Ghana’s newly elected government plans to implement steep spending cuts in 2024 to stabilize the economy, Finance Minister Cassiel Ato Forson announced on Tuesday. Speaking during his first budget address to parliament, Forson revealed higher-than-expected fiscal deficits, particularly in the cocoa and energy sectors, underscoring the ongoing economic challenges.
A Struggling Economy
Despite signs of recovery, Forson stated that Ghana’s economic condition “does not reflect an economy that has turned the corner.” The country, a major cocoa and gold producer, is grappling with the aftermath of its worst economic crisis in decades, compounded by a cost-of-living crisis, a sovereign debt default, and an ongoing International Monetary Fund (IMF) bailout program.
Debt Reduction Through ‘Shock Therapy’
To regain financial stability, Forson outlined a “shock therapy” approach, which includes:
- Drastic spending cuts to curb borrowing.
- Abolishing consumer levies to ease the tax burden.
- Targeted revenue measures to narrow the budget deficit.
“The government’s decision to keep its promise to remove four poorly designed taxes… was a rare combination of good politics and smart policy,” said Bright Simons, an analyst at Accra-based think tank IMANI Africa.
Forson projected that these measures would enable Ghana to achieve real GDP growth of at least 4% and lower inflation to 11.9% by the end of the year.
Debt Restructuring and Market Reaction
Ghana is undergoing a debt restructuring process as part of the conditions for IMF support. The country faces $8.7 billion in external debt repayments over the next four years, equivalent to 10.9% of GDP, with most payments due in 2027 and 2028.
Additionally, Ghana owes:
- $1.73 billion to independent power producers.
- 68 billion cedis ($4.40 billion) to the national electricity company.
- 32 billion cedis ($2.07 billion) to the cocoa regulator, Cocobod.
In response to the budget announcement, Ghana’s international bonds dropped nearly 1.5 cents, though analysts noted that a wider-than-expected fiscal deficit had already been anticipated.
Looking Ahead
The government has commissioned an audit of Ghana’s financial arrears to ensure transparency. Meanwhile, President John Dramani Mahama, who took office in January, remains focused on economic recovery and job creation amid Ghana’s ongoing fiscal challenges.
