Chart of the Week: Ghana's debt challenges threaten economic recovery

Ghana’s macroeconomic landscape, marked by fiscal overspending, rapid debt accumulation at high-interest rates, and the disruptive impact of the COVID-19 pandemic and the Russia-Ukraine war, has improved since defaulting on its $30 billion debt in 2022. 

Ghana has turned the corner, partly propelled by the IMF’s Extended Credit Facility (ECF) Program, which birthed fiscal reforms and a more orthodox monetary policy regime. The Bank of Ghana (BOG), having recently cut its anchor rate by 100 basis points (the first in Africa), had tightened aggressively between 2022 and 2023, raising rates to 30% from 14.5%.  

As a result, inflation, mainly driven by the Ghanaian cedi’s significant 35.2% depreciation since 2022, cooled from a record peak of 52.05% in 2022 to 23.16% in 2023. The BOG has stayed on the path of forward guidance, attempting to bring inflation to target (6-10%) while supporting output growth. Encouragingly, Ghana’s GDP growth improved beyond expectations