Disinflation Through Stagnation: Unpacking Ghana’s Macroeconomic Triumph Narrative

In early February 2026, Ghana’s Government Statistician announced a landmark achievement: inflation had plummeted to 3.8%, the lowest rate since the Consumer Price Index was rebased in 2021, marking the 13th consecutive month of decline. Government ministers, international financial institutions, and media outlets celebrated this as a definitive vindication of Ghana’s economic management and its ongoing International Monetary Fund (IMF) stabilization program. The narrative was clear: Ghana had achieved price stability. However, a critical and dissenting voice from economist Dr. Samuel Addo offered a starkly different interpretation: this low inflation is not a product of increased productivity or robust domestic manufacturing. It is, instead, the direct result of crippled consumer demand. People simply cannot afford to spend as they once did. This article argues that Ghana’s celebrated macroeconomic success is not a story of economic strength but a symptom of deep-seated stagnation. The nation is experiencing demand collapse in real time, yet policymakers are mistaking the wreckage for recovery.

Key Points

Background: The Numbers That Tell One Story

The official data presents a compelling picture of macroeconomic stabilization. Inflation decelerated from 5.4% in December 2025 to 3.8% in January 2026, a dramatic fall from the 23.5% recorded in January 2025. Both food and non-food inflation settled at 3.9%. Regional data showed extreme variance, from deflation (-2.6%) in the Savannah Region to high inflation (11.2%) in the North East Region, but the national trend is decisively downward.

This achievement has placed Ghana squarely within the Bank of Ghana’s (BoG) medium-term inflation target band of 8%. The policy response has been swift. The BoG’s monetary policy rate has been slashed from 30% in mid-2023 to 15.5% in January 2026. Correspondingly, Treasury bill rates have fallen from over 30% to approximately 11%. The country’s gross international reserves posted a healthy surplus of $8.5 billion by October 2025, up from $2.8 billion a year earlier. Furthermore, the Ghanaian cedi appreciated by 40.7% against the US dollar in 2025. By conventional metrics—inflation, reserves, exchange rate stability—Ghana appears to be a textbook case of successful IMF program implementation.

The Illusion of Economic Health

These positive indicators have fostered a triumphant narrative. However, this narrative selectively ignores the economic context in which these numbers are achieved. Stability achieved through domestic demand destruction is not sustainable growth. It is a fragile equilibrium that masks profound weaknesses in the real economy.

Analysis: Disinflation vs. Stagnation – A Critical Distinction

Economists distinguish between two types of falling inflation: good disinflation and bad disinflation. Good disinflation occurs when productivity rises, supply chains improve, and economic efficiency increases, allowing prices to fall or rise slowly while output and incomes grow. Bad disinflation occurs when a collapse in aggregate demand—driven by unemployment, poverty, and credit scarcity—forces prices down because consumers and businesses simply stop buying. All evidence suggests Ghana is experiencing the latter.

The Demand Collapse in Plain Sight

The most damning evidence lies in the real lending rates. With a policy rate of 15.5% and commercial bank lending rates around 20.45% against inflation of 3.8%, the real cost of borrowing is approximately 16.65%. These are not rates that foster a vibrant, innovative private sector; they are rates that constitute a credit market chokehold. They make any productive investment—whether in a small agribusiness, a manufacturing startup, or a tech venture—mathematically unviable after accounting for risk and other costs.

Dr. Samuel Addo articulates the consequence: “Businesses don’t expand, so jobs aren’t created. Young people struggle to find work. Traders sell less because customers have limited money to spend. Even though prices are stable, incomes aren’t growing fast enough. Life might feel calm on the surface, but opportunities are shrinking behind the scenes.”

Field reports from markets in Accra, Kumasi, and Tamale confirm this: sales have collapsed, customers are buying less, and payment delays are endemic. The supposed price stability has not translated into improved purchasing power because wage growth has stagnated.

Betrayal in the Basket: The Food Inflation Anomaly

The inflation data itself betrays the demand weakness. The drop in food inflation to 3.9% is largely attributed to significant price declines in perishable goods like tomatoes, garden eggs, okro, and pawpaw. This is not a sign of a revolution in agricultural productivity or supply chain efficiency. It is a classic indicator of demand destruction: farmers are slashing prices because they cannot find buyers at previous levels. When the price of tomatoes falls because people are too poor to buy them, that is not economic entrepreneurship; it is economic distress.

Similarly, the reported deflation of -2.6% in the Savannah Region is a grave warning sign. In a developing economy context, deflation is almost never a sign of healthy supply-side gains. It is a signal of demand so weak that prices are falling because sellers cannot find purchasers even at reduced costs.

Background: The 1999 Precedent – A History We Ignore at Our Peril

Ghana has traversed this exact path before. In August 1999, inflation hit a then-historic low of 1.4%. Policymakers and the IMF celebrated the success of structural adjustment and stabilization policies. The triumph was short-lived. By December 2000, inflation had surged to 40.5%. In a mere 16 months, Ghana went from a record low to a full-blown hyperinflationary crisis.

The cause of the 1999 low inflation was identical to today’s: not a boom in productive capacity, but a collapse in demand following years of austere structural adjustment programs. When the government, facing election pressures in 2000, attempted to stimulate demand, all that pent-up, suppressed demand exploded into inflation because the economy’s productive foundations had not been strengthened during the period of “stability.” The low inflation was a mirage built on sand.

Ghana in 2026 is replicating this 1999 mistake with alarming precision. It is celebrating low inflation born of demand suppression while the structural drivers of productive capacity—energy, industry, agriculture, human capital—remain critically underdeveloped. The inevitable political and economic pressure for demand stimulus (e.g., pre-election spending, wage hikes) will likely trigger the same explosive return of inflation, unless the productive base is fundamentally transformed first.

Analysis: The Credit Market Chokehold and Policy Paralysis

The core of the stagnation is the high-interest-rate environment. The BoG finds itself in a classic policy trap. Its mandate is price stability. With inflation at 3.8%, a rational case can be made for much lower rates. However, the bank fears that cutting rates aggressively could unleash the “phantom” demand it believes is still suppressed, causing inflation to rebound. This fear keeps rates prohibitively high, which in turn ensures that genuine, investment-driven demand cannot recover. The economy is stuck in a low-equilibrium trap: weak demand leads to low investment and job losses, which further weakens demand.

Development economist Dr. George Domfe has explicitly called for more aggressive rate cuts, stating that a 15.5% policy rate with 3.8% inflation risks stifling credit, business investment, and job creation. His analysis is correct, but the BoG’s hands are tied by its inflation-targeting framework and the memory of past crises. This policy paralysis has profound consequences: young entrepreneurs cannot access affordable finance, existing businesses cannot invest or expand, and farmers cannot borrow for improved inputs. The entire economy operates below its potential.

Practical Advice: A Roadmap for Sustainable Stability

Breaking this trap requires a deliberate and coordinated shift in policy focus, moving from celebrating demand-driven disinflation to building supply-side strength. The following actions are critical:

1. Aggressive and Credible Monetary Policy Pivot

The BoG must recalibrate its assessment of current inflation. It should acknowledge that 3.8% likely reflects weak demand rather than a permanent supply-side victory. It must cut the policy rate aggressively into single digits, targeting a real policy rate of 2-3%. This would still be moderately restrictive but would facilitate productive credit creation. The risk of reigniting inflation is manageable. If inflation begins to rise as credit expands, it would signal a welcome revival in genuine demand. The BoG retains the tools to tighten again if inflation threatens to overshoot a revised, perhaps slightly higher, target band (e.g., 6-10%). The greater risk is permanent stagnation.

2. Targeted Fiscal Stimulus for Productive Infrastructure

Fiscal policy must pivot from pure consolidation to strategic, productivity-enhancing investment. With inflation low, external balances strong, and borrowing costs favorable, the government should launch a multi-year public investment program. This must be financed through concessional borrowing from development partners and focused exclusively on eliminating binding constraints on private sector productivity: reliable 24/7 electricity, efficient port and logistics systems, and nationwide digital connectivity. Such “smart” stimulus would crowd in private investment rather than merely competing for scarce resources.

3. Genuine Export Diversification Beyond Rhetoric

Ghana’s foreign exchange earnings remain dangerously concentrated on cocoa, gold, and oil—commodities prone to price volatility. The government must move beyond talk and establish functional Special Economic Zones (SEZs). These SEZs must offer guaranteed reliable power (ideally from dedicated renewable sources), streamlined one-stop-shop regulations, and targeted tax incentives for manufacturing exports. Without addressing the fundamental cost of power and bureaucratic hurdles, export-oriented manufacturing will not materialize.

4. Deep Financial Sector Reforms to Lower Lending Spreads

The gap between the BoG’s policy rate (15.5%) and average lending rates (~20.45%) reflects both credit risk and potential oligopolistic behavior in banking. The government, in partnership with multilateral development banks, should establish a wholesale credit facility. This facility would provide long-term, low-cost liquidity to commercial banks specifically for on-lending to priority sectors: agriculture, manufacturing, and SMEs. This would directly attack the structural cause of high lending rates.

5. Constitutional and Institutional Shields Against Political Economy Traps

The 1999-2000 cycle must not repeat. As the 2028 elections approach, pressures for fiscal expansion, public sector wage hikes, and subsidy restorations will intensify—the very forces that shattered the 1999 stability. The only defense is pre-emptive institutional strengthening. Ghana needs:

• Constitutional fiscal rules that survive electoral cycles (e.g., structural balance targets, debt ceilings).
• An independent Fiscal Council with binding authority over budget compliance and public debt management.
• Mandatory, real-time, and simplified public reporting of all fiscal data to create immediate transparency and public scrutiny.

These institutions must be built before the electoral storm hits, not after the damage is done.

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