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How Campaign Promises Crashed Ghana’s Economy

Ghana’s economic troubles long preceded the COVID-19 pandemic, thanks to its politicians’ penchant for overspending. A write-up by Audrey Donkor, a writer and international affairs analyst for the Foreign Policy (FP).

Ghana’s economic descent has surprised many. The West African nation had long been held up as a model for economic growth and political stability. And while the incumbent government has blamed the country’s economic woes on the COVID-19 pandemic and the Russia-Ukraine war, analysts and experts, as well as the Ghanaian people, are well aware that Ghana’s economic troubles preceded the pandemic and are largely due to the country’s politicians’ penchant for overspending. Politics in Ghana is an extremely costly affair.

Although Ghana has been heralded as a beacon of democracy over the years, the country’s political system has not been directed toward serving and uplifting the Ghanaian people. Instead, the overriding objectives of politicians have been winning elections, staying in power, and enriching themselves and their cronies—no matter the financial cost to the state. As a result, most politicians in office view the four-year election cycle as a period to ensure they win the next election—or accumulate enough wealth to leave with, in case they don’t.

To unseat then-President John Mahama in the December 2016 election, current President Nana Akufo-Addo promised to, among other things, make high school education (including boarding) entirely free; reinstate allowances for nursing and teacher trainees that Mahama’s government had scrapped; eliminate several so-called nuisance taxes introduced by Mahama’s government; and build a factory in each of the country’s 216 districts.

It didn’t matter to Akufo-Addo’s New Patriotic Party that these proposed policies were impractical and impossible to finance sustainably, particularly at a moment when Ghana was already in the throes of an International Monetary Fund (IMF) austerity plan that was a condition for a bailout of $918 million in 2015. Implementing Akufo-Addo’s campaign promises constituted a significant drain on the country’s finances.

The government borrowed extensively from both international and domestic markets to undertake its programs, pay huge debts to independent power producers, and make up the revenue shortfall from abolishing and reducing 18 taxes and levies (although the government eventually introduced more taxes).

Ghana’s public debt was already unsustainably high—at 63.1 percent of GDPin December 2019, according to the IMF—when COVID-19 struck and the country went into a partial lockdown for three weeks beginning in March 2020. Ghana also had a general election in December 2020, and as Ghanaian politicians typically do during election years, Akufo-Addo and his government spent heavily, despite already high debt levels. The government provided free water to Ghanaians and free electricity to lifeline consumers (electricity costs for all other consumers were reduced by 50 percent), in addition to hot meals for 2.7 million vulnerable people during the lockdown, soft loans for businesses, and other pandemic response measures.

To fund the COVID-19 response and shore up the economy, the government took out $1 billion from the IMF under the Rapid Credit Facility, together with other external funding and support from the central bank. A significant portion of these funds was mismanaged, according to the country’s auditor-general.

Ghana racked up a fiscal deficit of 11.7 percent of GDP in 2020, far in excess of its 4.7 percent target, and well above that year’s West African average of 7.5 percent and African average of 7.2 percent. Ghana’s high fiscal deficit for 2020 followed the trend of previous election years when deficit spending had drastically outpaced targets.

Shortly after winning the election, Akufo-Addo’s government slapped several new taxes on Ghanaians, including the COVID-19 levy, which was imposed to recoup the costs of the freebies enjoyed the previous year and cover other pandemic expenditures.

These measures sparked fury among Ghanaians who felt exploited by the government’s underhanded ploy to win the election and led to the rise of the #FixTheCountry protest movement. The government continued its borrowing spree in 2021, issuing a $3 billion Eurobond early that year.

Toward the end of the year, when it became apparent that the economy was struggling, the government resisted seeking support from the IMF and instead sought to introduce a 1.75 percent levy on electronic payments (mainly targeting mobile money transfers, which are widely used in Ghana) known as the e-levy.

Akufo-Addo and his government had continuously castigated Mahama’s government for mismanaging the economy and taking a bailout from the IMF and had come to power professing the expertise needed to turn the economy around and wean Ghana off aid. Vice President Mahamudu Bawumia, in particular, was touted as an “economic wizard.” The prospect of going to the IMF then was a humiliating about-face the government wasn’t ready to make.

But the opposition and Ghanaian public weren’t buying the government’s argument about the need to raise revenue domestically, in part by targeting large segments of the population who weren’t paying income taxes—particularly because Ghana already had a slew of indirect taxes in place.

Deadlocks and a brawl ensued in Parliament, further dampening investor confidence about the country’s ability to raise revenue domestically. Ghana was effectively shut out from the international market late that year, and as credit rating agencies began downgrading Ghana in January 2022, the Ghanaian cedi started its downward slide—before Russia invaded Ukraine on Feb. 24, 2022.

The cedi continued to depreciate throughout 2022, even as the e-levy took effect in May and the government finally announced in July that the country would seek a $3 billion bailout from the IMF. Foreign exchange shortages, domestic speculation, and black-market activity heightened the depreciation, and by October 2022, the cedi had lost more than 55 per cent of its value against the dollar.

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