The Global Economic Recesion and Effect on the Economy of Ghana

THE GLOBAL ECONOMIC RECESION AND EFFECT ON

THE ECONOMY OF GHANA

By

Major RY Deegbe

INTRODUCTION

1. The global financial crisis which first showed signs in the United States of America (USA) is becoming contagious and is apparently affecting directly or indirectly, every economy on the globe. The financial crunch has its roots in a banking practice called sub-prime lending or sub-prime mortgage lending in the USA. It is traceable to a set of complex banking problems that developed over time, caused specifically by housing and credit markets mis-match, poor judgement by borrowers and/or the lenders, inability of home owners to make mortgage payments, speculation and overbuilding during the boom period, risky mortgage products (financial innovations with concealed default risks), high personal and corporate debt profiles and inactive weak central bank policies. The crisis is presently putting to test the ingenuity of the management of various central banks world over.

2. Ghana’s economy could have performed better in the past two years, if not for the effects of the huge hikes in crude oil prices and the energy shocks.   This meant that growth increased very marginally by 0.1 %, from 2006 to 2007. The growth target of 6.5% for 2007 was missed.  These shocks also contributed to Ghana’s vulnerability to the unfolding global credit crunch in 2008-2009. The aim of this paper is to discuss the effects of global economic crisis on the economy of Ghana.

EFFECTS

3. High food and crude oil prices raised the country’s current account deficit to worrisome levels just before the global financial crisis. As of 2008, Ghana’s public debt was about 53% of GDP. Escalation of crude oil prices also raised production costs for oil importing countries like Ghana. This means that consumers were hurt as prices of goods in the domestic market skyrocketed due to inflation, which reached about 18% in December 2008.

4. The Ghanaian Cedi also depreciated against all major...