Ghana’s 5.5% GDP Growth Forecast for 2024 by BMI Fitch Solution: Was it Optimism or Miscalculation?
BMI Research, now integrated with Fitch Solutions, is a prominent provider of independent market insights, data, and analysis across more than 200 markets and 20 industries worldwide. The forecast from Fitch Solutions, predicting a 5.5% growth for Ghana’s economy in 2024, has generated a mix of optimism and skepticism. While the outlook is generally favorable, several elements of the forecast warrant scrutiny for potential over-optimism or inherent flaws.
The forecast by Fitch Solutions is heavily reliant on the expectation that election-related public spending will enhance consumer confidence and stimulate private consumption. However, historical trends indicate that governments often ramp up spending during election periods to secure voter support, which can result in fiscal imbalances and inflationary pressures.
The projection suggests a substantial rise in real GDP growth from 2.9% in 2023 to 5.5% in 2024, driven primarily by increased public expenditure tied to the elections. This assumption is fraught with risk, as past data reveals that such spending typically yields only temporary economic boosts without sustaining long-term growth. For instance, in previous election years such as 2016 and 2020, heightened public spending did not lead to enduring economic improvement.
During Ghana’s 2020 elections, for example, salary increases for public sector employees resulted in a budget deficit of 11.7% of GDP, far exceeding the original target of 4.7%. Inflation surged to 11.4% around July of that year, further hindering economic growth. This surge in public expenditure necessitated subsequent austerity measures by the government to stabilize the economy post-election. Given Ghana’s ongoing challenges with debt management and IMF-backed fiscal reforms, an overreliance on short-term election spending poses the risk of aggravating long-term economic instability. Rather than promoting sustainable growth, this could lead to a detrimental cycle of increasing debt and further interventions from the IMF.
Notably, Ghana’s recent IMF program was instituted to address serious debt issues, and significant spending during election years could contradict the stringent fiscal discipline advocated by the IMF. This pattern underscores the notion that focusing on temporary economic boosts, as suggested by Fitch through public expenditure, may ultimately weaken the economic recovery in the post-election period, as corrective fiscal tightening measures will likely follow to address imbalances.
The forecast highlights Ghana’s recent surge in export growth, primarily fueled by increased oil production, as a significant driver of overall economic growth. However, this heavy reliance on oil production presents notable challenges due to its inherent volatility. If global oil demand diminishes or if production encounters disruptions such as maintenance issues or geopolitical tensions the anticipated export revenues could decline sharply. Additionally, the recent 47.7% year-on-year drop in cocoa exports underscores the risks associated with depending on commodities susceptible to sudden market fluctuations.
This reliance on oil is particularly concerning given the instability of global oil prices and production levels, both of which are prone to significant volatility. For instance, the sharp decline in global oil demand during the COVID-19 pandemic in 2020 led to a drastic fall in oil prices, severely impacting revenues for oil-exporting nations, including Ghana. Despite maintaining oil production, Ghana faced lower-than-expected revenues, highlighting how external factors beyond production can profoundly influence the economy.
Moreover, Ghana experienced a dip in oil production in 2016 due to technical challenges at the Jubilee Field, which unexpectedly slowed export growth and negatively affected the national economy. If global oil demand decreases as observed during global economic downturns or shifts toward renewable energy. Ghana’s dependence on oil exports as a primary revenue source could become increasingly precarious. Production disruptions resulting from technical issues, regulatory changes, or geopolitical factors can also lead to revenue shortfalls, jeopardizing growth projections.
Thus, the forecast may underestimate the inherent risks associated with this volatility, which could hinder the projected economic growth for 2024 if not adequately managed.
The projection of strong consumer spending is contrasted by the reality of rising inflation, which has significantly diminished purchasing power. If inflation remains elevated, the anticipated growth in private consumption may be hindered. Historical data indicates that high inflation rates in previous years have resulted in reduced real incomes, suggesting that the forecasted increase in consumer spending could be overly optimistic. While household consumption has shown resilience, the heavy reliance on it as a primary driver of growth in Ghana’s economic outlook may overlook persistent inflationary pressures.
For instance, in 2022, inflation surged to 50.3%, placing severe strain on household budgets. Even in 2020, when inflation averaged 10.4%, rising food prices and supply chain disruptions diminished disposable income for many Ghanaians, affecting their spending capacity. If inflation continues at elevated levels, it is likely to dampen consumer spending and weaken the expected economic recovery.
A comparable situation unfolded in Zimbabwe in 2021, where projected strong consumption was undermined by sustained inflation, leading consumers to prioritize essential goods over discretionary spending. Given Ghana’s current inflationary environment, the anticipated rise in household consumption may be weaker than expected, posing significant risks to achieving the projected 5.5% GDP growth in 2024. This outlook raises critical questions about the sustainability of economic growth amidst ongoing inflationary challenges, necessitating a more nuanced approach to forecasting future consumer behavior and economic performance.
The forecast fails to adequately address the underlying structural economic challenges facing Ghana, such as rising fiscal deficits and increasing public debt levels. The country’s debt-to-GDP ratio has been on an upward trajectory, and relying on short-term solutions like election-related spending without prioritizing fiscal sustainability could lead to long-term economic instability. While the forecast assumes a stable political environment conducive to growth, the potential for unrest—particularly given the ongoing protests led by youth regarding issues like illegal mining—could undermine consumer and investor confidence.
Historical evidence suggests that protests can disrupt business operations and adversely affect economic growth. In my view, the analysis appears skewed, which could negatively impact the reputation of Fitch Solutions, a firm that has enjoyed significant credibility over the years. By overlooking substantial risks and assumptions that may not align with reality, the forecast fails to provide a comprehensive economic outlook for the country. Addressing these shortcomings would enhance the reliability and balance of the analysis, offering a more realistic perspective on Ghana’s economic prospects.
About Writer
Dr. Bernard L. Tetteh-Dumanya is an accomplished Financial Economist and Consultant with 29 years of experience spanning academic, corporate, and agribusiness sectors. He has held influential positions at reputable institutions like UBA Ghana, SIC Financial Services, and Empretec Ghana, demonstrating his extensive knowledge of global finance.
As a pioneer in risk management and corporate strategy, he has significantly impacted the Ghanaian financial landscape through initiatives in venture capital, financial reengineering, and fundraising. Committed to capacity development,
Dr. Tetteh-Dumanya has provided consultancy services to various local and international organizations, including GIZ, AGRA, and USAID, showcasing his ability to navigate complex financial challenges and drive sustainable growth. For inquiries, he can be contacted at mafioba@yahoo.com.
