DailySun
Former President John Mahama, who recently won Ghana’s election, has pledged to boost public spending and tackle the rising cost of living. Nonetheless, he is confronted with the challenging task of reconciling his objectives with the requirements of a $3 billion IMF bailout.
While Mahama has not yet elaborated on his campaign commitments, he mentioned in his victory speech that his election signifies “a new beginning, a new direction” for Ghana, a country struggling with high inflation and worsening living conditions.
He previously promised to establish a “National Economic Recovery Task Force” within his first month in office. This initiative will include industry representatives and aims to develop actionable strategies to stimulate growth and enhance living standards, with the goal of turning Ghana into a “24-hour economy.”
To invigorate private sector economic activity, Mahama suggested extending credit to small and medium-sized enterprises and creating more business incubators. He also committed to reviving the “Jobs for Youth” initiative, which is designed to enhance employment opportunities for the younger generation, and to suspend the contentious VAT on essential items like food and fuel, alleviating the financial burden on citizens.
Following a period of austerity after Ghana’s debt default in 2022, Mahama has vowed to increase investment in crucial areas such as education, public health, and infrastructure.
Will plans clash with IMF pledges?
This could signify a significant departure from the previous administration’s approach, which prioritized trimming public spending and boosting tax revenues as part of the IMF’s $3 billion bailout aimed at restoring macroeconomic stability and alleviating the nation’s debt burden.
As a result, many uncertainties exist about how successfully Mahama’s social democratic National Democratic Congress (NDC) can implement its plans under the existing agreement.
In an interview with African Business prior to the election, Jervin Naidoo, a political analyst at Oxford Economics Africa, noted that any intentions to increase spending would likely contradict the limitations of the IMF program.
“In terms of requests and short-term economic impact, there won’t be too much flexibility because Ghana is bound by the IMF program, meaning much of the government’s fiscal policy will be limited.”
Nonetheless, Mahama indicated to Bloomberg in November that he plans to renegotiate the terms of the IMF bailout.
“We need to explore how we can refinance some of this to ease the repayment schedule,” he emphasized.
Cape Town-based risk consultancy Signal Risk expressed concerns regarding the compatibility of Mahama’s plans with IMF requirements aimed at curbing spending and debt levels. They posed the question: “Will a change in administration lead to significant shifts in the country’s economic and political landscape? Or will commitments to debt restructuring and IMF agreements result in a static medium-term environment?”
An unenviable task
For the past eight years, Ghana has been governed by President Nana Akufo-Addo of the New Patriotic Party (NPP), during which the country has faced its gravest economic challenges in decades.
While nearly all African economies felt the impacts of the Covid-19 pandemic, Ghana was hit particularly hard due to government spending, which propelled national debt to over $50 billion, equivalent to nearly 85% of GDP in 2023. In 2022, Ghana defaulted on a significant portion of its external, dollar-denominated debt amid rising interest rates and a stronger dollar.
Furthermore, soaring inflation rates have continued to diminish citizens’ purchasing power and living standards, with prices soaring over 37% last year. This situation has been worsened by Ghana’s substantial trade deficit and the depreciation of the Ghanaian cedi, which has increased the cost of imported essentials in local currency. The US dollar has appreciated by nearly 180% against the cedi since 2020.
Voters have responded by holding the ruling NPP accountable, leading to Mahama’s rise with assurances of significant change. However, the new administration in Accra faces the formidable challenge of reconciling the need to reduce Ghana’s external debt levels while securing IMF financial support and addressing voters’ calls for increased spending and investment.
