Former President John Mahama, who recently won the elections in Ghana, has pledged to enhance public spending and tackle the challenges posed by the rising cost of living. Nevertheless, he is confronted with the formidable task of balancing his objectives with the stipulations of a $3bn IMF bailout.

While he has yet to disclose comprehensive details on his campaign commitments, Mahama, who served as president from 2012 to 2017, remarked in his victory speech that his election signifies “a new beginning, a new direction” for Ghana, which is currently dealing with rampant inflation and worsening living conditions.

He previously committed to establishing a “National Economic Recovery Task Force” within his first month in office. This initiative will involve stakeholders from various industries and aim to provide practical strategies to spur growth and enhance living standards, with the goal of transforming Ghana into a “24-hour economy.”

To boost economic activity in the private sector, Mahama has suggested extending credit to small and medium-sized enterprises and creating more business incubators. He also promised to revive the “Jobs for Youth” initiative to improve employment opportunities for young people and to suspend the contentious VAT on essential goods such as food and fuel to lighten the financial load on citizens.

In the wake of austerity measures following Ghana’s debt default in 2022, Mahama has vowed to increase investments in vital sectors like education, public health, and infrastructure.

Will plans clash with IMF pledges?

This could signal a significant departure from the previous government’s approach, which prioritized reducing public spending and boosting tax revenues as part of the IMF’s $3bn bailout aimed at restoring macroeconomic stability and alleviating the country’s debt burden.

As a result, there are substantial uncertainties regarding how effectively Mahama’s social democratic National Democratic Congress (NDC) can implement its plans in light of the current agreement.

In an interview with African Business just prior to the election, Jervin Naidoo, a political analyst from Oxford Economics Africa, noted that any proposals to increase spending are likely to clash with the limitations imposed by the IMF program.

“In terms of requests and immediate economic impact, there won’t be much flexibility, as Ghana is bound by the IMF program, meaning much of the government’s fiscal policy will be restricted.”

However, Mahama indicated to Bloomberg as recently as November that he plans to renegotiate the terms of the IMF bailout.

“We need to explore how we can refinance some of this to alleviate the repayment schedule,” he mentioned.

Cape Town-based risk consultancy Signal Risk expressed concerns regarding the compatibility of Mahama’s proposals with IMF requirements aimed at curbing spending and reducing debt levels. They raised the question: “Will a change in administration lead to significant shifts in the country’s economic and political landscape? Or will commitments to debt restructuring and IMF agreements keep the medium-term environment unchanged?”

An unenviable task

For the past eight years, Ghana has been governed by President Nana Akufo-Addo of the New Patriotic Party (NPP), a period during which the country has faced its most severe economic challenges in decades.

While nearly every African economy felt the impact of the Covid-19 pandemic, Ghana was particularly adversely affected due to its government expenditure, leading national debt to soar to over $50bn, which amounted to almost 85% of GDP in 2023. In 2022, Ghana defaulted on a substantial portion of its external, dollar-denominated debt in the context of rising interest rates and a strengthening dollar.

Furthermore, soaring inflation rates have continuously diminished citizens’ purchasing power and living standards, with prices surging by over 37% last year. This crisis was aggravated by Ghana’s significant trade deficit and the depreciation of the Ghanaian cedi, which raised the local currency cost of imported essentials. The US dollar has appreciated by nearly 180% against the cedi since 2020.

In response, voters have held the ruling NPP accountable, paving the way for Mahama’s return to power with promises of a major turnaround. However, the new administration in Accra faces the formidable challenge of reconciling the necessity to reduce Ghana’s external debt levels and secure IMF support while also satisfying voters’ demands for increased spending and investment.