Ghana Slashes Spending To Revive Economy Amid Debt Crisis

Post Reporter

Ghana’s Finance Minister, Cassiel Ato Forson, has announced a series of steep spending cuts as part of the government’s efforts to recover the economy. In his first budget speech to parliament, Forson revealed a wider-than-expected deficit and debt figure for 2024, particularly in the cocoa and energy sectors. The West African country is emerging from its deepest economic crisis in a generation, with turmoil in the vital cocoa and gold industries.

President John Dramani Mahama, who took office in January, has vowed to boost the economy and create jobs. However, the country faces significant challenges, including a cost-of-living crisis, an ongoing bailout from the International Monetary Fund, and a sovereign debt default. Forson emphasized the need for fiscal discipline, stating that Ghana’s external debt service costs over the next four years are substantial, amounting to $8.7 billion, which is approximately 10.9% of GDP.

To address this, the government will implement “shock therapy” in the form of spending cuts, which will be compensated by scrapping levies on consumers and targeted measures to generate revenue. This move is expected to improve the country’s credibility and reduce its financing needs. According to Bright Simons, an analyst at IMANI Africa, the decision to remove four poorly designed taxes is a rare combination of good politics and smart policy.

The spending cuts are projected to allow Ghana to achieve real GDP growth of at least 4% and reduce the inflation rate to 11.9% by the end of the year. However, the announcement led to a slight decline in Ghana’s international dollar-denominated bonds. Samir Gadio, head of Africa strategy at Standard Chartered, noted that the external bonds initially sold off after the announcement of a wider fiscal deficit in 2024, but the slippage was partly expected.

The country’s debt restructuring is part of the conditions to receive IMF support, agreed upon under the previous administration. Ghana owes significant amounts to independent power producers, the national electricity company, and cocoa regulator Cocobod. Forson assured that the government is committed to completing the remaining debt restructuring as soon as possible and has commissioned an audit of Ghana’s arrears.

Despite these challenges, the government remains optimistic about the country’s economic prospects. Ghana’s economic growth slowed in the fourth quarter of last year, but the country still achieved 5.7% economic growth in 2023. Consumer inflation slowed for the second month in a row in February, but remains well above the Bank of Ghana’s 8% target.