Accra, Ghana//-The year 2022 which is left with some few days to end has been a challenging year for Ghana.
A year ago, the government came out with significant revenue measures to address the country’s fiscal difficulties, finance its transformative agenda, and sustain the post COVID-19 recovery.
However, what started as a political disagreement over revenue measures in Parliament, triggered a series of events that significantly undermined the credibility of the 2022 budget, consequently leading to serious economic challenges, as investor confidence hit a new low.
This manifested in credit rating downgrades which triggered the closure of Ghana’s access to the International Capital Market; tightening domestic financing conditions; and increasing cost of borrowing, according to Ghana’s Minister of Finance, Ken Ofori-Atta.
For the first time in the annals of the West African country, it was downgraded eight times in the year 2022.
The combined effects of the developments contributed to the rapid depreciation of the cedi and compounded the high debt service levels.
The government’s inability to access the International Capital Markets meant that, for the first time in the Akufo-Addo-Bawumia-led administration, they did not have the needed foreign currency to complement their forex earnings.
“We have had to make strenuous efforts to meet our import bill, which exceeds US$10.0 billion annually.
Considering our low foreign earnings, it has been difficult to meet our import requirements including crude oil and petroleum products of about US$400m (GHc4.80 billion) a month.
At the same time, the Ministry of Finance still needs to find about US$1.0 billion annually to keep our lights in our homes and workplaces”, the country’s 2023 budget which was read on 24th November 2022 stated.
Indeed, the demand for foreign exchange to support the country’s unbridled demand for imports undermines and weakens the value of the cedi. This contributed to the depreciation of the cedi, which has lost about 53.8 percent of its value since the beginning of the year 2022.
Compared to the average 7 percent average annual depreciation of the cedi between 2017 and 2021, the current year’s depreciation, which is driving the high costs of goods and services for everyone, is clearly an aberration – a very expensive one.
The increases in fuel prices (Diesel currently GHS20.5 and Petrol GHS16.8) has led to increases in prices of most goods and services.
Inflation which we managed to bring down from 15.4 percent at the end of 2016 to 7.9 percent at the end of 2019 and remained in single digits till the pandemic hit in March 2020 is now 40.4 percent.
It is not only the individuals and households who are adversely affected by the depreciation of the cedi. For the government, the depreciation of the cedi seriously affects its ability to effectively manage its debt.
Indeed, Ghana’s stock of debt has increased by GHc93 billion this year alone due to the depreciation of the cedi since the beginning of 2022.
Even as the State struggles to raise sufficient revenues, high inflation rates continue to eat away the already meagre wages of the average Ghanaian. The lesson from this relapse in macro-economic stability makes us even more determined, as your government, to permanently restructure and transform this economy and build resilience.
Outlook for 2023
Ghana’s economic growth which slowed to 2.9 per cent year-on year in the third quarter of this year compared to 6.5 per cent in the same period of 2021, is set to continue to 2023, World Bank has projected.
As the economy will see slow growth, it means that unemployment which currently stands at 13% will continue to linger on and may even increase.
To compound the matter, the Ghanaian government in its 2023 budget announced free public sector employment.
It is ironic that the government which has implemented the Free Senior High School (FSHS) Programme since 2017 is freezing employment in the public sector. So, many are asking where the free SHS graduates will get work after the completion of their tertiary education programmes?
And history gives us this hope that anytime Ghana goes for an IMF programme, we see inflation rate becoming stable and reduces”.
Furthermore, Ghana after daledalin in going to the International Monetary Fund (IMF) to seek a bailout programme had finally gone to the Fund for support.
The IMF team led by Stéphane Roudet, Mission Chief for Ghana recently reached a staff-level agreement with the Ghanaian authorities on a three-year program supported by an arrangement under the Extended Credit Facility (ECF) in the amount of SDR 2.242 billion or about US$3 billion.
The economic program aims to restore macroeconomic stability and debt sustainability while laying the foundation for stronger and more inclusive growth. The staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances by Ghana’s partners and creditors.
“The Ghanaian authorities have committed to a wide-ranging economic reform program, which builds on the government’s post-COVID-19 Program for Economic Growth (PC-PEG) and tackles the deep challenges facing the country”, according to a press release issued by the IMF.
Although this is good news for the struggling Ghanaian economy, the smooth take off of the program depends on Ghana’s ability to carry out a debt restructuring programme.
The Ghanaian government has begun to restructure its debt with local creditors, encompassing about 137.3 billion cedi ($10.7 billion) in government bonds. The restructuring initiative, announced by the finance ministry on December 5, offers to swap old bonds for new debt, paying 0% interest in 2023.
Under the Programme, domestic bondholders will be asked to exchange their instruments for new ones. Existing domestic bonds as of 1st December 2022 will be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037. The annual coupon on all these new bonds will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity. Coupon payments will be semi-annual.
The cedi which nearly collapsed last year is projected to depreciate about 22% in 2023. This is the prediction of UK based Economist Intelligence Unit (EIU).
However, some industry watchers have disagreed with the EIU’s prediction because of the IMF program which will take off this first quarter 2023, with some initial dollar injection into the Ghanaian economy.
It will therefore make dollars available to the Ghanaian central bank which it will inject into the local market to tame the depreciation of the cedi against the US dollar.
Historically, anytime Ghana is on an IMF program its currency (cedi) performs better. So, we are expecting to see the strengthening of the cedi this year, experts said.
Since August 2017, inflation has been on the upward trajectory, making prices of basic commodities and services unaffordable for the citizens, especially the poor and vulnerable.
As we speak, inflation went up by 9.9% to 50.3% in the month of November 2022, according to latest figures from the Ghana Statistical Service.
This is the highest figure recorded in 27 years. This was expected because of fuel price increases and the cedis’ depreciation during the month under review.
However, the trend may halt or reverse in December 2022 due to the recent improvement in the value of the cedi to the dollar and fall in fuel prices.
This is expected to continue in the first quarter of 2023. Prices of petroleum products have been trading downwards.
Although the government has increased the VAT rate by 2.5 percent to directly support road construction and among others, it is therefore expected that prices will shoot up in the coming days.
Some experts are of the view that the recent hike in the VAT rate may not cause huge upsurge in the prices of goods and services in the country.
So, indeed, if the managers of the Ghanaian economy can control prices, maintain stable macroeconomy, address labour agitations, grow the real sector and swallow the pills of the IMF program, Ghana would not experience another economic crisis in 2023.
By Masahudu Ankiilu Kunateh, African Eye Report