Ghana's annual economic growth continued on a strong path at 6.3 percent in 2018, although at a slower pace than the 8.1 percent in 2017. This trend was led largely by strong growth in mining, petroleum, agriculture and sustained expansion in forestry and logging, according to a World Bank report released today. Non-oil GDP reached a strong 6.5 percent growth in 2018.
The 4th edition of the Ghana Economic Update, which focuses on Financial Sector Development and Financial Inclusion, notes that universal financial access is an attainable target in Ghana with the use of innovative technology and approaches; and the Government must continue to lead the implementation of its financial inclusion strategy over the medium term. There is also the need to step up effective domestic resource mobilization to ensure that gains on fiscal consolidation are not lost.
The report notes that the industrial sector continued to boost growth with 10.5 percent expansion, followed by agriculture with 4.8 percent; while the services sector grew by only 2.8 percent in 2018. Inflation decreased from 19.2 percent in March 2016 to 9.4 percent, in December 2018 the lowest in five years, and was 9.5 percent in April 2019.
"Economic growth is expected to be stronger in 2019, but over the medium term a more diversified economy is vital," said Henry Kerali, World Bank Country Director for Ghana. "Addressing the remaining vulnerabilities in the financial sector is urgent and will require additional efforts in 2019, and over the medium term."
The report projects Ghana's economic growth to increase to 7.6 percent in 2019, driven by both the oil and non-oil sectors. Growth in the non-oil sector is expected to accelerate as policy interventions in agriculture and industry will revitalize the productive sectors. The report recommends the need to better invest Ghana's current natural resource wealth in non-natural resource sectors for sustainable growth in the medium-to-long-term.
The government sustained its fiscal consolidation efforts in 2018 despite shortfalls in revenue. According to the report, fiscal consolidation is however expected to slow in 2019 but the overall outlook will likely remain intact over the medium term (World Bank estimates, official 2019 fiscal data is yet to be released); domestic revenue mobilization is therefore very important.
"An effective domestic resource mobilization strategy is an urgent priority as the reduction of expenditures, including public investment, in response to revenue underperformances may not be sustainable," said Michael Geiger, Senior Economist and co-author of the report. "The next election cycle in 2020 will be an important test of fiscal sustainability."
Increased weaknesses in the financial sector over the past years, resulted in the authorities closing nine domestically owned universal banks between 2017 and 2018, the report notes. The Government provided substantial financial support to cover the gap between the liabilities and the assets.
"It is encouraging to note that the authorities are strengthening supervision, including through enforcement of prudential standards, implementation of a new capital requirements directive, introduction of risk management and corporate governance directives, among others," said Carlos Vicente, Senior Financial Sector Specialist and co-author, "these will strengthen the resilience and stability of the banking system in the medium term."
The report highlights that despite the rapid growth of the financial sector in Ghana since 2010, rural access to formal financial accounts is still low in some regions of Ghana. In addition, women are less financially included than men in Ghana. In 2017, 54 percent of women had an account with a formal financial institution, compared to 58 percent for the general population and 62 percent of men.
The report acknowledges that despite the challenges in building a more financially inclusive economy, there has been significant growth in the number of financial access points over the past five years. This growth has been primarily related to the spread of mobile money and government facilitation of interoperability across payment instruments by establishing a mobile money switching solution.
In conclusion, the report notes that more can still be done and makes five specific recommendations for enhancing financial inclusion in the country:
Digitizing government payments and utility payments;
Linking informal financial channels with formal financial services;
Promoting agent banking and other low-cost models to increase their footprint throughout the country; and
Improving financial capability through financial literacy programs to equip consumers with the information needed to identify the benefits and risks of financial products.