Ghana’s inflation rate has shown considerable volatility over the years. In recent economic developments, the country’s inflation narrative has taken center stage, with the latest reports indicating significant challenges for the nation’s economic stability. By the end of 2024, Ghana’s inflation rate stood at an eight month high 23.8%, missing the government’s 20% target. This increase is primarily due to fluctuating food prices, influenced by both local production issues, like weather variability affecting crops, and global supply chain disruptions. A stronger U.S. dollar increases import costs, affecting local prices, especially for food and fuel. Geopolitical tensions and trade protectionism have led to higher import costs and disrupted supply chains, particularly for energy commodities.
Monetary Policy
The central bank paused its rate cut cycle in November 2024, maintaining the policy rate at 27% after a 200 basis points cut in September.
There’s an expectation that inflation might decrease to the target range of 6% to 10% by the fourth quarter of 2025, but Goldman Sachs predicts a delay in resuming rate cuts. Ghana is under an IMF program, which requires maintaining a tight monetary policy to manage inflation.
Economic Causes Influencing Policy
The Bank of Ghana balances the need to curb inflation with supporting economic growth. The rate cut in September aimed to encourage borrowing and investment but was paused in November due to rising inflationary pressures.
Ghana’s high public debt, at 93.5% of GDP, with inflation peaking at 54.1% in 2022, has constrained fiscal policy, pushing for higher interest rates to attract investment and manage debt servicing costs.
The global increase in interest rates by major economies like the U.S., due to their inflation battles, impacts emerging markets like Ghana, making capital more expensive and leading to currency depreciation.
New Government
John Mahama has been sworn in as president, emphasizing creating a conducive business environment, tackling corruption, and enhancing government efficiency.
However, he must also manage high debt, unemployment, and the high cost of living, all pivotal issues after his election. He faces significant challenges including high debt, a high cost of living, and acute youth unemployment. His success in addressing these issues will be crucial for regaining public trust and support within a narrow window.
Comparative Analysis with Nigeria
In 2024, both Ghana and Nigeria face significant inflation challenges; Ghana’s rate averaged 23%, exceeding its target, while Nigeria’s climbed to 34.60% by November.
Both countries confront common issues like currency depreciation, escalating food prices due to local and global supply chain problems, and volatile energy costs.
Ghana’s unique influences include IMF program policies and recent political transition, while Nigeria deals with security issues impacting food supply and policy changes like fuel subsidy removal.
Both have adopted high interest rates, Ghana at 27% and Nigeria at 18.75%, to curb inflation without stifling growth. These rates have implications like reduced purchasing power and increased living costs, prompting calls for structural reforms. Ghana looks forward to stabilizing inflation to 6-10% by late 2025, while Nigeria anticipates a gradual decrease from its high inflation, highlighting ongoing struggles for economic stability.
