Mahama’s Triumph: a Mandate to Reset Ghana’s Economy

On December 10, Ghana’s Electoral Commissioner declared John Dramani Mahama of the NDC as the winner of the 2024 Presidential elections with 56% of the vote, compared to 41% for the NPP’s Dr Mahamudu Bawumia. In addition, the NDC has secured a resounding majority in Parliament with 188 out of 276 seats as of the time of writing. The emphatic victory won by Mahama, who was also President from 2012 to 2017, gives him a strong mandate to tackle the economic challenges that have plagued the nation over the last four years.

Huge fiscal deficits of 13.8% and 12.1% of GDP in 2020 and 2021, respectively, led to public debt rising from GH¢200 billion at the end of 2020 to GH¢340 billion (78.4% of GDP) at the end of 2021. This rapid debt accumulation led to a downgrade of Ghana’s sovereign debt rating by major rating agencies and the country being shut out of the international capital markets. After an indefensible delay and the prescription of the e-levy as an alternative (complete with fantastical revenue projections), the government officially sought IMF support in mid-2022.

The IMF’s $3 billion Extended Credit Facility (ECF) first required a bitter debt restructuring that saw domestic cedi bondholders, cocoa bill holders, domestic dollar bondholders, and eurobond creditors all suffer principal haircuts, maturity extensions or both. In addition, bilateral creditors decided to freeze maturity and interest payments on debt of about $6 billion until after 2026. Perhaps most bizarrely, the Bank of Ghana (BoG) wrote down GH¢48.4 billion out of government debt it held. This led to a loss of GH¢60.8 billion and a hole of GH¢55 billion on its balance sheet which would need to be closed by recapitalization from the central government at some point.

These fiscal and monetary issues reflected in the pockets of Ghanaians, as inflation rose from 12% in 2021 to 54% in 2022 before moderating to 23% in 2023. The cedi also shed 63% of its value against the US dollar from the start of 2021 to October 2024 before the BoG started an aggressive market intervention from the beginning of November 2024.

Vice President Mahamudu Bawumia was unable to escape responsibility for the NPP’s economic record over the last eight years, and his raft of policies aimed at upgrading the economy through digitalisation proved unconvincing to voters. The popular “Free SHS” policy also proved insufficient to overcome the economic challenges that Ghanaians were experiencing. President-elect John Mahama’s message to reset the economy, create jobs through a 24-hour economy policy, and remove the e-levy and betting tax resonated with voters who are hopeful for an economic turnaround and a halt to the skyrocketing cost of living.

Top on the president’s agenda would be to restore Ghana’s domestic capital market to allow him to refinance restructured domestic bonds of at least GH¢100 billion from 2025-2028. Convincing investors to purchase domestic cedi bonds would be no easy task, as the government has been struggling to even meet its treasury bill targets. In addition, Mahama will have to figure out how to pay off about $4.3 billion in eurobond principal and interest payments over the same period.

The challenges in the energy sector would be another key task for Ghana’s new president, as heavy losses in the sector remain a drain on the national budget. In the revised budget of 2024, an allocation of GH¢18.4 billion (8% of all expenditure) was made to cover energy sector shortfalls only. The debt to Independent Power Producers (IPPs) is estimated to be about $2 billion. ECG made a combined loss of over GH¢20 billion between 2022 and 2023 driven by exchange rate depreciation and costs exceeding collections. President Mahama will be eager to resolve these issues as power cuts contributed significantly to his 2016 electoral loss.

Ghana’s cocoa sector also needs attention, as cocoa exports are down to $1.15 billion as at October 2024 compared to $1.6 billion over the same period last year. Gold exports have been impressive with a value of $9.6 billion realized as at October 2024, a 60% increase over the same period last year. However, this is largely driven by a bull market in global gold prices. In addition, Mahama would be expected to crack down on illegal gold mining which has devastated the nation’s waterbodies.

Tackling these challenges while meeting the promises of repealing unpopular taxes, offering favourable electricity tariffs to companies that will run 24 hours, instituting a tuition waiver for first year tertiary students, and extending Free SHS to private senior high schools would require significant revenue mobilization and an iron grip on spending. Political consulting firm, Eurasia Group, suggests that Mahama could seek to extend the IMF program especially as its end targets stretch to 2028. Such a decision would make sense given that their presence would help the government to stay on the path of fiscal consolidation.

As John Mahama assumes office on January 7, 2025 the weight of the expectations of over 30 million Ghanaians will be on his shoulders. He will have to muster all of his extensive political experience to navigate the choppy waters ahead.

Source: ceditalk.com