Ghana President-elect John Mahama must follow debt restructuring with economic reform

Published 5:50 PM ET, Saturday December 14, 2024

Accra: Ghana’s presidential election saw John Dramani Mahama emerge as the winner, focusing on the economic hardship imposed on the population amid the country’s dire financial straits. The root of the problem lies in Ghana’s government’s excessive borrowing from domestic and international capital markets to finance fiscal expenditures. Mahama, who previously led Ghana between 2012 and 2017, will need to turn the situation around swiftly considering popular discontent. To reset the economy, Mahama and his administration will need to reform how it governs its gold, oil, and cocoa industries.

Ghana’s debt crisis began in 2004 after completing the Heavily Indebted Poor Countries program. The COVID-19 pandemic resulted in a decline in investment and production in the oil sector, leading to a default on its eurobond obligations in 2022. Total public debt reached 92% of GDP at the end of 2022, higher than the average among Sub-Saharan African countries.

The current situation is reminiscent of the troubled economic times of the 1990s, when Ghana faced a debt crisis. However, this time, private creditors and China have become important players, making it more difficult for lenders to coordinate to deliver an expedient debt resolution. The international community needs to support indebted developing countries in a more decisive and urgent way, possibly by bringing more forceful actions against creditors, especially private creditors, by enforcing the comparability of treatment.

A more expedient debt resolution is necessary for an economic reset, and Ghana must rebalance its structure of external capital away from external debt and toward foreign direct investment. This would bring more stability to its external financing and boost productivity, economic growth, and job creation.

As Mahama prepares to take office as Ghana’s new president on January 7, he will need to work toward achieving macroeconomic stability while boosting the competitiveness of the country’s economy. Yet, poverty is already rampant, with inflation further eroding the purchasing power of the country’s impoverished population. Therefore, the sequencing of reforms must account for that social context. The Mahama administration will need to focus on increasing transparency and removing corporate subsidies—whether public or private—rather than removing household subsidies, which many rely on for subsistence.

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