Ghanaian economy to experience compression under IMF programme, warns Databank Research
Ghana’s economic growth is expected to slow down this fiscal year, according to a report by Databank Research, which has projected a range of 2.3% to 3.3% growth in 2023, lower than the real GDP growth of 3.6% for the first nine months of 2022.
The report, titled “In the Woodland, Banking on the IMF to Discover Path”, predicts that austerity measures compelled by an International Monetary Fund (IMF) deal will lead to economic compression. As such, the researchers expect a protracted journey toward pre-pandemic growth levels.
The IMF programme is expected to revitalise the Ghanaian economy, but the report notes that the inevitable austerity path associated with the deal dims the outlook on the economy in 2023. The agriculture, industry, and extractive sectors are all expected to experience slower than expected growth, according to the report.
The agriculture sector is anticipated to experience a slight contraction with a growth rate of 3.7%. The fishing and livestock subsectors are expected to be negatively impacted by illegal fishing operations and high feed costs. Meanwhile, the industry sector is projected to have a subdued growth rate of 1.0%, with the manufacturing sub-sector predicted to shrink due to high input costs and currency pressures. Weaker growth of 3.5% is expected in the extractive sector due to the uncertain outlook for oil and gas, as global geopolitical tensions continue to undermine the viewpoint for oil and gas.
In contrast, the services sector is anticipated to expand by 3.9%. High price levels are likely to impede consumer demand, especially in the trade and hospitality sub-sectors. The financial sector’s profitability and growth will be affected by the debt exchange programme. However, the report notes that reducing the E-levy to 1% may entice more electronic transactions, with increasing patronage of digital solutions expected to drive demand for internet data and consequently growth in the Information and Communication Technologies (ICT) subsector.
The forecast from Databank Research follows a deceleration in actual GDP growth to 2.9% year-on-year (y/y) in the third quarter of 2022, marking the slowest pace since the contraction of 3.3% in the third quarter of 2020 during the COVID-19 pandemic. In addition, non-oil growth also reduced to 3.6% in the third quarter of 2022, which dims the prospects for domestic demand in 2023.
The fact that the economy is likely to experience compression under the IMF programme is concerning. The agriculture and industry sectors are essential to the nation’s growth, and if they do not perform well it will have a significant impact on the overall economy. However, developments in the ever-expanding ICT subsector offer cause for optimism.
Despite projecting a fall in growth to 2.8% in 2023 from an anticipated 3.5% in 2022, Ghana’s fiscal authorities remain bullish about a rebound, beginning in 2024. At the 2023 budget presentation in December, Finance Minister Ken Ofori Atta said he anticipates a medium-term average growth of 4.3% between 2023 and 2026, with projections of 3.9%, 4.9%, and 5.6% in 2024, 2025, and 2026, respectively.
The Ghanaian economy is facing headwinds that could hamper growth, but the government remains optimistic about the future. While the IMF deal will likely lead to austerity measures, the nation’s expanding ICT sector offers a glimmer of hope.
