Ghana has voted overwhelmingly for John Dramani Mahama, a former one-time president to lead the West African nation. The main opposition National Democratic Congress candidate comes into office after four years in the role and eight years preparing his return.
The President-elect will be inaugurated in the first week of January, facing an overflowing array of challenges that have plunged the nation into its worst economic crisis in decades.
Per Reports gathered by Brand Focus Africa and The Ghana Times–— The cocoa and oil producer is grappling with severe challenges including a skyrocketing cost of living, rising unemployment, and an alarming debt crisis that necessitated the government’s restructuring of its debts for a $3-billion bailout programme with the International Monetary Fund (IMF). This resulted in steep losses for domestic and foreign bondholders.
Mahama won a landslide and faces immediate pressure to deliver on his campaign promises to tackle the cost-of-living crisis walloping Africa’s top gold-producing nation.
His party also holds a substantial parliamentary majority, placing him in a pivotal position to effect transformative policies.
Cost of living crisis
Ghana is grappling with a cost-of-living crisis fueled by a combination of factors including the fallout from the Covid-19 pandemic, higher global interest rates, currency depreciation, and years of unsustainable borrowing.
Consumer prices rose 54.1% in December 2022, slowing to 20.4% in August and jumping again for three consecutive months to 22.1% in November, according to the Ghana Statistical Service. Rising food and energy prices have led the surge in inflation.
Households and industrial consumers have seen their electricity and water bills nearly double since 2022, due to global gas price hikes, exchange rate fluctuations, and rising production costs. Utility providers are advocating for further tariff increases to maintain operations. However, this move will exacerbate the economic hardships already faced by families.
Food prices surged alarmingly to 61% in 2023 and 29% in 2024, making it difficult for families to access essential staples like vegetables, rice, plantain, and cassava. The nation’s reliance on imported food commodities, decline in local food production and depreciation of the cedi have all made food costlier.
Additionally, prices for transport and housing have reached unprecedented levels since 2022, keeping inflation rates well above the Bank of Ghana’s target range of 6% to 10% for over two years. In response to these challenges, the central bank raised its key lending rate in an effort to control inflation. While this strategy has shown some success, it has inevitably led to higher interest rates affecting not only households but also businesses and government financing.
Voters took their frustration to the polls, giving a sweeping victory to Mahama and his party. They expect nothing short of policies aimed at restoring stability.
Completing debt restructuring
The Akufo-Addo administration, which plunged the economy into abyss, has almost completed restructuring the country’s debt – a key requirement for the $3 billion bailout from the IMF.
Ghana has so far received more than $2 billion from the IMF and World Bank, and lowered its debt bill, paving the way for a return to the international capital market after suspending debt repayments over its economic turmoil.
While the government has resumed servicing its domestic debts, its sole dependence on the treasury bills market for just coupon payments is concerning. It raises questions about the sustainability of such a strategy.
With revenue performance stagnant at 13%-to-GDP, despite many digital enhancement initiatives, and poor expenditure rationalization, experts are worried the country may be unable to honour its debt obligations when amortization is due in late 2026.
The market will be closely watching to see how the new administration will balance the need to manage to meet the burdensome debt obligations while delivering on its promises to the people.
Currency depreciation
The cedi depreciated more than 60% in 2022 as the fixed-income market witnessed its sharpest sell-offs amid growing anxiety over potential debt default. This alarming trend prompted crucial interventions, including agreements with the IMF and subsequently bondholders, providing the much-needed boost to the country’s reserves and helping the local currency to claw back some of its losses.
However, as of November, the currency remains under pressure, having lost an additional 24% against the US dollar this year alone. The ongoing depreciation has profound implications for the economy, contributing to soaring inflation rates, diminishing the capital available to small businesses, and forcing many to reduce operations or, in some cases, cease to exist entirely.
Addressing the rapid currency depreciation featured prominently in John Mahama’s campaign promises following the outgoing government’s failure to stabilize the currency. However, the challenge ahead is formidable for the new administration, given the nation’s heavy reliance on imports, commodity exports, excessive external borrowing, and the burdensome debt servicing costs.
OTHERS READING: 8 Regions In Ghana Record Inflation Higher Than National Average
John Mahama has certainly inherited a toxic economic cocktail. And to steer the country toward a more stable and prosperous future, he will need to implement prudent, credible, and timely solutions. Time is of the essence, as he has just one term in office to address these critical issues.
