Post-election economy: Tough ride ahead — Economists

Ghana’s president-elect John Dramani Mahama will inherit a struggling economy requiring urgent intervention when he returns to office, some economists and market watchers have observed.

Mahama, who is making a comeback after previously leading the country from 2012 to 2017, faces immediate pressure to address soaring living costs and manage a critical $3 billion International Monetary Fund (IMF) programme.

The incoming administration is expected to navigate an economy burdened by inflation that, despite recent improvements, continues to strain household budgets across the country.

While inflation has dropped from its peak of over 54% in December 2022, prices remain significantly higher than pre-crisis levels, affecting essential goods and services for Ghana’s 31 million citizens.

Ghana’s economy has been battling severe challenges since the onset of COVID-19, with inflation hitting a 22-year high of 54.1% in December 2022, and an unsustainable public debt that required restructuring. In July 2022, the government formally approached the IMF for a fund programme and was able to secure a staff-level agreement in December.

After 10 months of discussions and negotiations, Ghana finally received approval from the Executive Board of the International Monetary Fund (IMF) for a three-year budget support programme aimed at restoring macroeconomic stability and debt sustainability.

The extended credit facility (ECF) which would see the country receive $3 billion is also expected to support structural reforms and help its economic recovery after two years of economic challenges.

The country has so far passed three successive reviews by the IMF and received $1.92 million from the fund. For many analysts, the immediate challenge of the President-elect will be maintaining the IMF programme while providing relief to struggling Ghanaians.

The programme, secured in 2023, requires strict fiscal discipline at a time when many voters expect campaign promises of economic relief to be fulfilled.

In an interview with the Graphic Business, Economist and Lecturer at the Academic City University Eugene Bawelle said aside from inflation beginning to inch up again, the entire economy itself is under an IMF programme.

So the former president is coming back at a time when all the indicators are not looking good.

He said the key thing for the new government should be expenditure rationalisation within the first few months in office.

“This is very critical because we are already projecting some liquidity problems from 2025 into 2026. So the government must be very conscious and deliberate about where it puts money.”

Expenditures that will not necessarily lead to the growth of the economy immediately should not take priority,” he stated.

He also urged the incoming administration to keep to its promise of running a lean government in order to gain the trust of Ghanaians. President elect Mahama has said he will run with 60 ministers, a clear departure from the high figures of over 80 ministers currently.

He said this was fundamentally important for any policy that would be introduced as the ability of the government to carry the country along would depend on the trust the people have in it.

Energy sector debts

Energy sector debts have climbed to $2 billion that will need restructuring.

Debt restructuring

With the country in the process of finalising its debt restructuring activities, investors and market watchers will be keenly following how the incoming government will handle this, considering that it is a cornerstone of the current economic recovery plan.

The country’s debt burden, which sparked a financial crisis in 2022, led to the suspension of most external debt payments and a complex domestic debt exchange programme that affected both institutional and retail investors.

The domestic debt exchange programme saw the government swap old bonds valued at GH¢82 billion for 12 new ones at reduced coupon rates and longer tenors.

The country has also reached an agreement with its bilateral creditors to restructure bilateral debts of about $5.1 billion. Quite recently, the government also reached an agreement with its Eurobond holders in a deal that saw holders take a 37% haircut on their investments.

The government is currently engaging with external private banks and contractors for a possible restructuring of its $2.8 billion debt while also engaging independent power producers for a restructuring of its debt.

Bawelle said this would be one of the problems the government would have to grapple with. “As a country, we have not been to the international capital market in a while and this will not change immediately because there is a new government.

Investors will treat the new government ideally the same as they would have treated the old one,” he stated.

Cedi 

The value of the Ghanaian cedi, which has experienced significant volatility in recent years, is also expected to provide an early test for the incoming administration.

Currency stability is crucial for an import-dependent economy still recovering from its worst economic crisis in a generation, with foreign exchange reserves remaining under pressure despite recent improvements in export earnings from gold and cocoa.

Bawelle said with the exchange rate becoming a key political subject and economic indicator, the incoming president must roll out some tough and aggressive measures to stabilise the local currency.

He   said the government’s best   bet    to    doing   this  will  be the diversification and expansion of the country’s export base.

This, he said, could be done by supporting local businesses to expand and export.

Manifesto ahead of the election

Mahama launched his manifesto, which is expected to serve as the blueprint for a quick economic recovery. At the heart of his reforms is the 24-hour economy policy which is expected to address the unemployment situation and also boost productivity.

He intends to reset the economy and position it on the path of growth. John Mahama also proposes a series of VAT reforms designed to provide relief to both citizens and businesses, with his manifesto prioritising the reduction of economic hardships and the restoration of macroeconomic stability.

Other key proposals include scrapping taxes such as the E-levy and COVID-19 levy within his first 100 days in office.

He also intends to reverse the decoupling of GETFund and NHIL from VAT; upwardly adjusting the VAT registration threshold to exempt micro and small businesses; and repealing the law imposing VAT on domestic electricity consumption.

He said the next NDC government would also implement an Economic Transformation Agenda focused on agriculture and value addition; review and enforce fiscal responsibility measures and restructure the Bank of Ghana.

For many, the key concern is how the incoming administration will implement all these reforms and scrap all these taxes in the face of the fiscal challenges confronted by the country.

With the international capital market also still closed to the country, the Mahama administration is obviously in for a tough ride and it may struggle to raise the needed resources to implement its policies.

Bawelle urged the incoming government to focus on bilateral relationships and dealing more with multilateral institutions that can give them some direct form of lending instead of going to the Eurobond market.

He said this may help propel them to be in a position to raise enough financing to implement their developmental agenda and political promises.
“Unfortunately, it will still take a while before can go back to the market.

And again, the Treasury Bill market is not one; from the way things are going, it doesn’t look sustainable. So the new government will have to look at ways of raising money outside their primary source of treasury bills,” he said.