Macroeconomic risks of Ghana


Risk in the economy is the probability of material losses or loss of income (profit) due to random changes in external and internal conditions prevailing in the national economy, as well as non-optimal management decisions at the micro- and macro level.

In macroeconomics these are changes of world market conjuncture, global (regional) financial crises, sharp fluctuations in exchange rates, etc.

Within a single country there are national macroeconomic risks. Often they are associated with structural shifts in production, budget deficits, and uncontrolled inflation. The results of the consequences of macroeconomic risks of a single country affect the economic activities of individual enterprises (firms), strengthening their own microeconomic risks.

Macroeconomic risks are the probability of the situation in the country, associated with the decision to overcome the uncertainty in the socio-economic system of the country, in the process of which it is possible to quantitatively and qualitatively assess the probability of achieving the expected macroeconomic indicators of the national economy and deviations from them.

The risk occurs when the probabilistic nature of the situation is caused by the action of some dangers and threats, i.e. some objective circumstances, due to which there is a possibility of unfavorable development of the economic situation.

Let us analyze the situation in modern Ghana, in terms of possible macroeconomic risks

The Ghanaian government was one of the first in West Africa to respond economically to the pandemic: credit rates were reduced; taxes and water charges were waived for three months; electricity tariffs were reduced for more than 1 million households for six months. Food distributions took place in the poorest communities; $175 million was allocated to support micro, small, and medium-sized businesses.

But the problem was that the more the government tightened its coercive measures, including so-called social distancing, and required citizens to stay home as much as possible, the greater the number of unemployed, indigent, and literally hungry became. The government was accused of focusing on saving lives at the expense of people’s livelihoods: after all, like many other African countries, Ghana’s informal sector employs a huge number of people — about 80% of the workforce. In addition, many businesses have closed, sending workers home without pay and with vague prospects of returning to work.

Despite quarantine assistance to small businesses, street vendors, most of whom do not pay taxes, have consequently no access to “covid” grants, loans and benefits, nor, for that matter, have the residents of urban slums, which have no running water or electricity.

Ghana plans to issue up to $2 billion in environmental and social bonds by November 2021, making it the first African country to borrow to finance development programs.

The West African economy, which plans to borrow up to $5 billion on the foreign market in 2021, will use proceeds from the sustainable bonds to refinance debt used for social and environmental projects and pay for education or health care. In March 2021, Ghana already sold $3.03 billion in bonds out of the $5 billion it received budget approval for. The plan is that $3.5 billion will be used to refinance debt already raised.

Ghana will pioneer ESG securities in Africa, taking advantage of a tool that is experiencing its heyday during the coronavirus pandemic. The country will use the proceeds to promote a free secondary education initiative launched in 2017, despite having the lowest economic growth rate in 37 years in 2020.

Ghana, Africa’s largest gold producer, which is projecting a budget deficit of 9.5 percent of gross domestic product in 2021, up from a deficit of 11.7 percent in 2020, expects its output to grow by 5 percent.

Ghana is also working to improve tax revenue collection, which has historically been low compared to neighboring regions. The decision came after President Nana Akufo-Addo said the tax base should more than quintuple to $15.5 billion after the government implemented a system on April 1, 2021, in which all national identification numbers serve as tax numbers.

Plans to revitalize Ghana’s economy and increase government budgets remain vulnerable to a new wave of the pandemic. Meanwhile, Ghana’s effort to achieve collective immunity by vaccinating 20 million people against COVID-19 has run into a problem, largely due to nationalization of the vaccine. Ghana has only 2 doses per 100 people, compared to 68 doses per 100 in the Western world.

Ghana was able to purchase vaccines from the government of India and Africa’s largest mobile operator, MTN GroupLtd. This is on top of the 1.3 million free doses it received from the Covax initiative supported by the World Health Organization. It needs $300 million to buy the vaccine.

In any given macroeconomic situation, an array of threats and hazards may operate simultaneously, generating certain types of risks. Risk analysis can be used for risk identification purposes, which is necessary to assess the level of individual risk components and their magnitude in general. Without risk level assessment it is impossible to make a decision about action in a risk situation, i.e. risk management.

The risk management process involves, first of all, the quantitative analysis, as a result of which the numerical values of individual risks, which indirectly or directly influence the management process, are found. After evaluation of the obtained risk values, a national strategy for risk management should be developed, including the development of appropriate measures to reduce or even prevent risks altogether. But to create an effective risk management system, it is not enough to develop such a strategy.

It is also necessary to create a mechanism for implementing the developed strategy, which, along with a number of necessary organizational measures, would also provide for the formation of special reserves to compensate the consequences of possible risks.

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