The World Bank’s Eighth Economic Update for Ghana, titled “Strengthening Domestic Revenue Systems for Fiscal Sustainability,” highlights that Ghana’s economic indicators remain on track for 2024, despite recent increases in exchange rate depreciation and slower-than-expected inflation reduction.
The report emphasizes Ghana’s steady progress in addressing significant macroeconomic imbalances that arose in 2022 over the past year.
The report shows that the economic situation has been improving as planned, thanks to efforts to restore fiscal and debt sustainability, decrease inflation, and bolster financial stability.
Despite ongoing macroeconomic challenges, growth in 2023 was modest at 2.9 percent, though higher than initially forecasted. Inflation decreased to 23.2 percent by December 2023, down from a peak of 54.1 percent in December 2022. This progress is credited to the previous monetary policies of the Bank of Ghana and a more stable exchange rate.
“Ghana’s macroeconomic crisis in 2022 has set back poverty reduction efforts, with poverty levels estimated at 30.3% in 2023. It is crucial to maintain the momentum of the reforms, while mitigating the impact on the poor, to help sustain Ghana’s economic rebound. In parallel, we must lay the foundations for more sustainable and resilient economic growth by implementing comprehensive structural reforms to foster economic diversification and promote long-term inclusive growth,” said Michelle Keane, World Bank Acting Country Director for Ghana, Liberia, and Sierra Leone.
The report stresses the importance of focusing on the quality of fiscal adjustments to minimize their impact on growth, the impoverished, and vulnerable populations. Key recommendations include reinstating the fiscal rule, strengthening public financial management, and accelerating revenue mobilization to restore macroeconomic stability and support sustainable long-term growth.
Furthermore, sector-specific reforms are highlighted as essential for ensuring financial sustainability in the agriculture and energy sectors and rebuilding capital buffers in the financial industry.
The World Bank says structural reforms will be key to revitalise growth and foster economic diversification and transformation.
For example, improving infrastructure quality and accessibility can boost trade, competitiveness, connectivity, and productivity. Facilitating access to long-term financing and improving the business climate could create a conducive environment for private sector growth. Building human capital and improving service delivery for underserved regions and populations can enhance productivity and attract both Foreign Direct Investment (FDI) and local investment in high-value, labour-intensive manufacturing and services.
“These measures collectively aim to enhance fiscal transparency, accountability, and resilience, ensuring sustainable economic growth; and should be complemented by initiatives to expand targeted social protection programs to promote social inclusion,” said Kwabena Gyan Kwakye, author of the Economic Update
The special topic of the report focuses on domestic revenue mobilisation, noting that Ghana’s tax collection has been low relative to its peers. Between 2017 and 2021, Ghana’s average tax collection was 13.2 percent of GDP, well below the Sub-Saharan Africa average and 8 percentage points short of the country’s estimated tax capacity of 21.2 percent of GDP.
The report identifies areas of inefficiency within Ghana’s tax policy framework and compliance mechanisms. If addressed, these could help ensure macroeconomic stability and generate resources necessary for sustainable long-term growth and poverty reduction efforts.
Despite efforts in 2023 and 2024, bold tax policy measures and tax administration reforms are necessary to improve Ghana’s fiscal position and budget credibility. The adoption of an ambitious Medium Term Revenue Strategy for 2024-2027 lays a foundation for even more robust reforms towards fiscal stability and economic prosperity.
Areas the report identifies where this could be enhanced include rationalising large tax expenditures, which have contributed to the overall decline of tax revenues. This would require striking the balance between reducing revenue losses and the potential distributional and social impacts.
“Rationalizing Tax Exemptions will entail removing those deemed to be unjustified or falling short of their stated goals. The Ministry of Finance should first assess the impact of Tax Exemption removals on poverty – and suggest appropriate mitigating measures,” said Elijah Gatuanjau Kimani, co-author.
