EIU forecasts weaker GDP growth for Ghana in 2023
Ghana’s economy is expected to experience a significant slowdown in 2023, with a projected expansion of 1.3%, according to a report by the Economist Intelligence Unit. This is below the projections by the World Bank and the International Monetary Fund, indicating that the country may be facing significant economic challenges. The report suggests that rising prices and monetary tightening will weigh on private consumption and investment, leading to reduced government spending.
The projected slowdown is the result of a cost-of-living squeeze, public spending cuts, and monetary tightening by the Bank of Ghana. Domestic demand is expected to contract for the first time since 2014, and reduced consumption and sustained cedi depreciation will help boost net exports, the sole growth driver in 2023. However, the report suggests that growth will remain subdued in 2024 as tightening continues, with an uptick in gold and oil exports earnings driving growth in 2025-27 as new projects come on stream.
The report also highlights that macroeconomic instability and a public debt crisis will weigh on Ghana’s business environment and its ambitions to become a West African trading hub. A weak regional regulatory environment, poor transport links, and low foreign trade, except in commodities, are expected to hamper progress.
The government is expected to remain committed to fiscal consolidation in 2023-27, in line with the International Monetary Fund programme, to bring the public finances and debt back onto a sustainable path. The 2023 budget includes measures to widen the tax net and extend spending cuts, with President Akufo-Addo assenting to three new revenue-raising bills in mid-April 2023.
The Income Tax Amendment Bill, the Excise Duty Amendment Bill, and the Growth and Sustainability Amendment Bill are expected to boost revenue over the forecast period, helping to shrink the fiscal deficit to 7.1% of GDP in 2023 (from an estimated 8.3% of GDP in 2022) and steadily to 4.4% of GDP in 2027. Despite revenue mobilisation measures in the 2023 budget, including the reintroduction of road tolls, a 2.5-percentage-point rise in the value-added tax (VAT) rate to 15%, and an increase in excise duties, a slowing economy will keep the revenue/GDP ratio below potential in 2023.
However, the report concludes that quickening economic growth will push up the ratio in 2024-27. Increasing administrative efficiency under IMF guidance will also boost revenue in 2023-27, as will an increase in the trade tax take in 2025-27, driven by rising gold and oil output.
Overall, the Economist Intelligence Unit’s report highlights the challenges that Ghana’s economy may face in the coming years, particularly in light of the projected slowdown in 2023. However, it also suggests that the government’s commitment to fiscal consolidation and revenue-raising measures could help address some of these challenges and support economic growth in the long term.
