From austerity to recovery: How IMF programmes impacted the economy over the last decade

Ghana’s economic trajectory over the past decade, including its Pre- and Post-COVID growth patterns, has been significantly influenced by several factors, including global market dynamics and interventions from the International Monetary Fund (IMF).

The country’s relationship with the IMF played a key role in shaping economic policies, with noticeable differences in performance during periods when Ghana was under an IMF programme compared to when it was not.

During the last decade, IMF programme periods (2015-2019 and 2022-present) focused on restoring macroeconomic stability through fiscal discipline and inflation control, non-IMF periods (2013-2014 and 2020) were marked by higher government spending, fiscal slippages, and greater economic volatility, eventually leading to the need for external financial assistance.

Effectively, the IMF programmes, over the period, have helped anchor Ghana’s macroeconomic framework, providing the stability necessary for sustainable growth, albeit at the cost of constrained public investment in certain sectors.

Pre-COVID Era Growth (2013 – 2019)

Between 2013 and 2019, Ghana experienced steady GDP growth, driven primarily by its oil sector, agriculture, and services. The economy depicted resilience, with fluctuations in global oil prices and macroeconomic policies shaping the growth trajectory. Ghana’s real GDP trended upward during this period, with growth averaging around 5% per annum.

The period between 2013 to 2016, Ghana experienced moderate but steady growth, with real GDP rising from GH¢28.49 billion in Q1 2013 to GH¢34.34 billion in Q4 2016. During this period, oil production became a significant contributor to the economy. Growth in services and agriculture also helped balance the economy.

Likewise, between 2017 to 2019, the country’s real GDP expanded significantly, particularly in 2017 and 2018, due to increased oil production from the Jubilee and TEN oil fields, fiscal reforms, and investments in infrastructure.

Real GDP in Q4 2019 reached GH¢39.95 billion, marking a notable improvement from GH¢32.58 billion in Q4 2014. The period saw accelerated growth, with sectors like services and industry—particularly mining and quarrying—leading the charge.

IMF Programme Influence (2015-2019)

Ghana entered an Extended Credit Facility (ECF) with the IMF in April 2015, a three-year programme that was later extended by one year to 2019. The program was aimed at restoring macroeconomic stability, reducing fiscal imbalances, and addressing rising public debt.

From 2015 to 2019, GDP growth was constrained as the government adhered to fiscal consolidation policies as agreed by the IMF. However, while growth slowed initially in 2015, the economy began to recover by 2017 as the government implemented structural reforms, including efforts to manage inflation, reduce public debt, and stabilize the currency. By 2017, Ghana’s economy expanded significantly, achieving real GDP growth of 8.5 percent (compared to 3.4 percent in 2015).

2015: Real GDP growth was moderate, with Q2 real GDP at GH¢30.69 billion—only a slight improvement from the GH¢29.77 billion recorded in Q2 2014. The IMF-agreed austerity measures limited government spending, slowing growth.

2016-2019: After initial fiscal tightening, Ghana’s economy began to rebound, especially in 2017 when oil production from the TEN and Sankofa fields began to boost the economy. By Q4 2019, real GDP had reached GH¢39.95 billion, largely driven by improved macroeconomic stability under the IMF programme.

Sectoral Growth During IMF Programme:

1. Agriculture: Growth in agriculture was sluggish during the IMF programme, as public investment in the sector was curtailed. From 2015 to 2019, real GDP from agriculture grew from GH¢6.82 billion in Q1 2015 to GH¢8.88 billion in Q4 2019—a relatively slow growth rate compared to other sectors. This period saw a focus on cocoa production, food security, and modernizing farming techniques, under the Planting for Food and Jobs.
2. Industry: The industry sector, particularly oil and gas, benefited from increased production in 2016 and beyond, with real GDP from the industry growing from GH¢10.85 billion in Q1 2015 to GH¢16.74 billion in Q4 2019. Mining and oil production were key drivers during this period, with new oil fields coming onstream. Other sub-sectors, such as construction and manufacturing, also contributed to this growth, although the pace was more gradual compared to mining.
3. Services: The services sector maintained its position as the largest contributor to GDP, with significant growth in information and communication as well as financial services. By Q4 2019, services had grown to GH¢16.08 billion, reflecting a stable expansion driven by private sector activity, even as government spending was restrained. The expansion of mobile banking, increased telecommunications activity, and a growing consumer base fueled growth in this sector.

Impact of IMF Programme (2015-2019):

The IMF programme during this period helped stabilize the Ghanaian economy, particularly in terms of fiscal discipline, exchange rate management, and inflation control. Inflation, which stood at 17.7 percent in 2015, reduced to 7.1 percent by the end of 2019. However, the austerity measures led to reduced government spending in key sectors like agriculture and infrastructure, limiting growth in these areas.

Specifically, Ghana’s agricultural sector’s contribution to real GDP growth has been declining for the past five years ending 2016. The sector’s contribution to real GDP has declined from 31 percent in 2008 to 18.9 percent in 2016 (World Bank Ghana Economic Update, 2018).

This was attributed to the slow rate of growth over the period 2008–2016, averaging around 4.3 percent. In 2016, even though agricultural growth slightly improved to 3 percent from the 2015 level of 2.8 percent, this was significantly below the target growth rate of 6 percent.

In comparison, the periods outside the IMF programme (2013-2014) were marked by higher government spending, which led to a fiscal deficit and inflationary pressures. However, this spending also supported higher short-term growth, with real GDP rising from GH¢28.49 billion in Q1 2013 to GH¢31.98 billion in Q4 2014.

Key Drivers of Pre-COVID Growth

Oil and Gas Production: The discovery of new oil fields and consistent production from the Jubilee and TEN fields significantly boosted the economy.

Crude oil production has been increasing at an average growth rate of 9.7 percent per annum from 2012 to 2020. A total of 66.9 million barrels of crude oil was produced from Ghana’s three offshore producing fields in 2020. Crude oil production reduced by about 6.3 percent in 2020 over 2019, mainly due to the outbreak of COVID-19 pandemic. (Ghana Key Energy Statistics Handbook, 2021)

Government Reforms: The period was characterized by fiscal discipline and economic reforms aimed at stabilizing the currency and attracting investment. The government implemented austerity measures, including expenditure cuts, wage bill controls, and public sector employment reforms, to promote fiscal consolidation. The Public Financial Management Act was introduced to enhance transparency and accountability in spending.

The Bank of Ghana tightened policies to curb inflation and stabilize the currency, raising interest rates and addressing non-performing loans. A Banking Sector Clean-up from 2017 restructured the financial sector, revoking licenses of distressed institutions to restore confidence.

Post-COVID Era Growth (2020 – 2024)

Before the pandemic hit, Ghana’s economy had been expected to grow at 5.8 percent in 2020, with macroeconomic stability following the successful completion of the Extended Credit Facility programme in 2019.

An extensive banking sector cleanup, together with an improved supervisory and regulatory framework, had laid the foundations for financial stability. The COVID-19 pandemic severely disrupted Ghana’s growth trajectory, leading to a contraction in 2020, followed by a recovery period in 2021 and beyond.

The government re-engaged with the IMF in 2022 after the COVID-19 pandemic led to a sharp economic contraction and increased debt levels. The government secured a US$3 billion bailout under an IMF Extended Credit Facility (ECF) in 2022 to restore macroeconomic stability and rebuild fiscal buffers. The programme focuses on fiscal consolidation, debt restructuring, and revenue mobilization.

Overall GDP Growth

2020: The pandemic caused a sharp slowdown in Ghana’s economic growth, with real GDP contracting in the first half of 2020. For instance, in Q2 2020, real GDP dropped to GH¢35.94 billion, a 5.6 percent year-on-year decline. This contraction was driven by sharp drops in exports, tourism, and supply chain disruptions.

2021 to 2023: The Post-COVID recovery saw Ghana’s real GDP steadily climb back to GH¢46.83 billion in Q1 2023, supported by the reopening of global markets, economic stimulus packages, and the gradual resumption of international trade. However, the recovery was uneven, with sectors like agriculture and services growing at a slower pace compared to Pre-COVID period.

2024: Provisional data for Q2 2024 shows a real GDP of GH¢45.21 billion, marking a strong recovery. The economy grew by 6.9 percent year-on-year, a notable increase from the 2.5 percent growth recorded in Q2 2023. The non-oil GDP growth rate of 7.0 percent highlights the broad-based nature of the recovery, extending beyond extractives.

Sectoral Growth

1. Agriculture: The agriculture sector saw mixed performance post-COVID. Real GDP for agriculture contracted during the pandemic but recovered to GH¢9.15 billion in Q2 2024. However, cocoa production has faced significant challenges, with output falling by 26.2 percent in Q2 2024, driven by supply chain disruptions, climate change, and smuggling. This marked a significant decline from the 10.8 percent growth recorded in Q4 2021.
2. Industry: The industry sector experienced a sharp decline in 2020, particularly in construction and manufacturing, which were heavily impacted by lockdowns. However, by Q2 2024, the industrial sector had bounced back, recording 9.3 percent year-on-year growth. The Mining and Quarrying subsector grew by 14.8 percent in Q2 2024, driven by higher production from the Jubilee South-East project and renewed investments in the sector.
3. Services: The services sector, the largest contributor to GDP, experienced severe contractions during the pandemic, particularly in tourism, trade, and accommodation. However, sectors like information and communication saw substantial growth, as the demand for digital services surged. By Q2 2024, services had grown by 5.8 percent, with information and communication expanding by 12.8 percent.

Impact of IMF Programme (2022-Present):

The IMF program that began in 2022 has helped stabilize Ghana’s economy after the pandemic-induced downturn. Inflation, which surged to 54.1 percent in December 2022, is being brought under control, and fiscal deficits are narrowing.

The IMF-supported debt restructuring programme has also relieved pressure on Ghana’s public finances, helping to avoid a debt crisis. However, the austerity measures required by the IMF have limited public spending, particularly in infrastructure, similar to the 2015-2019 programme.

Challenges in Post-COVID Growth

Declining Exports: A key challenge in the post-COVID period was the sharp decline in net exports, particularly in Q2 2024, where net exports fell by 59.2 percent. This was due to rising imports and falling export volumes, creating a trade imbalance and pressuring the cedi.

Cocoa Sector: Cocoa production, a key pillar of the agriculture sector, faced structural challenges, including climate change impacts, labour issues, and illegal smuggling. This sector’s ongoing struggles hindered broader agricultural growth, with significant contractions in cocoa output from Q4 2021 to Q2 2024.

Comparison of IMF Programme Periods (2015-2019 vs. 2022-Present)

1. Fiscal Discipline and Economic Stability

Both IMF programmes—2015-2019 and the ongoing 2022 programme—emphasized fiscal discipline and macroeconomic stabilization, aiming to reduce government deficits, control inflation, and stabilize the cedi.

Key elements of fiscal discipline were strict limitations on government expenditure, with exceptions for social protection programmes such as the Livelihood Empowerment Against Poverty (LEAP) and other safety net programmes.

2015-2019 Period: During this period under the Extended Credit Facility (ECF) programme, Ghana’s government committed to reducing the budget deficit and stabilizing public debt, which stood at over 70 percent of GDP at the start of the programme. Government spending was reined in, particularly in non-priority sectors like agriculture and public infrastructure, to meet IMF targets.

This led to slower growth in these sectors, but macroeconomic stability was achieved by the end of the programme. The inflation rate declined from a peak of 19.2 percent in 2016 to 7.9 percent in December 2019, and the cedi showed signs of stabilization, depreciating at a slower pace compared to the pre-IMF years.

2022-Present: Ghana re-entered another IMF programme in 2022 as part of its response to the COVID-19 economic shocks, rising inflation, and high public debt levels, which surpassed 85 percent of GDP by 2022.

The current programme focuses again on fiscal consolidation and structural reforms. Government spending in sectors like agriculture and infrastructure has been restricted, with significant cuts in discretionary spending.

Social protection programmes remain largely protected. Inflation, which had soared to 54.1 percent in December 2022, is gradually being brought down through tight monetary policies and fiscal prudence, falling to 40.1 percent by mid-2024. Similarly, the cedi’s depreciation, though still notable, has moderated with the support of international reserves.

2. Sectoral Performance

Industry Sector: Both IMF programmes bolstered the industry sector, particularly mining and oil production, due to improved investor confidence and stable macroeconomic conditions.

The 2015-2019 period saw consistent growth in the industrial sector, driven by the stabilization of the macroeconomic environment and increased oil production from the TEN (Tweneboa, Enyenra, Ntomme) and Sankofa fields. Industry growth rates in the years under the programme were strong, with the sector growing by 16.7 percent in 2017 and 10.6 percent in 2018, as highlighted by mining and quarrying, and oil activities.

During the current 2022 IMF programme, despite early disruptions caused by the COVID-19 pandemic, the industrial sector, including mining, has shown resilience. The sector grew by 3.6 percent in 2022 and continues to benefit from favorable global commodity prices, particularly for gold, as investors seek safe-haven assets amid global economic uncertainties.

Services Sector: The services sector experienced steady growth during both IMF programme periods, particularly driven by the information and communication technology (ICT) sub-sector, which saw an expansion in mobile telecommunications and financial services. During the 2015-2019 period, the services sector’s contribution to GDP grew consistently, accounting for over 47 percent of total GDP by the end of 2019.

Similarly, in the 2022-present programme, ICT remains a dominant driver of the sector’s growth, supported by ongoing digital transformation efforts and the increased adoption of fintech solutions. In the second quarter of 2023, services recorded a growth of 5.4 percent.

3. Non-IMF Periods

Periods outside IMF programmes (such as 2013-2014 and 2020) were characterized by higher government spending, particularly in areas like agriculture and infrastructure. This strategy led to short-term boosts in GDP growth, but at the expense of higher fiscal deficits, increased inflation, and significant pressure on the cedi.

2013-2014: In the two years preceding the 2015 IMF intervention, government expenditure on infrastructure projects and subsidies surged, leading to significant fiscal slippage.

By the end of 2014, the fiscal deficit had ballooned to 10.1 percent of GDP, and inflation rose sharply, reaching 17 percent by the end of 2014. The cedi also faced severe depreciation, losing nearly 40 percent of its value in 2014 alone, prompting the government to seek IMF assistance to restore macroeconomic balance.

2020 (COVID-19 Pandemic): The COVID-19 pandemic led to extraordinary government spending, including relief packages for households and businesses, health sector interventions, and infrastructure investments to stimulate the economy.

While these measures helped mitigate the immediate impact of the pandemic, they led to a substantial widening of the fiscal deficit to 15.2 percent of GDP in 2020. Inflation also accelerated, reaching 10.4 percent by the end of the year, and the cedi depreciated by 3.9 percent. The need for a return to the IMF in 2022 was largely driven by the unsustainable debt burden and rising inflation resulting from these measures.

Conclusion

Ghana’s economic growth trajectory over the past decade has been heavily influenced by its engagements with the IMF. Periods under IMF programs, though characterized by fiscal restraint and slower government spending, provided much-needed macroeconomic stability, helping to reduce inflation, stabilize the currency, and improve investor confidence.

However, the strict austerity measures also led to slower growth in sectors like agriculture and public infrastructure, highlighting the trade-offs involved in these programs.

Periods outside of IMF programs were marked by higher short-term growth, driven by increased public spending, but these gains were often unsustainable, leading to fiscal imbalances and inflationary pressures that necessitated a return to IMF support.

Going forward, Ghana’s ability to maintain growth while managing debt levels and public spending will be critical to achieving long-term economic stability.

macjosh1922@gmail.com/ joshua.amlanu@thebftonline.com