Henry Kerali, World Bank Director for Ghana
A new report by the World Bank has indicated that Ghana’s heavy reliance on primary commodities, including cocoa, gold and oil, which are all prone to volatility in international commodity prices, created uncertainty about her actual future paths for growth, inflation, export receipts and domestic revenue.
The 3rd edition of the Ghana Economic Update, released recently, said with the right reforms, agriculture has the potential to be one of the leading sectors for a more diverse economy which could be transformed to be an engine of growth and job creation.
“Agriculture has a very large multiplier effect on employment, creating over 750 jobs for every additional $1 million of output. However, as the importance of the extractive sector has risen, it appears agriculture sector growth has slowed.”
The report therefore recommended three policy options to strengthen the agriculture sector.
These included improving the quality and effectiveness of public expenditure in agriculture, which it said would be important in the context of limited fiscal space, improving the environment for agriculture businesses, which is key to adding value to the existing production and for jobs creation and fixing challenges in the cocoa sector given the large size of the cocoa economy.
Hardwick Tchale, Senior Agric Economist and co-author, noted that “there is the need to channel public resources into research to increase the use of technology, invest in irrigation infrastructure to increase productivity and mitigate the potential adverse effects of climate change, and leverage increased private sector investment in agriculture.”
Macro-economy
It noted that the service sector bounced back, while fiscal consolidation was paying off, adding that the inflation rate was also down to close of 10 percent.
“The macroeconomic outlook was largely positive based on the 2017 performance. GDP growth for 2017 is estimated to have almost doubled from the 3.7 percent in 2016, and is expected to stay at that elevated level through 2018,” said Henry Kerali, World Bank Country Director for Ghana.
“The external position has improved as the trade balance has shifted to a surplus. Ghana has made good progress in macro-stabilization in 2017, but it needs to sustain the fiscal consolidation efforts.”
The report indicated that inflation was likely to fall within or be close to the Bank of Ghana’s medium-term target range of 6-10 percent in 2018.
“Based on the 2017 trends and sustained fiscal consolidation, the report expects that the fiscal deficit could fall within the government’s target of below 5 percent of GDP from 2018 onwards. To sustain the fiscal consolidation efforts, two areas are particularly important over the medium-term – domestic resource mobilization and expenditure controls.”
Challenges
It said despite the positive outlook, challenges remained, including further containing inflation and strengthening and deepening the financial sector to lower interest rates.
Noting that Ghana’s economic performance over the medium term would, to a large extent, depend on the success of the economic stabilization programme, it recommended that government would sustain the fiscal consolidation efforts.
“Improvements in domestic revenue mobilization and more forward-looking expenditure planning will be key. But fiscal consolidation will only be sustainable when social and economic activities can thrive in an expanding and increasingly diverse economy.”
It said Ghana was also likely to face higher financing costs in both the domestic and external markets in the context of a strong U.S. dollar and rising global bond yields.
By Samuel Boadi