The Government of Ghana must mobilize more domestic resources to finance structural transformation, according to the African Development Bank (AfDB) report titled “Driving Ghana’s Transformation: The Reform of the Global Financial Architecture.”
This recommendation forms part of the medium to long-term policies aimed at addressing the economic challenges in Ghana.
The report calls for improvements in the business environment to attract more private investment, both domestic and foreign. Ghana should undertake structural reforms to simplify business regulations and remove major constraints on private initiatives, such as corruption, the tax system, land and electricity prices, and credit access.
“Ghana should accelerate structural reforms aimed at simplifying business regulations and removing constraints on private initiatives,” the report states.
The AfDB emphasizes the need to mobilize more domestic resources to finance structural transformation. Ghana should pursue reforms to improve economic governance by effectively combating corruption, illicit financial flows, and tax evasion, and by enhancing tax administration efficiency.
“Ghana could integrate the OECD’s inclusive framework for Domestic tax Base Erosion and Profit Shifting (BEPS) and strengthen the digitalization of tax administration,” the report suggests.
The report advocates for better resource allocation to accelerate structural transformation for inclusive and sustainable growth. Ghana should strengthen budgetary allocations in favor of sectors driving structural transformation, such as education and energy, by investing more in human capital development, quality infrastructure, and Research and Development (R&D).
“Ghana should continue to strengthen budgetary allocation towards sectors driving structural transformation,” the report notes.
In the short term, the report suggests continuing the fight against inflation with a restrictive monetary policy and measures to stimulate supply. The Bank of Ghana should maintain its tightening monetary policy stance to bring inflation back to its target zone and anchor inflation expectations.
“The Bank of Ghana should maintain its monetary policy rate high enough to bring inflation back to its target zone,” the report recommends.
The report also advises introducing an exchange rate policy to reduce pressure on the Cedi exchange rate. The Bank of Ghana should allow the Cedi to freely adjust based on changes in macroeconomic fundamentals, as resisting these movements could undermine growth. “The Bank of Ghana should allow the Cedi to freely adjust as much as possible,” the report states.
As of June 2024, Ghana’s debt stood at GH¢742 billion (US$50.9 billion). The report suggests reducing the debt burden to bring the debt ratio to a sustainable level. Ghana must continue its fiscal consolidation efforts by mobilizing more domestic resources, broadening the tax base, introducing new taxes such as property tax, exploring tax loopholes, and improving tax administration efficiency.
“Ghana must continue its fiscal consolidation efforts and complete the external debt restructuring process while improving statistics and strengthening debt management capabilities,” the report adds.
By implementing these recommendations, the AfDB believes that Ghana can significantly enhance its economic stability and promote sustainable growth through effective structural transformation and resource management.
