The World Bank reported that Ghana’s financial sector cleanup has led to increased fiscal pressure on the economy, accounting for 8.3% of GDP from 2017-2021 and costing GH¢21 billion. Additionally, the energy sector’s chronic shortfalls and high operational costs have compounded fiscal challenges, necessitating urgent fiscal reforms.
The World Bank has labeled the financial sector cleanup in Ghana as an expensive endeavor, highlighting that it has intensified fiscal pressures on the country’s economy. In its 2024 public sector finance review, the Bank revealed that the costly restructuring of the financial services sector accounted for 8.3% of Ghana’s cumulative GDP from 2017 to 2021. The total expenditure for the cleanup was approximately GH¢21 billion.
President Akufo-Addo addressed the issue during his State of the Nation speech, acknowledging the financial burden, stating, “an amount of GH¢21 billion was used to fund the cleaning up exercise. These are painful lessons we all have to imbibe.” This cleanup process involved a comprehensive banking sector overhaul, which began mid-2017 and concluded in late 2018, led by the Bank of Ghana.
Additionally, the World Bank identified factors in the energy sector that further exacerbated fiscal pressures, notably chronic shortfalls linked to high fuel costs and onerous take-or-pay contracts. These issues were compounded by significant distribution losses, poor revenue collection efficiency, and tariffs that fell below cost recovery levels.
The combined effect of these financial strains from both the banking and energy sectors has created substantial pressure on Ghana’s fiscal policy, highlighting the need for robust financial reforms and strategic planning to stabilize the economy moving forward.
In summary, the World Bank’s assessment underscores the significant financial strain posed by the cleanup of Ghana’s banking sector and challenges within the energy sector. The cumulative costs incurred during the cleanup represent a notable portion of the country’s GDP, illustrating the need for strategic fiscal management and effective recovery plans. President Akufo-Addo’s acknowledgment of these challenges reflects the government’s recognition of the lessons learned and the need for future reforms.
Original Source: www.ghanabusinessnews.com
