Op-Ed: Between the Budget and the Market: Can Ghana’s Economy Breathe Again?

In the aftermath of three challenging years for Ghana’s economy, 2025 is intended to be a year of recovery and tough decisions. The 2025 national budget promised just that: fiscal discipline, economic recovery, and renewed hope for transformation. But as the Bank of Ghana’s March 2025 Summary of Economic and Financial Data reveals, the economic narrative is far more complex. The indicators suggest that while macroeconomic stability is returning, the gains remain fragile and unevenly felt.

As we, at MSR, delve into the data, one thing becomes clear: Ghana is not yet out of the woods. Inflation has cooled but remains a threat. The cedi still wobbles. Interest rates continue to choke small businesses. And while the headline figures on GDP and reserves offer some comfort, the real economy where people live, eat, and hustle is telling a different story.

Inflation: Slowing But Still a Burden

Let’s begin with one of the most pressing concerns for Ghanaians: inflation. After peaking at over 54% in 2022, headline inflation now stands at 23.1% (February 2025). It’s a remarkable decline, and credit must go to the Bank of Ghana for its disciplined monetary stance, which has held the policy rate at a firm 27% since November 2024.

But beneath the headline, pain persists. Food inflation is stubbornly high at 28.1%, making it difficult for families to recover their purchasing power. The inflation gap between food and non-food items (18.8%) reflects real hardship in kitchens across the country. Monthly inflation rates, though slowing, remain sticky, and core inflation (excluding volatile components) continues to hover above 22%, suggesting that inflationary pressures are still embedded in the system.

This is not just about numbers; it is about the prices of waakye, school uniforms, and sachet water. For a country grappling with youth unemployment and income stagnation, price stability must be felt in the market, not just announced at press briefings.

The Cedi: Calm Waters or the Eye of the Storm?

The cedi, which saw a tumultuous 2023, has shown some signs of relative calm—yet remains under pressure. As of March 2025, the dollar trades at GHS 15.53, slightly down from a peak of GHS 16.30 in late 2024. While the worst of the volatility may be behind us, the 5.3% depreciation year-to-date still puts pressure on importers, fuel prices, and, ultimately, inflation.

The Real Effective Exchange Rate index has also crept back up to 135.4, pointing to continued competitiveness challenges for Ghanaian exports. Despite improved gross international reserves – now at USD 9.3 billion (4.2 months of import cover) – the resilience of the cedi remains tenuous. Ghana’s high import dependence, particularly on refined fuel and food inputs, makes the currency extremely sensitive to external shocks.

Interest Rates: Loosening its Noose?

A quiet but significant change has been unfolding in the government securities market. In March 2025, the 91-day Treasury bill rate fell sharply from 28.4% to 15.7%, signalling a shift in investor expectations and growing confidence in macroeconomic management.

However, the high cost of credit remains a constraint. Lending rates hover around 30.1%, effectively sidelining most SMEs from the formal credit market. The Ghana Reference Rate, at nearly 30%, suggests that banks continue to view lending as risky, despite improved solvency indicators.

The risk here is obvious: if credit remains expensive, private sector investment will stay muted. This undermines job creation, productivity, and the country’s long-term growth ambitions.

Real Sector Growth: Signs of Recovery, But Where’s the Inclusion?

The headline GDP growth for 2024 came in at 5.7%, a solid recovery from the 3.1% growth seen in 2023. Non-oil GDP grew even faster, at 6.0%, driven by a rebound in industry and steady growth in services.

Yet, agriculture – a sector on which millions depend – posted only 2.9% growth. This underperformance is worrying, especially in a year when food prices remain elevated, and climate volatility persists.

The Bank of Ghana’s Composite Index of Economic Activity (CIEA) shows strong momentum with an 18.8% annual nominal growth in January 2025. But real growth figures are less impressive, hovering around 2–5% in key months. This suggests that much of the nominal growth may be driven by inflation.

Consumer confidence is inching upward (100.2), as is business sentiment (99.7). But whether this will translate into real investment and job creation remains to be seen.

Debt: Smaller in Dollars, Bigger in Worries

One of the most touted gains of recent months has been the decline in public debt-to-GDP, now at 61.8%, down from 68.7% in December 2023. On the surface, this is progress. But look deeper, and questions arise.

The decline is driven more by cedi depreciation and GDP rebasing than by a real reduction in borrowing. The total public debt now stands at GHS 726.7 billion (USD 49.4 billion). External debt is still over USD 28 billion, and domestic debt remains high at GHS 309.8 billion.

As Ghana undertakes IMF-backed fiscal consolidation, the 2025 budget aims for a lower deficit and an improved primary balance. Yet, the real test lies in implementation. Will government agencies comply with spending ceilings? Will tax revenue targets (12.9% of GDP) be met without overly burdening the informal sector?

Budget Execution: Stuck Between Dreams and Debt

The 2025 national budget rightly prioritised domestic revenue mobilisation and efficient spending. However, the data show a persistent gap between revenue (15.9% of GDP) and expenditure (21.1%), resulting in an overall fiscal deficit of −5.2%.

Of greater concern is the underwhelming level of capital expenditure which is just 2.5% of GDP. This is inadequate for a government aiming to transform the economy through infrastructure and industrialisation.

Revenue collection appears stable, but it remains narrow. Ghana needs broader, fairer taxation that brings the informal sector in without overburdening vulnerable groups. Until then, each new tax risks becoming a political flashpoint.

External Sector: Cocoa and Gold to the Rescue

There is some good news on the trade front. Ghana posted a trade surplus of USD 1.6 billion by February 2025, driven by record gold and cocoa prices. Gold exports exceeded USD 2.3 billion in just two months. Cocoa, buoyed by global shortages, brought in USD 835 million.

Total international reserves have increased, and the current account surplus reached 4.3% of GDP by the end of 2024.

Yet, capital and financial inflows remain fragile. Net portfolio investments are near zero, and foreign direct investment, although rising, has not yet returned to pre-crisis levels. Investor confidence must be rebuilt, and that will require consistent reforms, the rule of law, and credible macroeconomic signalling.

Banking Sector: Stable, Liquid, But Still Cautious

The banking sector has weathered the post-Domestic Debt Exchange Programme (DDEP) storm better than expected. Total assets grew by over 34% year-on-year, and deposits reached GHS 286.9 billion.

Non-performing loans have eased to 22.6%, and capital adequacy is stable at 14.4%. But banks remain cautious. Despite improved liquidity, credit growth to the private sector remains weak in real terms, with a growth rate of just 3.1% by February 2025.

The question is whether banks are still in defensive mode or whether the scars from the DDEP are beginning to heal.

Digital Finance and Mobile Money: Reshaping Ghana’s Liquidity

One quiet revolution that continues unabated is the rise of mobile money. As of February 2025:

The value of monthly transactions hit GHS 316.2 billion.
Float balances rose to GHS 27.9 billion.
Registered accounts surpassed 74 million.

However, the number of active agents continues to decline, down to just 411,000, from over 600,000 a year ago. The declining agent network suggests rising costs, policy friction, or declining margins. This is an area policymakers must urgently review.

Capital Markets: From Risk to Revival?

If the Ghana Stock Exchange were the only signal of economic recovery, we’d be popping champagne. The GSE Composite Index is up 56% year-on-year, with market capitalisation hitting GHS 127.8 billion. Even the financial index has bounced back—growing 18.2% so far this year.

Investor interest in fixed income has also returned, with GHS 22.1 billion traded on the bond market in February alone. But is this the return of confidence—or just speculative positioning in a high-inflation, low-yield world?

Final Thoughts: Will it be a Year of Quiet Tests?

Ghana’s economic managers deserve credit for stabilising a ship that was listing dangerously just 18 months ago. Inflation has been halved, reserves are up, and the debt burden is slightly less daunting. But underneath these gains are fragilities that could unravel if policy momentum stalls.

2025 must not be a year of cosmetic reforms and headline chasing. It must be a year of discipline, structural change, and inclusive growth. The average Ghanaian is yet to feel the gains of “stability.” For them, the question is not whether the fiscal deficit has narrowed, but whether their aspirations are affordable again.

The government and the central bank must walk together, not just on the same tightrope, but in the same direction. Only then can we cross this bridge from recovery to resilience.

Source:Summary-of-Economic-and-Financial-Data-March-2025