A home-grown economic rescue package will top the agenda when Ghana’s new government starts work after Nana Akufo-Addo is sworn in as president on 7 January. Part of that effort will be a close examination of the viability of the procurement and debt obligations contracted by the outgoing government under President John Mahama.
“We are facing a reasonably dire fiscal situation driven by declining growth, higher borrowing, higher taxes all causing a downward spiral,” vice-president Mahamudu Bawumia told a specially-convened finance summit in Accra on 4 January.
The outgoing government’s strategy supported by the International Monetary Fund has been rather “odd”, according to Bawumia. “You can’t claim to have fiscal consolidation when your debt is ballooning," he said.
This year, said Bawumia, interest and salary payments were due to take over 22% and 30% of state revenues respectively. Subsidies, grants and statutory payments taking 34%, leaving less than 15% for investment.
With that debt burden and state finances hit by opaque contracts and leakages, the incoming government is promising to prioritise job creation and run a more accountable economy. Ghana is the second biggest economy in West Africa, but last year its growth slumped to under 4%, the lowest in 30 years.
Since his election victory a month ago, Akufo-Addo has put together a team of business executives and policy experts to brainstorm on expanding Ghana’s fiscal space to drive growth and job creation.
Two key figures in the new government’s economic team will be vice-president Bawumia, a former deputy governor of the Bank of Ghana, and Ken Ofori-Atta, a founder of the Accra-based investment bank, Databank, as the new finance minister.
Reducing and restructuring the country’s debt burden — which is running at over 70% of gross domestic product (GDP) — will be an immediate priority. But the other main arm of the government’s plan would be a determined programme to create jobs across the country, Ofori-Atta told the summit attended by over 120 Ghanaian finance and business professionals working around the world.
“The most pernicious problem is domestic debt — some 40% of our debt is owed locally, contributing to about 80% of debt servicing cost,” Ofori-Atta said. “We have to look at our liability management, and find imaginative solutions to service and manage our debt,” he added.
Some of those ideas include efficient spend and taxation swaps. “We should target to cut out debt-to-GDP ratio from 71% to 50% over the next four years,” said Ofori-Atta. This could be achieved through debt restructuring, reshuffling and instituting economic reforms to accelerate growth in GDP and government revenues.
For most Ghanaians, the test of the new government’s credibility will be on jobs. In his election campaign, Akufo-Addo had promised a new factory in each of the country’s 231 districts and a development grant of $1m to each of the 275 parliamentary constituencies.
This would not mean state-owned industries, said Ofori-Atta, but the government would remove the regulatory bottlenecks facing companies going into production and processing. “We are 111th in the World Bank's Ease of Doing Business global ranking … we can do much better than that,” said Ofori-Atta. “We’re going to make Ghana the most business-friendly economy in Africa.”
Bawumia lamented that a businessman in the United States found it more profitable to make flour for fufu, the legendary dish, in New York rather than back home in Ghana. “It costs him $200 to clear a container in New York and 14,000 cedis ($4,700) in Ghana.” The raw materials used for manufacturing should come into Ghana duty-free, he added.
Delegates to the summit applauded the new government’s promise to run a more open and accountable government, however, some warned that the high expectations risked outstripping the financial resources available. It was a remarkable display, in such order, of the new government’s commitment to partner with the rich human resource of Ghana in the diaspora and at home. There was a deep sense of appreciation and optimism within the room.
A senior financial expert at the summit suggested that the government would have to go through procurement and financing contracts — line by line — to identify leakages and over-pricing. The same expert argued that the government would be able to save around 20% of its annual disbursements, freeing up funds for productive use.