Economists Predict Challenging Economic Outlook Post-Election

   Ghana’s President-elect, John Dramani Mahama, is set to inherit a struggling economy that requires immediate attention when he assumes office once again. His return to leadership, following his first term from 2012 to 2017, comes at a time when Ghana’s economy is grappling with high inflation, significant debt, and a tough fiscal situation that will demand urgent intervention.

Mahama faces an economy severely impacted by inflation, which peaked at 54.1% in December 2022. Although inflation has started to ease, it remains well above the ideal level, putting a heavy strain on household budgets across the nation. Despite the drop in inflation, prices for essential goods and services remain high, making daily life increasingly difficult for Ghana’s 31 million citizens. The economic challenges facing Ghana began during the COVID-19 pandemic, but the country’s public debt has since ballooned, requiring a restructuring of both domestic and external debt.

The government had to turn to the International Monetary Fund (IMF) for assistance, and after months of negotiations, Ghana secured a $3 billion extended credit facility (ECF) in December 2022. This three-year support programme aims to restore fiscal stability, address the country’s mounting debt, and guide economic recovery. So far, Ghana has passed three IMF reviews and received $1.92 billion in funding.

However, maintaining the IMF programme will be a crucial challenge for Mahama’s incoming government. The programme demands strict fiscal discipline, which could clash with the expectations of voters who are looking for relief from the current economic hardships. Many of Mahama’s campaign promises focused on economic reforms, and the new government will have to deliver on these commitments while remaining within the framework set by the IMF.

Economist Eugene Bawelle, a lecturer at Academic City University, suggested that the new administration should prioritize fiscal prudence, particularly in the early stages of its mandate. One key area will be expenditure rationalization, where the government should focus on funding initiatives that will contribute to long-term economic growth. He also noted that the Mahama administration should maintain its pledge to run a leaner government, with fewer ministers than the current administration. Mahama has committed to having a cabinet of 60 ministers, a sharp reduction from the current count of over 80 ministers. This reduction is part of Mahama’s promise to run a more efficient government and restore public trust.

Energy sector debts present another significant challenge for Mahama. Ghana’s energy sector debt has reached $2 billion, requiring restructuring. This issue must be dealt with in the context of broader economic recovery efforts, including the country’s ongoing debt restructuring process. Ghana has already restructured a portion of its debt, including agreements with bilateral creditors and Eurobond holders. The government is also negotiating with banks and energy providers to restructure additional debts.

The country’s mounting debt burden, which led to the suspension of external debt payments and a complex domestic debt exchange programme, will continue to pose risks for the new administration. The domestic debt exchange involved the swapping of old bonds for new ones at lower interest rates, which has affected both institutional and retail investors. The government is also engaging with external creditors for further restructuring of its $2.8 billion debt.

In addition to the debt, the value of the Ghanaian cedi, which has been highly volatile in recent years, will be another key concern. Currency instability presents a major challenge for Ghana’s import-dependent economy, which continues to feel the effects of the country’s worst economic crisis in decades. Currency stability will be crucial for the incoming government, and Mahama’s administration will need to roll out strong measures to stabilize the cedi. Bawelle suggested that Mahama could focus on expanding Ghana’s export base by supporting local businesses to increase exports, which would help stabilize the local currency.

Mahama has already outlined several key proposals in his manifesto, which he hopes will form the basis for a rapid economic recovery. Central to his plans is the introduction of a 24-hour economy policy, designed to address unemployment and boost productivity. Additionally, Mahama aims to reduce several taxes, including the e-levy and COVID-19 levy, within the first 100 days of his presidency. His government also plans to reform VAT policies, including raising the VAT registration threshold for small businesses and reversing certain VAT exemptions.

While these policies are ambitious, there are concerns about how they will be implemented given the financial challenges facing the country. With Ghana still shut out of international capital markets, Mahama’s government may struggle to raise the resources needed to implement these reforms. To address this, Bawelle has suggested that Mahama should strengthen bilateral relations and focus on multilateral institutions to secure alternative forms of funding.

Ghana’s new government faces a complex and difficult economic environment. While Mahama has outlined plans for economic reforms, his administration will need to implement them carefully to navigate fiscal constraints, debt issues, and public expectations. Economic experts caution that the coming years will be challenging, but with strategic leadership, Ghana can begin the path to recovery.