The World Bank Group’s 7th Ghana Economic Update has been launched under the theme: ‘Price Surge: Unraveling Inflation’s Toll on Poverty and Food Security’.
The report focuses on recent developments and the outlook for Ghana’s economy and aimed at tackling the pressing challenge of the recent price surge and how it has impacted Ghana’s food security.
The past year has been challenging for Ghana as the economy entered difficult times just after the twin crisis of the pandemic and Russia’s invasion of Ukraine.
As a result, Ghana was deeply hit as pre-existing fiscal vulnerabilities were compounded by adverse global economic conditions.
More so, the challenges in 2022 were particularly acute as these pre-existing vulnerabilities, particularly high debt accumulation, are currently being manifested in many economies across the globe especially those of Developing Economies and there is a need to address them.
The Country Director for Ghana, Liberia, and Sierra Leone Mr. Pierre Laporte, disclosed this during the launching of the World Bank Group’s 7th Ghana Economic Update which was held in Accra.
According to him, in 2022 a combination of large financing needs and tightening financing conditions worsened Ghana’s debt sustainability concerns, which effectively shut off Ghana from the Eurobond market.
Explaining that large capital outflows, combined with monetary policy tightening in advanced economies, put significant pressure on the exchange rate and this created a feedback loop with inflation.
The domestic financial sector, therefore, became a major funding source of the fiscal as interest rates became less affordable, particularly for the private sector.
He said Banks built unhealthy exposure to the sovereign and these developments interrupted the post-COVID-19 recovery of the economy.
“Statistics, as captured in the report, indicate that the burden of the challenges (particularly, high inflation and low growth) has fallen on all, but especially on the vulnerable segments of the population:
Estimates suggest that overall poverty increased in 2022; (ii) the inflation shock alone is believed to have pushed over 800,000 Ghanaians into poverty;
The poorest among the population were the most affected, but the shock was felt by most Ghanaian households. Furthermore, food insecurity worsened by the last quarter of 2022 when inflation was at its peak,” he elucidated.
The government is also implementing a number of revenue-enhancing as well as expenditure consolidation measures to bring the fiscal to a sustainable path.
In addition, the World Bank is collaborating with the government on a proposed series of Development Policy Financing (DPF) – also known as Budget Support – to help reduce the budget’s financing deficit and support this essential reform initiative.
In 2023, Risks related to inflation are tilted to the upside and are significantly affected by global petroleum prices (and transportation costs) as well as exchange rate dynamics.
High inflation, increased interest rates, and macroeconomic uncertainties will keep private consumption and investment growth below pre-pandemic levels, leading to subdued non-extractive growth in the short term; but growth will begin to recover to its potential by 2025 as drag from fiscal consolidation fades and macroeconomic stabilization and structural reforms start bearing fruit.
Mr. Pierre Laporte said, meanwhile in the short term, Ghana needs to strengthen debt sustainability.
This will entail continuing to reduce the fiscal deficit, notably by improving domestic revenue mobilization, reining in on energy sector expenses, and making sure that all public expenditures maximize value for money.
These reforms should ultimately seek to rebuild fiscal and external buffers, to help address upcoming shocks and provide targeted support to vulnerable households.
While addressing the current crisis and restoring macroeconomic stability, Ghana needs to enact structural reforms to preserve its long-term growth prospects and build economic resilience.
Adding that, bolstering long-term growth prospects will require policies that support investment and human capital development, as well as buttressing resilience and crisis preparedness, especially in agriculture and food systems.
“The next two years will be very delicate: Ghana will face the challenge of bringing the economy back on track, without which no meaningful poverty reduction can happen.
But in doing so, it will also have to beef up safety nets to protect the most vulnerable – an area that Ghana can do much more on.
This year, the government has taken the bold step of doubling the benefits of the LEAP transfers: this represents a commitment to further boost this program, which offers great potential to alleviate poverty,” he divulged.
According to him, to mitigate the impact of inflation on food security, farmers need to adjust to global demand and take advantage of market opportunities.
To this end, policies should be evidence-based and aim at alleviating the different constraints farmers face.
These policies and initiatives may strive to alleviate market failures in agricultural value chains and boost agricultural productivity.
As well as to improve farmers’ market access to help improve domestic food security, reduce reliance on imports for staples, increase commercialization, and lower input costs.
This year’s Ghana Economic Update attracted participants from the government, various stakeholders from the private sector, the media, NGOs, and the public.
Source: Isaac Kofi Dzokpo/newsghana.com.gh