Overview of the Current Economy
In the early 1990s, Ghana's economic recovery still appeared uneven and was geared primarily to the export rather than domestic market. GDP had risen by an average of 5 percent per year since 1984, inflation had been reduced to about 20 percent, and export earnings had reached US$1 billion. Most production came from the export sector, and by the 1992-93 crop year, cocoa production surpassed 300,000 tons, placing Ghana third in the world. In 1990 exports of minerals--primarily gold but also diamonds, manganese, and bauxite--brought in US$234 million, an increase of 23.2 percent from the year before. Nevertheless, salaries were low, and because the cost of public services continued to rise, Ghana's poor bore the brunt of the negative effects of the austerity program.
Despite devaluations by the Rawlings regime and rising exports, the government has been unable to fulfill a key stabilization goal of reducing the trade and current account deficits. To stimulate production in various sectors, the government has incurred loans to finance imports of necessary inputs such as machinery, fertilizer, and petroleum. As a result, the country's foreign debt exceeded US$4 billion in 1991. According to World Bank estimates, the country's debt continued to rise in 1992, and was equivalent to almost 63 percent of Gross National Product (GNP). In 1992 the debt service ratio (debt service as a proportion of exports) was 27 percent, an improvement on late 1980s levels, which averaged as high as 62.5 percent. To cover the deficits that result from loans and increased imports, the government came to rely on rising levels of foreign aid, with net aid disbursements increasing to an estimated US$550 million by 1990. Unfortunately, foreign investment, compared with aid, was weak except in the mining sector, and domestic savings were insufficient to finance the country's ambitious development projects.
Government policies have produced mixed results in terms of productivity and debt, and they have also incurred significant social costs through job elimination and reduced public expenditure policies. The government has addressed this problem by launching a special initiative to create 40,000 jobs providing services to the poorest groups. Spending on health and education also has increased as a proportion of GDP, but the central government believes that major poverty alleviation can come only with even faster and higher economic growth.
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