Section B: Answers to Questions
Question 1 (20 Marks)
Ghana is currently classified as a lower middle-income country and yet bares the
characteristics of a least developed economy. Discuss.
Ghana's classification as a lower-middle-income country (LMIC) by the World Bank stems
from its gross national income (GNI) per capita of approximately $2,240 in 2023, placing it
above low-income thresholds but below upper-middle levels. This reflects progress since the
2007 reclassification from low-income status, driven by oil discoveries, agricultural exports
(e.g., cocoa), and remittances. However, Ghana exhibits persistent characteristics of a least-
developed country (LDC) as defined by the UN—high vulnerability to shocks, low human
assets, and structural economic weaknesses—despite graduating from LDC status in 2024
(delayed from 2018 due to COVID-19 and debt crises). This paradox underscores a "middle-
income trap," where growth stalls without diversification.
Key LDC-like characteristics include:
1. High Economic Vulnerability: Ghana's economy remains undiversified, with
agriculture (employing ~40% of the workforce) and commodities (gold, cocoa, oil)
dominating exports (over 70% of total). Shocks like the 2022–2023 inflation spike
(peaking at 54%) and cedi depreciation (losing 50% value vs. USD) expose it to
external factors, such as global commodity price volatility and climate events (e.g.,
2020 floods reducing cocoa output by 20%).
2. Low Human Assets Index: Despite LMIC status, human development lags, with a
Human Development Index (HDI) of 0.632 (medium, ranking 130th globally in
2023). Literacy rates hover at 79%, but quality education access is uneven; only 58%
complete secondary school. Health metrics show infant mortality at 38/1,000 births,
exacerbated by uneven healthcare (rural-urban gaps) and vulnerabilities like the 2023
cholera outbreak.
3. Structural Weaknesses and Inequality: Poverty affects 31% of the population
(2022 data), with regional disparities (e.g., northern savanna zones at 50% poverty vs.
coastal 20%). Informal employment dominates (83% of jobs), limiting productivity.
Debt distress (public debt at 88% of GDP in 2024) and fiscal deficits (7.7% of GDP)
mirror LDC fragility, as seen in the 2023 IMF bailout ($3 billion Extended Credit
Facility).
Question 2 (20 Marks)
a. Mention and explain any four key challenges faced by agriculture in the country. (10
Marks) b. How important is manufacturing for agricultural production in Ghana? (10
Marks)
a. Four Key Challenges Faced by Agriculture in Ghana (10 Marks)
Agriculture employs ~40% of Ghana's workforce and contributes 19% to GDP (2024, GSS
data), yet faces structural hurdles that limit productivity and food security. Four key
challenges include:
1. Climate Change and Variability: Erratic rainfall and rising temperatures (e.g.,
+1.1°C since 1960) have reduced yields; the 2022–2023 dry spells cut maize output
by 15% (MoFA). Smallholder farmers (90% of producers) lack irrigation (only
11,000 ha irrigated vs. needed 200,000 ha), exacerbating vulnerability.
2. Limited Access to Finance and Inputs: High interest rates (25–30%) and collateral
demands exclude 70% of smallholders from credit (World Bank, 2023). Fertilizer
costs surged 50% post-Ukraine crisis, leading to underuse and soil degradation (yields
at 1.7 tons/ha for maize vs. global 5.8 tons/ha).
3. Inadequate Infrastructure and Market Access: Poor rural roads and storage cause
30% post-harvest losses (FAO, 2024), worth $1.5 billion annually. Only 20% of
produce reaches formal markets, trapping farmers in low-price cycles amid urban
demand.
4. Land Tenure Insecurity: Customary land systems affect 80% of farmland, with
disputes rising 25% yearly (Lands Commission, 2023). This discourages investment
in sustainable practices like agroforestry, fueling deforestation (Ghana lost 0.5%
forest cover in 2023).
These challenges perpetuate poverty (50% of farm households below poverty line) and
import dependence ($2.5 billion food imports in 2024).
b. Importance of Manufacturing for Agricultural Production in Ghana (10 Marks)
Manufacturing is crucial for agricultural production in Ghana, acting as a value-chain
multiplier that enhances efficiency, reduces losses, and boosts incomes in an agro-led
economy. It transforms raw outputs into higher-value products, addressing the sector's 30%
post-harvest waste and low export competitiveness (e.g., raw cocoa vs. processed chocolate).
Key roles include:
• Agro-Processing for Value Addition: Manufacturing facilities process 40% of cocoa
into butter and powder (COCOBOD, 2024), increasing farmer premiums by 20% via
forward integration. Similarly, tomato and cashew processing plants (e.g., Blue Skies,
15% market share) cut import reliance (tomatoes: $200 million annually) and create
50,000 jobs.
• Input Supply and Mechanization: Local manufacturing of fertilizers (e.g., via Yara
Ghana) and equipment (tractors from Claas assembly) lowers costs by 15–20%,
enabling smallholders to boost yields (e.g., rice from 2.5 to 4 tons/ha under Planting
for Food and Jobs).
• Economic Linkages: It drives 25% of industrial GDP growth (2023), fostering rural
industrialization hubs (e.g., Tema Free Zones) that employ 100,000+ in agro-
manufacturing, reducing urban migration and stabilizing food prices.
Without manufacturing, agriculture remains subsistence-oriented; scaling it via AfCFTA
could add $1 billion to exports by 2030 (UNCTAD). Thus, it's indispensable for sustainable
production and diversification.
Question 3 (20 Marks)
a. Mention and explain any four main causes of high inflation. (10 Marks) b. Which two
monetary policy tools that are commonly used by Bank of Ghana to tackle inflation? (10
Marks)
a. Four Main Causes of High Inflation in Ghana (10 Marks)
Ghana experienced inflation peaking at 54% in December 2022 (driven by debt default and
cedi crash), easing to 22% by mid-2025 (BoG data). High inflation erodes purchasing power
and deters investment; four main causes include:
1. Exchange Rate Depreciation: The cedi lost 50% against the USD in 2022–2023 due
to import dependence (60% of consumer goods) and low reserves ($6 billion,
covering 3 months' imports). This imported inflation, as 40% of CPI basket is foreign-
denominated (e.g., fuel prices up 60%).
2. Supply-Side Shocks: Global events like the Russia-Ukraine war spiked food and
energy costs; domestic floods (2023) reduced harvests by 10%, pushing food inflation
to 40%. Structural issues like poor logistics amplify this, with transport costs at 15%
of produce prices.
3. Fiscal Deficits and Money Supply Growth: Overspending (deficit at 7.7% of GDP
in 2023) led to BoG financing via overdrafts, expanding M2 money supply by 35%
yearly. This demand-pull inflation fueled non-tradable price rises (e.g., rents up 25%).
4. Wage-Price Spirals and Expectations: Public sector wage hikes (e.g., 30% in 2023
under SSL) and indexed adjustments create feedback loops; anchored expectations
weakened post-COVID, with surveys showing 60% anticipating rises (BoG, 2024).
These causes interplay, as seen in the 2023 IMF program targeting fiscal consolidation to
curb them.
b. Two Monetary Policy Tools Commonly Used by the Bank of Ghana to Tackle
Inflation (10 Marks)
The Bank of Ghana (BoG) employs conventional tools under its inflation-targeting
framework (6–10% band) to stabilize prices via liquidity control. Two commonly used are:
1. Policy Rate Adjustments (Monetary Policy Rate - MPR): The BoG raises the MPR
to increase borrowing costs, curbing demand. In 2022–2023, it hiked from 14% to
30% (July 2023), slowing credit growth from 25% to 15% and reducing inflation by
20 points within a year. This transmits via commercial bank lending rates (up to
35%), dampening consumption.
2. Open Market Operations (OMOs): BoG sells government securities (e.g., Treasury
bills) to absorb excess liquidity. In 2024, OMOs mopped up GH¢50 billion,
tightening money supply and stabilizing the cedi (depreciation slowed to 10%). This
tool is flexible for short-term shocks, complementing reserve requirements (currently
12%).
These tools, alongside forex interventions, restored stability post-2022 crisis, though
transmission lags (3–6 months) require coordination with fiscal policy.
Question 4 (20 Marks)
How important is the business environment and private sector development to the
Ghanaian economy?
The business environment and private sector development are pivotal to Ghana's economy,
serving as engines for job creation, innovation, and inclusive growth in a resource-dependent
LMIC facing structural challenges. As of 2025, the private sector contributes ~70% of GDP
and employs 85% of the workforce, underscoring its role beyond public spending (which is
constrained by debt at 88% of GDP). A conducive business environment—encompassing
regulatory ease, infrastructure, and access to finance—amplifies this by reducing barriers,
fostering entrepreneurship, and attracting FDI ($3.1 billion in 2024, per UNCTAD).
Importance to Economic Growth and Diversification: Ghana's economy grew 2.9% in
2023 (projected 4.5% in 2025, IMF), but overreliance on commodities (exports: 50%
oil/gold/cocoa) limits resilience. Private sector-led diversification—e.g., in tech (via hubs like
Meltwater Entrepreneurial School of Technology) and manufacturing (textiles, agro-
processing)—could boost non-traditional exports, which rose 15% in 2024. The World
Bank's Ease of Doing Business rank (118th in 2020, pre-reform; improved via 2023 digital
reforms) shows how reforms like the Ghana Business Permit System reduce startup time
from 45 to 7 days, enabling SMEs (99% of firms) to thrive and create 80% of new jobs.
Role in Poverty Reduction and Inclusivity: Private sector development drives human
capital: initiatives like the National Entrepreneurship and Innovation Programme (2022) have
supported 50,000+ youth startups, cutting youth unemployment from 13% to 10% (2024).
Women-led enterprises, comprising 40% of SMEs, benefit from targeted reforms (e.g.,
Affirmative Procurement Policy), addressing gender gaps. However, challenges like high
lending rates (25–30%) and power outages (costing 2% of GDP annually) hinder potential;
improving these could lift 1 million out of poverty by 2030, per World Bank models.
Link to Broader Development: In Ghana's AfCFTA integration (2021 onward), a strong
private sector is key to intra-African trade (target: 50% of exports by 2030), with business
environment upgrades (e.g., one-stop border posts) projected to add $7 billion to GDP.
Public-private partnerships in renewables (e.g., 500MW solar projects) align with SDGs,
reducing import dependence.
In conclusion, while public investment matters, the private sector's dynamism is
indispensable for Ghana's structural transformation—turning LMIC status into high-income
reality by 2057 (Vision 2057 goal). Prioritizing anti-corruption (e.g., via Digital Ghana
Agenda) and infrastructure will unlock this potential.
