John Mahama, the former President of Ghana who recently won the election, has pledged to enhance public spending and tackle the challenges of rising living costs. Nevertheless, he is confronted with the tough task of aligning his priorities with the conditions of a $3bn IMF bailout.
While he has yet to detail his campaign commitments, Mahama, who previously governed from 2012 to 2017, mentioned in his victory speech that his election signifies “a new beginning, a new direction” for Ghana, a country facing high inflation and worsening living conditions.
He has also stated that he intends to establish a “National Economic Recovery Task Force” within his first month in office. This initiative will engage industry stakeholders and focus on formulating practical strategies that promote growth and enhance living standards, with the goal of transforming Ghana into a “24-hour economy.”
To boost economic activity among private enterprises, Mahama suggested increasing credit access for small and medium-sized businesses and creating additional business incubators. He also committed to reviving the “Jobs for Youth” program, aimed at improving employment prospects for young people, and to suspending the contentious VAT on essential goods like food and fuel to alleviate the financial strain on citizens.
Following a period of austerity after Ghana’s debt default in 2022, Mahama has promised to escalate investments in vital sectors including education, public health, and infrastructure.
Will plans clash with IMF pledges?
This could signify a major departure from the previous administration’s approach, which emphasized cutting public spending and increasing tax revenues as part of the IMF’s $3bn bailout designed to restore macroeconomic stability and relieve the country’s debt burden.
As a result, there are significant uncertainties regarding how well Mahama’s social democratic National Democratic Congress (NDC) can implement its initiatives in light of the present agreement.
In a pre-election interview with African Business, Jervin Naidoo, a political analyst with Oxford Economics Africa, commented that any plans to increase expenditures could potentially conflict with the IMF program’s restrictions.
“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 suggested to Bloomberg as recently as 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 said.
Cape Town-based risk consultancy Signal Risk expressed concerns about the alignment of Mahama’s proposals with IMF requirements geared toward reducing expenditures and debt levels. They queried: “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 render the medium-term environment static?”
An unenviable task
For the past eight years, Ghana has been under the leadership of President Nana Akufo-Addo from the New Patriotic Party (NPP), a period marked by the country’s most severe economic challenges in decades.
While nearly every African economy faced difficulties due to the Covid-19 pandemic, Ghana was hit particularly hard as government spending caused national debt to soar beyond $50bn, accounting for almost 85% of GDP in 2023. In 2022, Ghana defaulted on a substantial portion of its external, dollar-denominated debt amid rising interest rates and a stronger dollar.
Furthermore, soaring inflation has persistently undermined citizens’ purchasing power and living standards, with prices rising over 37% last year. This situation was worsened by Ghana’s significant trade deficit and the depreciation of the Ghanaian cedi, which has intensified the cost of imported essentials in local currency, as the US dollar has gained nearly 180% against the cedi since 2020.
Voters have responded by holding the ruling NPP responsible, facilitating Mahama’s rise to power with commitments to enact significant changes. However, the new government in Accra faces the formidable challenge of balancing the need to reduce Ghana’s external debt while securing IMF financial support and addressing voters’ calls for increased expenditure and investment.
