Economic Growth Case Studies
One example of a country that experienced a rapid shift in economic growth during the 80s and again in the last 5 years was Ghana.
- In 1988, a chain of comprehensive reforms was initiated in Ghana. These reforms led to decades of transition from an interventionist financial sector policy regime to a liberalized one.
- Between 1960 and 1985, deposit mobilization and credit allocation to various economic agents were not effective. Repressive financial policies in the form of interest rate ceilings discouraged savings culture and inhibited financial deepening while slowing the growth of the private investment.
- At the time, banks were directed to channel credit to sectors of the economy deemed unproductive by combining a policy mix of interest rates and selective credit controls and ceilings.
- By 1980, it had become clear that previous financial policies had failed to mobilize resources for economic growth and didn’t provide enough room for the financial system to grow.
- The effect of those policies could be felt in performance indicators, such as the money supply that fell from 24% in 1977 to 12% in 1984. Deposit demands also fell from 11.6% to 4,6%, while savings and deposits went from 7.1% to 2.6%, and domestic credit plummeted from 38% to 15.6%. GDP growth also averaged at 3.04% between 1961 and 1970 and only 0.52% between 1971 and 1980.
- In 1988, the Financial Sector Adjustment Program (FINSAP)was launched and implemented as part of efforts to liberalize and restructure the financial sector. Seven banks were restructured and their non-performing assets were eviscerated to restore the profit and viability of the banking system.
- The program also launched initiatives such as right-price setting, structural reform initiation, privatization (to some degree), abolishing of directed credit and credit controls, improvements in the regulatory and supervisory framework, and development of money and capital markets.
- In 2001, a successor program called FINSSP (Financial Sector Strategic Plan) was implemented, looking to consolidate gains made under the FINSAP and further deepen the sector with better financial service delivery.
- Economic growth indicators showcase the effectiveness of the measures. GDP growth was 2.28% between 1981-1990 and kept on growing, reaching 8.01% in 2010.
- GDP per capita also shows improvement, going from -1.76 in the period between 1971-1989 to -0.77 in 1981-1990 and 1.64 from 1991 to 2000, eventually reaching 5.5 in 2010.
- The banking system also felt the positive impact, seeing a significant increase in the number of banks from 10 banks in 1988 with 405 branches to 27 banks with 696 branches in 2009 (with majority foreign investor ownership).
- Total banking system assets also grew from 0.31% of GDP in 1993 to 0.66% in 2008. Asset concentration and quality, as well as financial deepening indicators and interest liberalization, have also shown improvements following the FINSAP and FINSSP.
- Broad money supply to GDP ratio (M2+/GDP) rose from 16.50% between 1981 and 1990 to 31.5% (2001–2005) and 29.79% in 2010.
- Some issues are still a cause of concern, such as non-performing loans and the fact that credit to private has outpaced credit to the public sector in the last decade. With an average of 3.12% (1981-1990), private sector credit stands at 15.71% in 2010.
- Real interest rates and real savings rates did not immediately turn positive following FINSAP and FINSSP.
- In 2011, Ghana attained middle-income country status. However, in 2010, the country experienced a reduction in GDP growth from 14.0% in 2010 to 4.0% in 2014 and an increase in inflation from 13.9% to 16.7% in the same period.
- In 2017, the government announced new measures toward fiscal consolidation, including reforming expenditures, intentions to fund infrastructure development and policies to ensure fiscal discipline, further guaranteeing that public deficit will not stop the pursuit of growth.
- Three years ago, the government took a loan from the IMF of $925.9 million. The deal, which ended in 2019, intended to restore debt sustainability and macroeconomic stability in the country with the purpose of foster a return to high growth and job creation while protecting social spending.
- In 2019, the World Bank and the International Monetary Fund (IMF) predicted that Ghana’s economy would grow again, at an 8.8% growth rate, which would make Ghana the fastest-growing economy in the world, after being in the 6th position in the previous year with a 5.6% growth rate.
- According to Esso, there is a long-running relationship between financial development and economic growth in Ghana.
- Ghana's investment in the agriculture sector is a great contributor to economic growth, especially after the decline in commodity prices.
- To attract investors, Ghana is constantly trying to produce well-designed reforms to assure entrepreneurs of returns and therefore encouraging investments, which in turn stimulates the economy.
- Ghana's economic growth also shows the positive impact of foreign financial aid in such countries.
- President of the Republic of Sierra Leone, Julius Maaba Bio declared that Sierra Leone has much to learn from Ghana.