was 21.2% higher than in April 2024”, Government Statistician, Alhassan Iddrisu, announced in Accra last week. “This marks a 1.2 percentage point decrease from the previous inflation rate of 22.4%, indicating that inflation slowed by 1.2 percentage points over the period. Encouragingly, this is the fifth consecutive time that inflation has declined.”
Meanwhile, analysts had projected a further slowdown in Ghana’s inflation for April driven by relatively stable petrol pump prices and a steadier cedi.
A report by Databank Research anticipated that the disinflation trend will persist, supported largely by improved food supply dynamics. However, on the broader outlook, the report warned that sustaining this downward momentum will hinge on monetary policy decisions.
It warns that any premature interest rate cut, particularly at the upcoming May 2025 Monetary Policy Committee meeting, could reverse the gains, despite the policy rate having been raised to 28 percent in March.
“These marginal drops indicate a balanced contribution from both sectors of the consumer basket”, the Government Statistician added.
Consequently, global food prices are expected to decline for a second consecutive year in 2025, driven primarily by a significant slump in rice prices, as abundant global supplies and relaxed export restrictions weigh on the market.
The World Bank’s latest Commodity Markets Outlook forecasts a 7% year-on-year decrease in its food price index, with each of its three main sub-categories, grains, oils and meals, and other food items, projected to record declines.
Grain prices are expected to see the steepest fall, dropping by 11%, largely due to a projected 29% plunge in rice prices.
This outlook is attributed to strong global production and the easing of India’s export restrictions.
India, which accounts for about 40% of global rice exports, is projected to increase output by 5% in the 2024-25 season. Globally, rice production is forecast to rise by 2%.
Despite this short-term weakness, rice prices are expected to remain relatively stable in 2026, as both supply and demand are projected to grow in tandem, according to early estimates from the International Grains Council.
Wheat prices are also likely to trend downward through 2026, amid concerns about trade-related demand. However, the decline may be cushioned by tight supply conditions.
While global wheat output is close to record levels, it is anticipated to fall slightly below consumption, resulting in reduced inventory levels.
Maize prices, on the other hand, are expected to ease by 2% in both 2025 and 2026. Weaker crude oil prices, dampening ethanol demand, alongside growing U.S.-China trade tariffs are likely to suppress demand.
Additionally, maize’s price advantage over wheat and soybeans is expected to encourage expanded cultivation, adding further downward pressure.
Even so, the fall in prices could be limited by historically low stock levels, which are set to reach their lowest in over a decade.
The Ghana Statistical Service (GSS) is urging coordinated efforts from households, businesses, and government to maintain the country’s current disinflation path, following a marginal drop in the national inflation rate.
Dr Iddrisu encouraged households to be prudent in their spending. “Continue to manage expenditures cautiously and remain responsive to changes in prices of items such as food and transport, which have shown volatility.”
He called on businesses to leverage the easing cost environment to stabilise operations, particularly in areas reliant on transport and imported inputs such as restaurants and accommodation services. He further urged the government to stay the course on macroeconomic measures and maintain ongoing social intervention programmes to protect lower-income households.
These include initiatives like the Livelihood Empowerment Against Poverty (LEAP), the Capitation Grant, and the School Feeding Programme.
In his remarks, he highlighted the need for closer monitoring of food markets, particularly high-inflation items like ginger, beans, and vegetable oil.
He also emphasized accelerating support for agriculture, saying the government must “fast track the implementation of the Agriculture for Transformation Programme to reduce food inflation, particularly on vegetables, tubers, and plantains which have a high weight in the CPI basket.”
Dr. Iddrisu concluded by stressing the importance of inflation literacy, urging that “public education on inflation dynamics be strengthened to promote informed household decision-making.”
Early data for 2025 from the Bank of Ghana suggests that the surprisingly strong economic growth Ghana achieved in 2024 will continue this year.
Data released at the latest Monetary Policy Committee press briefing at the end of March reveals that the first two months of this year have recorded increased economic activity, improved sentiments by both consumers and businesses as well as a build-up in business inventories. The central bank’s real sector indicators point to a sustained improvement in economicactivity, amid significantly improved business and consumer sentiments.
Theupdated Composite Index of Economic Activity (CIEA) rose by 5.7% year- on-year in January 2025, relative to 1.1% in December and 3.5% in January 2024, driven by increased consumption, international trade activities, and private sector credit growth. The CIEA measures economic activity, which is different from the Ghana Statistical Service’s measure of changes in economic output (Gross Domestic Product growth) but since economic activity is directly related to economic output, both measures tend to correlate with each other, loosely at least.
The BoG’s latest consumer confidence survey puts the index at 100.2 in February this year, up from 90.2 in December last year and 92.0 in February 2024. Similarly, the business confidence survey’s index reached 99.7 in February this year, up from 96.0 a year earlier. The index stood at 96.6 in December last year.
Enthused BoG Governor, Dr Johnson Asiama: “The confidence surveys conducted in February 2025 showed significantimprovement in both consumer and business sentiments, buoyed by expectations foran improved macroeconomic environment”.
Added to all this, the Ghana Purchasing Managers’ Index moved above the 50-benchmark in February, implying increases in new orders by companies. The PMI measures the level of inventory holdings by businesses and an increase in the index indicates a build-up in inventory levels in anticipation of increased production and sales.
Ghana’s economic growth continued to rebound in 2024, exceeding initial expectations. Provisional data from the Ghana Statistical Service estimated real GDP growth at 5.7% in 2024, higher than the programmed growth rate of 4.0% for 2024, and the 3.1% recorded in 2023. Non-oil GDP grew at 6.0% compared with 3.6% recorded in 2023.
However, the President John Mahama administration has targeted growth of at least 4.0% for 2025, a target which the Parliamentary opposition has criticized as being too low, compared with the growth rate it left last year.
But the latest data from the BoG suggests that economic growth this year could match or even exceed last year’s performance if the early year trends continue over most of the rest of the year. Already, commercial banks are showing a willingness to increase their credit to the private sector in the face of treasury bill rates turning negative and loan quality starting to improve.
In February 2025, private sector credit recorded 26.9% annual growth, compared with 5.1% in February 2024. In real terms, credit growth was 3.1%, compared with a decline of 14.7% in February 2024.
Strong economic growth prospects have encouraged the BoG to focus on dragging down inflation – which has stubbornly stuck at just over 23% for several months now – through monetary tightening in the form of a 100 basis points rise in the Monetary Policy Rate to 28%.
However Ghana’s forecasted strong growth for 2025 faces headwinds from global events in the form of the evolving global trade war instigated by America’s President Trump administration last week and restrictive monetary policy as central banks around the world slow the pace of monetary easing in response to the stalling of disinflation.
“The persistence of these external headwinds may spill over to the domestic economy through the trade and financial channels, highlighting the need for policy to remain proactive” warned Dr Asiama although “both business and consumer confidence have improved, and private
sector credit growth is recovering, suggesting a positive outlook for the economy”.
BoG raises interest rate to 28% to tackle inflation.
By Toma Imirhe
Last week the Bank of Ghana announced a 100 basis points hike in its benchmark Monetary Policy Rate following the majority decision made by its newly reconstituted Monetary Policy Committee, led by new central bank Governor Dr Johnson Asiama, which had met for three days earlier in the week. This takes the MPR up to 28%, from the 27%, at which it had been held since September last year, itself the result of a sharp 200 basis points cut from the erstwhile 29%.
The MPR is the rate at which the BoG would lend short term to commercial banks to smooth over any temporary liquidity challenges they might face. Although, banks have preferred to lend to each other on the interbank market rather than resort to the central bank since the banking sector melt down at the turn of the decade, the MPR still serves as their guide as to where the BoG wants interest rates to go.
Therefore last week’s hike in the MPR is expected to result in a roughly commensurate increase in rates charged by most of Ghana’s commercial banks. The interbank weighted average interest rate, at which most banks can obtain short term liquidity, roughly mirrors the MPR, averaging 27.06% in January and 27.04% in February.
The Ghana Reference Rate, which serves effectively as the base lending rate for all commercial banks – being computed by them in collaboration with the BoG – has been a little higher at 29.72% in January and 29.96% in February. Actual average lending rates have of course been higher still – although only slightly so – at 30.07% in January and 30.12% in February.
The increase in the MPR aims at slightly tightening monetary policy to squeeze out the excess liquidity which was created largely by government’s fiscal deficit overrun in 2024, caused by expenditure exceeding target in the run up to the December general elections. The fiscal deficit, on commitment basis was 7.9%, twice the 3.8% target, and the BoG sees the resultant liquidity injection as a key reason why the downward trend in consumer inflation from a peak of 54.1% in December 2022, has stalled at about 23% for several months now.
But the imminently increased interest rate regime for the commercial banking industry may cause difficulties for government itself. Stringent fiscal discipline and resultant fiscal consolidation by the President Mahama administration since it assumed office in early January has enabled it to reject relatively high offers for its treasury bill issuances, thereby forcing down yields on short term treasuries. Indeed, on the same day that the BoG announced the increase in the MPR to 28%, last week’s treasury auctions results were showing that the 91 day treasury bill rate had fallen to 15.74%, barely half of the 28.37% offered in January. Similarly the 182 day treasury bill rate has fallen to 16.93% down from January’s 28.98% and the 364 day treasury note rate has fallen to 18.85%, down from 30.26% in January.
But with headline consumer price inflation still at 23.1%, this means treasury instruments are offering negative interest rates which is generating declining attraction for financial institutions and other savvy investors. Last week, after weeks of oversubscription, the effects of now negative interest rates on treasury bills showed up, as government failed to attract its targeted subscription of GHc5,644 million, as only GHc4,708.82 million was tendered.
However government stuck to its game plan, accepting only GHc4,113.20 million and rejecting the highest bids which went as high as 16% for 91 day bills and 17.3% for 182 day bills.
BoG Governor Dr Asiama has explained that although monetary and fiscal policy should work in tandem, right now government’s primary objective is to minimize its debt servicing costs which means minimizing its treasury instrument yields, while the central bank is focused on squeezing out inflationary pressures by tightening monetary policy.
There are indeed factors favouring government’s success in issuing treasury bills with negative interest rates over the coming weeks. One is that the banks are offering a mere 10.5% on retail sized fixed deposits and virtually nothing on current accounts which account for most of their deposits; and investors have little choice, with the longer term domestic bond market still closed and the non-bank deposit takers who offer higher rates on fixed deposits lacking the confidence of most depositors.
Monetary tightening confirms the plan to restore economic stability first
Last week, the Bank of Ghana laid any lingering doubts over whether expansionary supply side economics or demand management driven economics was going to guide the President John Dramani Mahama administration during the early stages of its tenure in office. By increasing the benchmark Monetary Policy Rate by 100 basis points to 28%, it is now clear that the restoration of macro-economic stability is the immediate target, with the promised expansionary policy stance to follow after this has been achieved.
The interest rate hike follows on from the new government’s unusual – but prudent – decision to cut public expenditure this year in a bid to bring the fiscal deficit down to 4.1% of Gross Domestic Product, from the well above target 7.9% outcome in 2024. But the rate hike has surprised many who thought that the central bank would follow the lead of government itself which has used financial discipline to achieve rapid fiscal consolidation which in turn has forced treasury bill rates down to the lowest levels since 2022.
The MPR increase last week will expectedly bring about slight increases in interest rates charged by financial intermediation companies to borrowers, although it should be noted that the sharp drop in treasury bill rates since the new government assumed office had not been accompanied by a similar drop in rates charged by commercial lenders, since inflation has stubbornly stuck at just over 23%. Rather the drop in treasury bills has simply been the result of government’s successful strategy of cutting back on its short term treasury issuances and its rejection of the relatively high bids that have been made for them, in order to cut its interest costs.
The underlying problem behind still high commercial rates then remains relatively high inflation and this is what the BoG, as an inflation targeting central bank, has set its sights on.
To be sure its monetary policy stance is on solid ground. Monetary tightening tends to curb inflation but at the cost of the economic growth rate. But Ghana’s growth rate is sturdier than expected, at 5.7% in 2024, exceeding both the target of 4.0% and 2023’s performance of 3.6%. Furthermore there are early signs that it will remain strong this year. The BoG’s real sector indicators point to a sustained improvement in economic activity, amid significantly improved business and consumer sentiments.
Besides, government has conservatively targeted a 4% growth rate for 2025 in anticipation of the economic costs of fiscal consolidation and a tightened monetary stance to bring inflation down drastically, in order to set the foundation for sustainable expansionary economic policy.
The first stage of the Mahama administration’s game plan is to restore economic stability, epitomized by low inflation and fiscal deficit, and exchange rate stability. The Bank of Ghana has obviously read the script.
Last week, the World Bank Africa Pulse Report, indicated a declining inflation across the Sub-Saharan Africa nations attributing it to the effects of monetary tightening and fiscal consolidation.
Also, the steady decline in commodity prices from their highs in 2022 contributing to the downwards inflationary trend as projected over the next three years.
According to the report, inflation in the subregion is expected to be 4.8 percent in 2024, down from 7.1 per cent in 2023. It is predicted to decline further to 4.6 percent in 2025 and 4.5 percent in 2026.
The report notes that the path of convergence to inflation targets will continue across African countries although at different speeds, and it may hit some bumps along the road if upside risks to inflation materialise.
The slowdown in inflation rates, it observes, appears to be broad-based: about 70% of the countries in the region are expected to have lower inflation in 2024 (compared to the previous year), and this proportion will increase to 80% in 2025.
Yet, inflation rates are expected to be higher than they were in the pre-pandemic period for about 70% of Sub-Saharan African countries.
Additionally, inflation among metal exporters is expected at 8% in 2024 and 6.4% in 2025, while that of oil exporters is set at 6.5% in 2024 and 3.3% in 2025.
High-frequency data suggest that central banks in Sub-Saharan Africa have made significant progress in the fight against inflation.
From its highest median rate of 9.9% year-on-year in October 2022, inflation decelerated sharply to 4.6% by June 2024.
However, the variability of inflation rates across countries remains high—with an interquartile range of about 12 percentage points this year, the report said.
This implies that some countries still face high inflation rates (double-digit rates) and the deceleration of inflation varies across countries in the region.
By June 2024, about 70% of the countries in Sub-Saharan Africa (30 of 43) had inflation rates that were low and declining, while the inflation rate for 13 countries (30%) was still high.
Nominal exchange rates appear to have stabilised by the end of June 2024, although at different levels across these two groups of countries.
Factors driving inflation include both external shocks (global supply chain disruptions) and internal shocks (such as macroeconomic imbalances, fragility, and debt hangover, among others).
These shocks not only create inflationary pressures but also jeopardise the stability of exchange rates.
At the same time, food inflation remains high and slightly volatile, while currencies have weakened sharply among countries with high inflation.
During this period, supply chain problems as a result of the war in Ukraine accelerated inflation from the second quarter of 2022.
Disruptions in the production of agricultural goods due to domestic conflicts and extreme weather events (droughts in Eastern Africa and the Sahel as well as floods in Southern Africa) also contributed to accelerating inflation in 2022, reaching peak levels in the first quarter of 2023.
The nominal exchange rates for the two groups of countries remained stable until February 2022 for the low-inflation countries and May 2022 for the high-inflation countries.
Currencies for the two groups weakened because of inflationary pressures arising from global geopolitical conflict.
The exchange rates of low-inflation countries depreciated until the fall of 2022 and then started gradually appreciating. The currencies of high-inflation economies depreciated further.
After reaching their peaks in early 2023, food and headline inflation began cooling—although the pace of disinflation varied markedly across countries.
In low-inflation countries, inflation increased at a slower pace than in high-inflation countries throughout 2022, while headline and food inflation started to decline gradually and protractedly in January 2023.
This group— which accounts for 70% of the countries in the region—is stabilising (headline and food) inflation at rates closer to their targets. The disinflation among low-inflation countries has also been accompanied by a strengthening of their currencies.
For the group of high-inflation countries, headline and food inflation appear to have peaked and stabilized at higher levels.
https://newsguideafrica.com/ editorial team acknowledge this as a welcoming news to the health of the economy and general standard of living as cost of living is expected to be steady and predictable over a period of months.
This helps in better economic and household expenditure planning.
