Ghana’s economic recovery, while encouraging in some respects, has coincided with an alarming rise in poverty levels. The World Bank’s 8th Economic Update reveals that poverty in the country climbed to 30.3% in 2023, undoing much of the progress achieved in recent years.
This troubling trend underscores the urgent need for policies that carefully balance fiscal reforms with poverty alleviation, particularly following the severe economic crisis of 2022.
The economic upheaval in 2022, marked by surging inflation and rapid depreciation of the cedi, disproportionately affected Ghana’s poorest households. At its peak, inflation soared to 54.1% in December 2022, drastically eroding the purchasing power of many Ghanaians, particularly those on low or fixed incomes.
While inflation has since moderated to 22.8% by mid-2024, and further to 20.4% in August, the poorest communities continue to suffer from the compounded effects of last year’s shocks. The inflationary spikes caused prices to skyrocket, and despite recent improvements, these prices have not fallen back to pre-crisis levels, leaving many families still struggling to recover from the financial strain.
Further exacerbating the situation, utility costs are set to rise, which poses an additional threat to the financial security of low-income households. Effective from October 1, 2024, electricity tariffs will increase by 3.02%, while water tariffs will see a 1.86% hike.
These changes are driven by a 4.96% depreciation of the cedi and rising fuel prices. Even though the Bank of Ghana has recently lowered the monetary policy rate by 200 basis points, from 29% to 27%, this adjustment offers limited immediate relief to families already grappling with rising living costs.
Poverty is particularly severe in rural areas, especially in northern Ghana, where agriculture is the primary source of income. Smallholder farmers, already vulnerable to economic disruptions, have found it increasingly difficult to sustain their livelihoods as the cost of essential inputs, such as fertilizers and transportation, continues to rise. These challenges are compounded by limited access to markets and financial services, perpetuating cycles of poverty in these regions.
The World Bank emphasizes that while fiscal sustainability is critical to Ghana’s long-term economic health, it must not come at the expense of the country’s most vulnerable populations.
Ghana’s efforts to restore fiscal balance through tax reforms, spending cuts, and debt restructuring are necessary steps, but they risk widening income inequality and deepening poverty if not carefully managed.
In the longer term, Ghana must pursue structural reforms that address the root causes of poverty. The World Bank stresses the importance of economic diversification in sectors such as agriculture, manufacturing, and services to create jobs and boost incomes. For instance, improving infrastructure, increasing access to long-term financing, and fostering a business-friendly environment can significantly enhance the productivity and livelihoods of Ghana’s most vulnerable populations.
Investments in human capital—particularly through improvements in education and healthcare—are also key to driving long-term economic growth and poverty reduction. By equipping Ghanaians with the skills, knowledge and employment necessary to thrive in an evolving economy, the country can reduce its reliance on traditional industries and create new opportunities in higher-value sectors.
