In an interview with the British press at the Ghana High Commission’s Offices in London, former Prime Minister Dr. Kofi Abrefa Busia vividly recounted the profound extent of Ghana’s economic crisis.
Dr. Busia, who assumed office in 1969, pointedly criticized the economic management under the Nkrumah regime, which resulted in rampant inflation of approximately 117 percent, unprecedented unemployment rates, acute food shortages, and various other challenges.
Dr. Busia highlighted that Ghana had initially enjoyed a robust financial standing at the time of independence, boasting reserves exceeding £200 million pounds.
However, by the culmination of the Nkrumah era in 1966, the nation found itself burdened with a staggering debt exceeding £250 million pounds. He emphasized that the precise extent of Ghana’s indebtedness was still not entirely clear due to certain agreements that had been signed, and comprehensive data on these matters were yet to be collected.
Addressing the broader economic landscape, Dr. Busia spoke of critical shortages in essential commodities and vital goods, emphasizing the dire circumstances that prevailed. Furthermore, he underscored the erosion of democratic governance, lamenting the profound impact on the political fabric of the nation.
Meanwhile, Dr. Busia’s tenure was abruptly terminated in a ‘bloodless’ military coup led by Colonel Ignatius Kutu Acheampong on January 13, 1972.
How the Mighty Have Fallen
Despite being a major exporter of cocoa and gold, Ghana finds itself grappling with its most severe economic crisis in decades. The West African nation, once hailed as Africa’s shining star by the World Bank, experienced a remarkable economic surge in 2019, doubling its growth rate and emerging as the world’s fastest-growing economy.
However, the present reality diverges starkly from its previous stature. Presently, Ghana contends with a dire financial predicament, characterized by an alarming inflation rate of 50.3 percent, the highest in 21 years.
Ghana’s economic achievements took center stage when President Nana Akufo-Addo’s new government assumed power in January 2017, effectively curbing inflation. Under the preceding administration, inflation had reached 15.4 percent in 2016, but it plummeted to 7.9 percent by the close of 2019, maintaining single-digit levels until the onset of the pandemic in March 2020. Remarkably, Akufo-Addo’s government managed to reduce Ghana’s budget deficit from around 6.5 percent of GDP to below 5 percent by the close of 2019.
Agriculture, a cornerstone of Ghana’s economy, contributes 21 percent to the GDP and generates over 40 percent of export earnings, while also furnishing more than 90 percent of the nation’s food requirements. However, a substantial portion of Ghana’s economy is propelled by traders engaged in the import and resale of goods from Western nations and China, encompassing items like household appliances, consumables, vehicles, and second-hand clothing.
This trade dynamic, coupled with a persistent demand for the US dollar to facilitate imports, has led to a continual depreciation of the local currency, the cedi, which has garnered the unenviable status of being the poorest-performing currency in global markets.
Acknowledging the crisis, President Akufo-Addo attributed Ghana’s predicament to external shocks such as the pandemic and the Russia-Ukraine conflict. Nevertheless, analysts contend that certain political and economic choices made by the government would have inevitably revealed underlying vulnerabilities, irrespective of external factors. For instance, Akufo-Addo’s administration fulfilled a costly campaign pledge by launching a free education initiative in public high schools, in addition to providing free meals to primary and secondary students. Furthermore, the governing New Patriotic Party eliminated what it deemed as “nuisance taxes” in 2017, including the 17.5 percent value-added tax on financial services, real estate, and select imported medicines. Import duties on spare car parts were reduced, and the 1 percent special import levy and 17.5 percent VAT on domestic airline tickets were abolished.
Between August 2017 and December 2018, the government allocated over $2.1 billion for a “banking sector cleanup” in response to the central bank’s findings of insolvency among some banks. This measure led to a reduction in the number of banks from 33 to 23, while more than 340 other financial institutions, such as savings and loans companies, had their licenses revoked.
The government, as Ghana’s largest employer, focuses predominantly on education, healthcare, and security sectors. Nearly half of the budget is allocated to wages, and the government collected an estimated $8.2 billion in revenue this year, with approximately $4.2 billion allocated for public sector salaries. Additionally, the restoration of allowances for trainee nurses and teachers in 2017, which had been suspended by President John Mahama, placed considerable strain on the public finances, with annual expenditures exceeding $2.5 million solely for nurses’ allowances.