Economy stable but fragile — S&P assesses
Global Ratings Agency, S&P, has described Ghana's economy as "stable but fragile," with increased gold export receipts and improved foreign exchange (FX) reserves.
The agency, in its latest assessment of the country’s economy, acknowledged the challenges of high debt service costs and weak tax administration.
The economy has shown resilience, foreign reserves are rebuilding, fiscal reforms are underway and the country is gradually regaining investor confidence.
Still, structural vulnerabilities—including high foreign currency debt, inflation and socio-political risks—require careful navigation.
Whether the current gains are sustained will depend on the government’s ability to follow through with its reform agenda while maintaining social cohesion and investor trust in a politically sensitive environment.
It noted that the economy had recorded a resilient growth of 5.7 per cent in 2024, driven by industrial and service sector rebounds, its debt sustainability remains vulnerable to exchange rate fluctuations and the threat of illegal gold mining on cocoa production.
High inflation
At the core of Ghana’s macroeconomic pressures is stubbornly high inflation.
Although the pace of price increases has moderated from earlier peaks, inflation remains well above the Bank of Ghana’s official target band of six per cent-10 per cent—a trend S&P expects to persist until at least 2028.
Elevated inflation has weakened consumer purchasing power and eroded business profitability.
This has forced the central bank to maintain high interest rates, further dampening private sector credit demand.
Meanwhile, the banking sector, though recapitalised in 2023 following the domestic debt restructuring, is showing signs of strain.
Non-performing loans (NPLs) rose to 21.8 per cent by the end of 2024, up from 20.6 per cent in 2023, underscoring lingering credit risk in the system. Nevertheless, S&P believes the sector remains adequately capitalised for now.
Cedi’s prospects
S&P attributes the cedi’s short-term stability to Ghana’s managed float regime, under which the Bank of Ghana intermittently intervenes in the foreign exchange market to control volatility. While the central bank’s interventions have helped shore up confidence and narrow exchange rate spreads, S&P cautions that underlying vulnerabilities remain unresolved.
“The recent appreciation of the cedi is not likely to persist,” the agency said.
“We anticipate continued depreciation from the second half of 2025 as structural imbalances, inflationary persistence and fiscal constraints reassert themselves.”
Debt burden
The rating agency also flagged by S&P is Ghana’s still-substantial interest burden, which, despite dropping from nearly 48 per cent of government revenue in 2021–2022 to 25 per cent in 2025, remains among the highest in sub-Saharan Africa.
S&P forecasts that the government’s ambitious plans—including achieving a primary surplus of 1.5 per cent of GDP in 2025 and capping expenditure growth at 9.2 per cent per year through 2028—will likely be tempered by political pressures, inflationary costs and public discontent.
Political uncertainty
S&P also noted that political uncertainty and social policy developments presents potential headwinds for the economy.
While the government has launched legislative reforms aimed at strengthening public financial management—including amendments to the Public Financial Management Act and the establishment of an independent fiscal council—these reforms remain largely untested, especially in an election year.
Compounding the risks is the controversial “Promotion of Proper Human Sexual Rights and Ghanaian Family Values” bill, passed by Parliament in 2024 but yet to be signed by the President.
If ratified, the bill could jeopardise much-needed World Bank support, following precedents in Uganda where similar legislation triggered funding cuts.
Economy gets upgrade
The agency’s report, which was released last Friday upgraded the country’s credit ratings from ‘SD’ (Selective Default) to ‘CCC+’. It reflects progress in restructuring both domestic and external debt.
In October 2024, Ghana completed the Eurobond exchange and is close to finalising offers to restructure commercial bank loans amounting to $2.6 billion.
The debt overhaul, which also includes a memorandum of understanding with bilateral creditors signed in January 2025, has significantly reduced Ghana’s debt service burden.
As a result, interest payments have dropped to just over 20 per cent of revenues for 2025 and 2026.
Even modest currency depreciation could quickly inflate debt service obligations and fiscal deficits.
Bank sector
The report noted that the banking sector assets expanded significantly in 2024, credit risk remains, with the nonperforming loan (NPL) ratio climbing to 21.8 per cent by year-end 2024 from 20.6 per cent a year prior.
Despite the increase in NPLs, the banking sector remains adequately capitalised due to the sector's recapitalisation in 2023 following the restructuring of local currency government debt.
Foreign Exchange reserves buffers are being rebuilt from low levels due to the favourable current account dynamics.
In 2024, the current account recorded its largest surplus on record, reaching $3.58 billion, or 4.4% of GDP. An improved trade surplus and higher remittance inflows fuelled the increase.
Notably, the value of gold exports rose by 53.2 per cent due to increases in both volume and price while net remittance flows increased 34.1 per cent.