The Impact of the Financial Crisis on Ghana’s Economy

Abstract

When the crisis first broke internationally, within Ghana there was much ambivalence of how the Ghanaian economy is less likely to be affected. Many were of the view that Ghana will be relatively immune to the international financial implosion because of the relatively limited level of integration of its financial markets. This paper investigates the impact of the global financial crisis on Ghana’s economy using secondary data from the World Bank, IMF, Bank of Ghana and other macro datasets and finds the belief that African countries are insulated from the effects from global financial and Economic crisis is fading. Some important elements of Ghana’s balance of payment and the domestic financial sector have been affected. There are significant implications for domestic banking and capital market, indicated in a credit crunch that has considerably affected access to credit, quality of banks’ loan books and market activity on Ghana Stock Exchange. The paper also finds that FDI showed signs of distress as multinational companies transfer funds to their parent companies to address financial difficulties. There are also negative effects on the trade and external current account balances, and private inward transfers as migrants face challenging times in their destination countries. This paper suggests that the central bank should not renege on its cardinal regulatory and supervisory responsibilities since the financial sector is become one of the major transmission channel through which the crisis is affecting Ghana’s economy. It is also recommended that policy responses should include rethinking of the country’s trade and industrial strategies.