Ghana’s December 7 elections pit Mahama against Bawumia, focusing on economic recovery, debt reforms, IMF programs, inflation control, and revitalizing key sectors like cocoa and oil
Ghana’s December 7 general elections come at a critical juncture, as the nation grapples with economic challenges that have reshaped its fiscal policies and investor confidence.
Businesses, investors, and policymakers are closely monitoring the contest between former President John Dramani Mahama and Vice President Mahamudu Bawumia – a race that will determine the future of an economy emerging from a debt crisis and years of financial instability.
Economic Crisis of 2022: Catalysts for Reform
In 2022, Ghana faced a severe economic and financial crisis fueled by existing vulnerabilities and external shocks. The COVID-19 pandemic and Russia-Ukraine exacerbated the situation, triggering financing pressures, a depreciating cedi, dwindling international reserves, and high inflation.
Structural fiscal challenges, such as a mounting debt burden and low public revenues, further compounded the crisis. Following a brief post-pandemic recovery in 2021, these factors culminated in a full-blown economic meltdown.
Implementation of the Domestic Debt Exchange Programme (DDEP)
To address the escalating debt levels, the government launched the Domestic Debt Exchange Programme (DDEP) on December 5, 2022. The initiative sought to restructure GHC 137 billion of domestic notes and bonds, including E.S.L.A. and Daakye bonds, by replacing them with instruments offering longer maturities and stepped-up coupon rates.
The DDEP aimed to reduce Ghana’s debt burden transparently while ensuring fiscal sustainability. However, the programme faced significant pushback from various creditors, particularly pension fund holders, individual bondholders, and institutional investors who were heavily impacted by the restructuring.
Pension fund managers raised concerns about the potential depletion of retirement savings, as the new bonds offered lower returns over extended periods. Similarly, individual bondholders and corporate investors voiced frustrations over the lack of consultation and perceived inequities in the restructuring process.
The backlash led to intense negotiations between the government and affected groups, resulting in some revisions to the initial terms to mitigate the adverse effects on these stakeholders. Despite these efforts, the restructuring had significant implications for the financial sector, necessitating measures to stabilize banks and prevent systemic risks, as many financial institutions were also major holders of government securities.
An Election Under the Shadow of Economic Reform
The DDEP’s completion has shaped the political landscape leading to the elections. Both Mahama and Bawumia have positioned their campaigns around fiscal reform.
Mahama has pledged to renegotiate the terms of the $3 billion International Monetary Fund (IMF) bailout to secure additional financing and introduce a public debt ceiling to prevent over-borrowing. Under his previous administration, however, high borrowing to fund infrastructure projects raised inflation and debt concerns.
Bawumia, on the other hand, emphasizes economic modernization through digitization, fiscal discipline, and private sector-led growth. He has proposed policies to cap public spending, simplify taxes, and redirect resources toward infrastructure development through public-private partnerships.
IMF Engagement and the Path Forward
Ghana has been under an IMF Extended Credit Facility since May 2023, a program designed to restore macroeconomic stability and debt sustainability. The IMF has expressed willingness to adjust the programme in alignment with Ghana’s evolving needs, but the next government will need to balance fiscal reforms with developmental priorities.
Cocoa and Oil Sectors: Critical Economic Pillars
Ghana’s cocoa sector, the world’s second largest, has faced declining output due to plant diseases, illegal gold mining, and low farmer pay. The government recently raised farmgate prices to 49,600 cedis per metric ton to deter smuggling and incentivize production. However, significant reforms are needed to ensure the sector’s sustainability.
In the oil and gas industry, production stagnated over the past five years despite opportunities for growth in offshore fields. Mahama’s campaign includes promises to increase local ownership in extractive industries, a move that could boost economic equity and domestic investment.
Inflation, Interest Rates, and Currency Challenges
Inflation remains a pressing issue, standing at 22.1% in October 2024, down from its 2023 peak of over 40%. The Bank of Ghana has maintained its policy rate at 29%, balancing inflation control with economic stimulation. Meanwhile, the cedi’s depreciation—trading at 16.10 GHS per USD—continues to pressure businesses reliant on imports, raising costs and squeezing margins.
Investor Sentiment and Outlook
Investors remain cautiously optimistic, hoping for clear and consistent economic policies post-election. Mahama’s ambitious promises may clash with IMF demands for fiscal restraint, while Bawumia’s focus on private sector-led growth could face challenges amid constrained fiscal space.
The stakes for the December elections extend beyond politics, with Ghana’s economic stability and growth prospects hanging in the balance. Restoring investor confidence and addressing systemic challenges will require bold and strategic leadership in the years ahead.
