Debt, galamsey hang over December elections

Ghana goes into next month’s elections with a dangerous cocktail of economic and environmental challenges needing urgent attention.

Whichever party will form the next government must balance economic recovery with the need for the kind of forward-looking structural change that can take the economy out of its commodity-driven cycle of boom and bust and fix a looming environmental crisis.

The December 7 elections are seen as a race largely between the country’s two big parties, the incumbent New Patriotic Party (NPP) and the opposition National Democratic Congress (NDC), but there is a growing sense that Ghana needs more options.

The elections come while the country is still reeling from the effects of a severe 2022 financial crisis that saw the government default on foreign debt.

The crisis was triggered when Standard & Poor’s downgraded Ghana’s global credit rating over high levels of borrowing. The downgrade, from Bs to Cs, limited the county’s ability to borrow internationally and led to a fall in international reserves.

With the economy on the brink of collapse, the Bank of Ghana stepped in to lend to the government. But this worsened inflation.

When President Nana Akufo-Addo first led the NPP to power in December 2016, his government vowed that they would have no truck ??? with the International Monetary Fund (IMF), which had by then given Ghana a total of 16 bailouts since independence.

Former president John Dramani Mahama’s decision to turn to the IMF shortly before the 2016 elections probably cost the NDC the elections, as an increase in fuel prices, among other austerity measures introduced just weeks before the poll, eclipsed the eventual resolution of the long-running dumsor power cuts that had plagued Mahama’s administration.

But after keeping the IMF at bay for several years, the 2022 crisis saw the Akufo-Addo government seeking a fresh bailout. Actions to reassure the IMF that spending could be brought under control included debt restructuring initiatives such as haircuts to bondholders.

But a move to include pension funds in the domestic debt exchange prompted a public outcry. After retired chief justice Sophia Akufo joined pensioners picketing at the Finance Ministry, the government was forced to rescind its decision.

Ghana’s debt-to-GDP ratio puts it among the 10 most indebted countries in Africa and the goodwill it enjoys among donors makes it the most indebted when it comes to IMF concessional lending.

Rapid economic growth after the discovery of oil in the early 1990s sealed Ghana’s reputation as the fastest-growing economy, the one to watch in Africa. But this all came crashing down in December 2022.

To be fair, the NPP government inherited an already unsustainably high debt service ratio of 70 per cent of GDP from Mahama’s NDC government in 2016.

But at the height of the 2022 crisis, this rose to a hitherto unimaginable 92.4 per cent of GDP, then the worst in Africa, falling to 84.9 per cent in 2023 under the domestic debt exchange programme.

Improved export performance saw the current account deficit narrow from 2.1 per cent of GDP in 2022 to 1.7 per cent in 2023.

But behind recurrent debt distress lies an inability to diversify the economy such that revenue exceeds expenditure, a silver bullet that only Ghana’s independence leader, Kwame Nkrumah, seemed on the path to achieving.

After 67 years of independence, the Ghanaian economy still retains its colonial dependence on three primary commodities, gold, cocoa and now oil, which together account for 80 per cent of exports.

Recovery from the worst debt distress crisis in a generation has been slow and painful for Ghanaians. Inflation, which was already hurting at 31.5 per cent in 2022, worsened to 40.3 per cent in 2023, driven by high food prices and currency depreciation.

From 60 per cent in 2022, the rate of depreciation of the Ghanaian cedi slowed to 17 per cent in 2023. But the cedi has continued to fall through 2024.

President Akufo-Addo’s sense of economic priorities has been called into question during a controversy over the decision to pull down newly built, million-dollar houses occupied by senior judges and government complexes including the Passport Office.

These were demolished to make way for the construction of a US$ 400 million national cathedral on 9 acres of prime land close to Ghana’s Parliament. The President claimed this was in fulfilment of a promise he made to God for helping him win the 2016 election on his third attempt.

Even more damaging currently is the public outcry over the poisoning of almost all of Ghana’s water bodies during a surge in illegal and unregulated small-scale gold mining, known as galamsey.

At the beginning of his first two presidential terms, Akufo-Addo staked his reputation on stamping out galamsey and the government imposed an outright ban on small-scale mining which was lifted after two years for licensed miners.

But since then, the pollution of Ghana’s rivers through the unregulated use by illegal miners of mercury and cyanide in gold extraction has reached crisis proportions.
Ghana, once known as the Gold Coast, is currently Africa’s number one gold producer.

Gold contributes 7 per cent of Ghana’s GDP. Record international prices for gold, which reached an all-time high of $2,685.49 a troy ounce in September 2024, have seen surges in local gold production.

Small-scale artisanal gold miners employ 1 million people in deprived rural communities and account for 40 per cent of gold produced in Ghana.

But an estimated 85 per cent of small-scale activities are illegal and unregulated and the effect on the environment is reaching alarming proportions. The reported spread of illegal mining operations to all but two of Ghana’s 16 regions has contaminated major rivers such as the Pra, Ankobra, Oti, Offin and Birim.

Public concern about the destruction of Ghana’s water bodies due to the use of mercury and cyanide in galamsey is growing.

In September, 53 protesters were arrested after a group called Democracy Hub, supported by a political breakaway, the Economic Fighters League, tried to hold a three-day demonstration outside Jubilee House, the seat of government.

The Trade Union Congress planned an anti-galamsey nationwide strike for October 10 but suspended it after meeting the government to agree on new measures to counter galamsey.

At the heart of Ghana’s pre-election crisis is a system of governance that is increasingly seen as unsuitable for the needs of Ghanaians because it is not locally rooted, creates division in place of cooperation and breeds corruption.

Rather than go into competitive elections, many Ghanaians think it is time for politicians to join hands in collaborative planning and to save the economy from the kind of short-term agenda that a four-year election cycle tends to encourage.

Collaboration is needed among the parties to address the ticking time bomb of youth unemployment. And without meaningful policies on youth employment, the lure of quick money under galamsey may continue to hold sway.

Dede Amanor-Wilks, PhD, is a journalist and economic historian specialising in economic development. This article was first commissioned by Italian-based Nigrizia magazine