Can Ghana sustain remittance flows?

Ghana has emerged as the second top recipient of remittances in sub-Saharan Africa in 2023, with a significant influx of 4.6 billion dollars coming into the country. This data, highlighted by the World Bank, underscores the pivotal role that remittances play in Ghana's economic landscape. In a recent interview on CNBC Africa, Courage Boti, an Economist at GCB Capital, delves into the implications of this remittance flow and sheds light on Ghana's economic outlook. Boti discusses how the private sector drives remittance flows, emphasizing that these funds, predominantly from individuals supporting their families, have a limited direct impact on government finances and investments. However, the remittance inflows contribute to boosting liquidity in the market, aiding currency management, and supplementing foreign exchange reserves. By ensuring that remittances are collected in local currency equivalents, the central bank benefits from increased reserves and liquidity, which ultimately facilitates FX management strategies. Boti notes that these inflows also stimulate consumption in the local economy, incentivizing private investors to engage in further economic activities. Despite the significant remittance flow, Boti underscores that the government's direct control over this inflow is limited. One critical aspect that experts highlight for maximizing remittance benefits is the need for reliable and cost-effective transfer mechanisms. While some governments, like Nigeria, have taken steps to reduce transfer costs and enhance transfer infrastructure to attract more inflows, Ghana lags in this aspect. Boti points out that Ghana needs to address the high costs associated with remittance transfers internally to encourage more significant inflows. Additionally, enhancing network infrastructure can streamline the remittance process, making it more accessible and convenient for recipients. Turning to Ghana's broader economic landscape, Boti discusses Fitch's projection of a 4.3% growth rate in 2023 and further growth to 4.5% in 2025. He notes that despite challenges such as debt burdens and fiscal constraints, Ghana's growth remains private sector-driven. Boti cites the robust 4.7% growth recorded in the first quarter of the year, primarily propelled by the services sector and ICT innovation. With debt talks nearing completion, Boti anticipates that freeing up cash through debt relief could bolster investor sentiment, unlock potential investments, and attract foreign direct investments. However, he cautions against undoing the progress made by maintaining fiscal discipline, avoiding extra-budgetary expenditures, and preserving debt sustainability. Boti emphasizes the need for prudent fiscal management, especially in an election year, to sustain the current growth trajectory and attract private capital into key sectors. By maintaining tight fiscal policies and fostering a conducive investment climate, Ghana can pave the way for sustained economic growth and capitalize on the positive momentum in the economy. As Ghana navigates its economic landscape, the effective harnessing of remittance flows and strategic management of debt will be pivotal in shaping its growth trajectory and securing a prosperous future.