Despite making a historic comeback to the presidency, John Dramani Mahama’s pledge to completely transform Ghana’s economy and address the weaknesses of the previous Akufo-Addo administration bears significant consequences.
Tough decisions must be made on the trip ahead. difficult decisions that, in the face of growing pressure to fulfill the many promises made to the electorate, must strike a balance between social assistance and financial restraint.
However, both domestically and internationally, the nation’s economy has been severely impacted; the worst of these has been a complete exclusion from the global capital market. Urgent recalibration is needed to fix this, but can Mahama 2.0 guide Ghana out of its present economic crisis?
The election of John Mahama, like that of his predecessor, President Nana Akufo-Addo, was based on bold initiatives aimed at promoting industrialization, economic expansion, and job creation. The 24-hour economy is what Mahama promised, while Akufo-Addo pledged a one-district, one factory.
Mahama has suggested the Big Push in response to measures promised by the previous government, including as the Year of Roads, One-District-One-Dam, and Agenda 111, which called for significant infrastructure spending.
Notwithstanding all of the lofty pledges, the previous administration was characterized by unmanageable debt levels, rising inflation, high living expenses, slowed private sector growth, and protracted currency volatility.
A $3 billion International Monetary Fund (IMF) bailout was required as a result of the economy’s fundamental flaws being revealed by external shocks like the COVID-19 pandemic and changes in the price of commodities globally.
The success of Mahama’s reset program may be threatened by the persistence of many of the problems that led to the last NPP government’s ouster, even as he brings together his team to fulfill his pledges.
President Mahama’s first significant action, in recognition of this fact, is a national economic conversation for stakeholder participation aimed at identifying the issues and bringing the needs of the people into line with government policy.
There is no better moment than now, when the national debt is over 70% of GDP. The first step is a conversation. There will inevitably be heavy lifting after the lecture.
The government currently spends almost half of its yearly revenue on debt servicing, including the combined effects of external debt restructuring and the Domestic Debt Exchange Program (DDEP).
This means that the nation’s debt load is still completely unmanageable. Not only is Mahama’s first budget, which is scheduled to be unveiled in March, a crucial test of his policy goals, but it also represents a delicate economic balancing act that aims to increase domestic revenue while simultaneously eliminating controversial levies like the COVID-19 Levy, the E-Levy, and the betting tax.
It remains to be seen if the government’s “priority of priorities,” which is to lessen the burden on businesses and consumers, will result in the necessary growth to support the act itself, given the obvious potential loss of revenue.
This is particularly true given that there is now no clear path for finding alternatives to bridge the multibillion-cedi gap that the elimination of these tax handles is predicted to produce.
For instance, the massive debt of the energy sector cannot be paid off without consistent revenue, and the cycle of subpar program and infrastructure development will continue.
As Dr. Cassiel Ato Forson, the finance minister, considers increasing the tax revenue-to-GDP ratio from 13.8% to 16%, he must decide how to address this in his first budget.
It will matter how Mahama handles the local currency. Clear strategies and actions that will stabilize the cedi’s performance against other major trade currencies are desired by businesses, investors, and regular citizens alike.
Nothing should be off the table, including foreign direct investment, strategic commodity exports and regulation through its Gold Board program, or even establishing robust buffers with the Bank of Ghana’s reserves. In the midst of all of this, President Mahama and his finance minister, Dr. Ato Forson, are at odds over whether or not to extend the present IMF program, which is creating increasing doubt about its survival.
A review of the program is highly desired, whether or not an extension is granted. This could entail adjusting fiscal goals to make room for more spending that is focused on growth.
Even if investor confidence has increased since the change of government, care must be taken to avoid undermining it.
Many Ghanaians view the return of Mahama and the National Democratic Congress (NDC) as a positive indication for the country’s economy. The large rejections of some bids and the oversubscription of Treasury bills could be a sign of what the reset agenda would bring.
However, this is the goodwill that comes with new governments, and Mahama needs to be wise and learn from the mistakes made by Ghana, the former economic powerhouse of Africa and the fastest-growing country in the world in 2019.
Indeed, Ghana’s economy requires a makeover in order to provide a higher standard of living and prosperity for everybody. The real test for Mr. Mahama, however, will be whether he can transform Ghana’s promise of a fresh start into a long-term economic recovery.
Time will tell. I hope the government is doing well in the interim.
Source: Citinewsroom