Former President John Dramani Mahama claimed a historic comeback victory in Ghana’s presidential election, which took place in December 2024, defeating the ruling New Patriotic Party (NPP) as voters punished the incumbent government for the way they handled the economic crisis. Vice-President Mahamudu Bawumia, the NPP candidate, conceded defeat on December 8, acknowledging public frustration over surging living costs and economic turmoil.
Bawumia’s loss ended the eight-year NPP rule under President Nana Akufo-Addo, during which the West African nation grappled with high inflation and a debt default. For Mahama, who served as president from 2012 to 2017, the victory marks a triumphant return after unsuccessful bids in 2016 and 2020.
Mahama also becomes the first leader in Ghana’s Fourth Republic to regain the presidency after losing re-election. He has pledged to tackle corruption by creating an office to scrutinise government procurement exceeding $5 million, to curb graft.
However, as per Theophilus Acheampong, Associate Lecturer, University of Aberdeen, the West African nation immediately needs to find a balance between the dual objectives of living within its means and achieving economic growth that creates sustainable jobs for its teeming youth.
What are we talking about?
Ghana has been facing an economic crisis since 2022 when it was forced to seek assistance from the International Monetary Fund (IMF) in order to meet its payments to the rest of the world and restore the health of its government finances. This was the second time in three years that Ghana had to tap the IMF, and the 17th since independence in 1957.
“Though inflation which peaked at 54% in 2022 and the country’s currency, the Cedi, have stabilised somewhat since mid-2023 under IMF-supported reforms, these improvements have not been significant enough to be felt by citizens. Inflation remains sticky. Monthly consumer inflation figures have averaged 22.85% from January to November 2024, below the pre-crisis (2017-2021) average of 10.14%,” Professor Acheampong said.
The average unemployment rate in Ghana rose to 14.7% in the first three quarters of 2023. The number of unemployed youth aged between 15 and 35 rose from about 1.2 million to over 1.3 million during the same period, while the rate among females remained consistently higher than males.
According to a recent report on voter concerns (prepared by the National Commission for Civic Education), the major poll issues that emerged were the economy, jobs, education, and roads and infrastructure provision. The key concern of the economy is the declining living standards.
The study, published in October 2024, saw voters being particularly focused on issues surrounding the government’s Free Senior High School (SHS) policy, while younger voters were increasingly concerned about employment opportunities.
The Ghanaian government, in the lead-up to the polling day, also took aggressive steps to halt the decline of the national currency Cedi amid a challenging macroeconomic environment.
The Cedi has been under pressure for several years. Like practically every African and emerging market currency, the Cedi weakened against the US dollar during the COVID-19 pandemic, during which time traders on foreign exchange markets sought the perceived safety of dollar-denominated assets.
The Cedi suffered further in 2022, when Ghana defaulted on most of its external debt amid rising debt costs, higher interest rates, and excessive government borrowing. Since the start of 2020, the US dollar has gained almost 180% against the Ghanaian Cedi, which currently sits at 15 to the dollar, an increase from 11 in May 2023.
In its attempt to halt further declines in the currency, the government tried to prevent pension fund managers from investing in offshore assets in an attempt to limit foreign exchange outflows. While Ghanaian pension funds have tended to invest in domestic assets such as government bonds, this has changed in light of the debt default, and more fund managers have taken to increasing their exposure to overseas assets.
Under current laws, pension funds are allowed to invest up to 5% of their total assets abroad, but the national pensions regulatory authority allegedly threatened to sanction funds who attempt to move assets, as per the Reuters report which emerged in December 2024. The authorities, however, denied there was any resistance to asset movement.
As per Joseph Appiah, vice-president at Accra-based investment banking firm Black Star Group, attempts to stabilise the Cedi have “impacted” market dynamics, particularly as efforts are made to maintain currency stability in the lead-up to the election period. While the Cedi has regained some ground against the dollar over November 2024, appreciating by about 7%, Appiah doubts this can be sustained.
Ghana is known for its high reliance on imports for essential goods, including staples like rice and poultry. The collapse in the value of the Cedi has contributed to significantly higher inflation on these goods. As per Appiah, a weak Cedi has also resulted in the households’ purchasing power getting reduced, along with their daily incomes.
In 2023, prices rose in Ghana at a rate of over 37%, with the World Bank reporting that “high inflation – particularly in food prices – has worsened living standards, pushed more people into poverty, and increased the risk of food insecurity.”
The historically weak Cedi has also become a threat to the Ghanaian authorities’ attempts finally to escape the cycle of frequent default. While Ghana reached a deal in January 2024 to restructure $5.4 billion in debt to its official creditors, and recently bondholders agreed to accept a 37% haircut on $13 billion worth of debt, the West African country is still grappling with a debt pile in excess of $50 billion. A weak Cedi is problematic because it makes dollar-denominated debt repayments more expensive in local terms.
Economic crisis and its impact
As Ghana’s economic fundamentals took a plunge in the past few years, the outgoing NPP administration sought to blame the aftershocks of the Russian-Ukraine war and the pandemic behind the phenomenon, However, as per Professor Acheampong, evidence shows otherwise.
“The major contributory factor was the poor management of its public finances, which meant the country did not have enough buffers to withstand these external shocks. Ghana’s economy and finances were already precarious before Putin invaded Ukraine in February 2022. Fiscal policy in Ghana is notably procyclical with a clear bias towards overspending during good times. This is related to commodity and electoral cycles. That is, fiscal deficits tend to increase sharply in election years, and have been even more so following the commercial discovery of offshore oil in 2007,” he added.
The effects of the economic and financial crises since 2022 have been 20-year-high inflationary trends, local currency depreciation, dwindling foreign reserves, rising debt vulnerabilities, and increased poverty. At its height in December 2022, inflation reached 54%, the highest levels in nearly 20 years and public debt was 109% of GDP.
The above-mentioned economic challenges also forced Ghana to default on its external debt obligations in December 2022 and approach the IMF for a $3 billion bailout, which was approved in May 2023. Ghana recently completed a three-step, domestic, bilateral, and commercial, debt restructuring process, which began in December 2022.
Poverty, on the other hand, has been rising in Ghana since 2022. About 850,000 citizens in 2022 were pushed into poverty due to rising costs of goods and services. Ghana’s poverty rate is forecast to rise to 30.6% of the population by 2026, indicating the extent of the impact of the economic and financial crises on many citizens.
When Nana Akufo-Addo won the presidential election on his third attempt in 2016, many saw it as a turning point. He became the first person to unseat an incumbent. Mahama, the 2024 victor, was vanquished back then. Alleged corruption had ballooned under his rule. Cedi depreciated by 200% within a decade of its redenomination to equal the dollar and the country sought a bailout from the IMF to stabilise the economy.
Coming back to December 2024, As Akufo-Addo prepares to leave the Presidential office, he has legacies like two oilfields being discovered in 2019, which boosted government revenues and allowed the administration to spend more on social programmes. Salaries for teachers and medical personnel were increased.
However, critics also accuse the outgoing President and his deputy, Mahamudu Bawumia of steering the African country into hardship. While Cedi’s downfall has been a testimony towards those charges, let us also not forget the fact that Ghana returned to the IMF for another bailout in 2022, as it could not meet its debt obligations, despite being one of the world’s leading gold and cocoa producers.
While electricity blackouts, illegal mining, corruption and nepotism are still around, there has been dissatisfaction on the job front too. Since 2017, thousands if not millions of schoolchildren have benefited from the flagship free senior high school policy and free meals for those in lower cadres. However, a 2023 Afrobarometer report shows that while young Ghanaians are indeed more educated than generations before them, they are also more unemployed.
Then there was a call by the president Akufo-Addo for members of the Black diaspora to visit Ghana and settle there. While the move may have worked some wonders from 2019, as thousands of people flocked in and the government too reportedly made millions in revenue from it, but as per the local people, the action triggered inflation, particularly in the real estate and hospitality sectors.
As the COVID-19 arrived in 2020, Akufo-Addo handled the situation impressively on the economic front, as a trust fund was set up as well as a $209 million relief fund. But then the senior government officials faced accusations of misappropriating funds meant for health workers. Also, a tax instituted to cushion government coffers at the time is still being collected four years on, on everything from food to toiletries.
Challenges galore for the incoming President
The economy began rebounding in 2024, with a 6.9% growth in the second quarter, but experts remain cautious.
“Whoever becomes the next president has their work cut out for them. In terms of the path that we are on, we are seeing great signs of recovery in the economy…[but] this is also on the back of an IMF programme. When Ghana is under an IMF programme, the evidence is there, the country does well…[but] when we exit the programme, then the fiscal indiscipline comes in and the cycle continues,” said Baffour.
Despite Inflation moderating and Cedi stabilising against the US dollar, on the back of IMF-supported reforms, they proved to be too little, too late for the incumbent New Patriotic Party, as the latter had to suffer a defeat.
While both the NPP and the National Democratic Congress put economy at the centrestage of their election campaigns, as per Professor Theophilus Acheampong, the proposed spending plans, if implemented, likely lead to Ghana breaching its debt sustainability thresholds. This would threaten the implementation of the current IMF programme which runs until 2026.
“The key concern remains whether Ghana will be able to live within its means going forward by reducing corruption and waste in government spending. This will avoid the procyclical boom-bust behaviour especially tied to the electoral cycle,” he noted.
In short, the incoming government will have very little fiscal space to use to meet the several promises, including on infrastructure provision and the several tax breaks, announced in the National Democratic Congress’ pre-election manifestos.
As per Rabah Arezki, who is a former chief economist and vice president at the African Development Bank and former chief economist of the World Bank’s Middle East and North Africa region, a more expedient debt resolution for Ghana is a necessary condition for an economic reset.
“One key objective for Ghana is to rebalance its structure of external capital away from external debt and toward foreign direct investment. This would shift the international investment position away from debt and toward equity. That accrued foreign direct investment would bring much more stability to its external financing, a needed boost to productivity, economic growth, and job creation that Ghanaians have been longing for. But Ghana must also achieve a radical governance shift in key sectors to deliver that economic growth,” the analyst commented.
Ghana’s export structure is dominated by three commodities—gold, oil, and cocoa—constituting respectively 47.7%, 26.1%, and about 10% of its total merchandise exports. The country is also the world’s second-largest producer of cocoa, and the cocoa sector employs millions of workers, apart from having a Cocoa Board, a state-controlled organisation that supports the production, processing, and marketing of cocoa. Yet, the African nation has been structurally unable to develop efficient production and move up the value chain by transforming cocoa beans. In spite of skyrocketing cocoa prices, expected to last until 2026, the cocoa industry has been unable to attract financing, and investment has plummeted. This sector may immediately require policy support from Mahama to become a true growth engine.
Talking about Ghana’s oil sector, investors have been wary about the business climate in the country. The gold sector, on the other hand, also enjoys rising prices and is mostly controlled by private operators.
“The government is eager to boost production and attract more investment, but the gold sector throughout the continent is faced with major transparency challenges, with gold smuggling leading to significant losses in government revenues. What’s more, illegal mining is causing environmental and health challenges, including river pollution. To reset its economy, Ghana needs to inject radical transparency in these key sectors to maximise government revenues and benefits to its citizens. Ghana also needs to achieve a better balance between the need for private sector investment and the state’s role in regulating investment in these sectors,” Arezki continued.
Mahama will need to work toward achieving macroeconomic stability while boosting the competitiveness of the country’s economy. Yet, poverty is already rampant, with inflation further eroding the purchasing power of the country’s impoverished population. Therefore, the sequencing of reforms must account for that social context. The new administration will need to focus on increasing transparency and removing corporate subsidies—whether public or private—rather than removing household subsidies, which many rely on for subsistence. However, in Arezki’s opinion, for its reform agenda to work, Ghana must receive all the support it can get from the international community to expedite its debt restructuring.