Event

On 7 December, President Nana Akufo-Addo won a second four-year term, albeit with a smaller majority (51.6% of the vote with a 78% turnout). The elections were largely peaceful despite some local incidents of violence. Voters seemed satisfied with policies such as free secondary school education and improved energy supply after decades of detrimental power cuts. In the parliamentary elections, the president’s centre-right National Patriotic party (NPP) was neck and neck with the opposition National Democratic Congress (NDC), creating a more challenging parliamentary environment.

Impact

Ghana’s poll appears to be more of an exception after a series of controversial elections (Côte d’Ivoire, Guinea, Tanzania) and violent political manoeuvres (Uganda, Mali) raised fears over ‘democratic recession’ on the African continent. Ghana’s low risk for political instability is underpinned by its strong democratic credentials and rule of law. However, due to weak campaign finance laws, the electoral process does tend to create significant fiscal slippages ahead of the vote. Despite the severe impact of the Covid-19 crisis on Ghanaians’ livelihoods, the elections were expected to follow an orderly course.

The pandemic and global economic fallout have shaken the fundamentals of Ghana’s economy. GDP growth is expected to be almost brought to a standstill in 2020 (0.9%) after the drop in oil and cocoa exports resulted in Ghana’s first quarterly contraction in almost 40 years. The average yearly growth rate over the past three years reached 7%, mainly driven by oil investments. Economic activity is expected to rebound in 2021 with 4.2% GDP growth.

The government’s promised USD 17 billion crisis-response programme – equivalent to about 25% of 2020 GDP – targeting social, health and economic recovery, together with the election process, create a large fiscal deficit of an estimated 16% of GDP in 2020 and a projected 9.3% GDP fiscal deficit for 2021. To cover the immediate financial needs, Ghana received a 1 billion USD loan from the IMF Rapid Credit Facility. It did not benefit from the G20 Debt Service Suspension Initiative (DSSI), which consists in official creditors providing a payment moratorium to low-income countries to open-up fiscal space for emergency spending. As Ghana has large outstanding debts to private creditors, it seems reluctant to participate in the DSSI and, instead, the country has been tapping the international bond markets again. As a result, public debt levels are soaring (from 62.8% GDP in 2019 to an estimated 76.7% in 2020, or more than 600% of public revenues) and will need to be brought down towards sustainable levels again. Government interest payments would absorb more than half of the 2020 public revenues, an unmaintainable situation. Ghana’s public debt position has been its major weakness for years and the IMF classifies the country as in ‘high risk of debt distress’.

Despite the country’s deteriorated fiscal position, Credendo’s medium- to long-term political risk classification for Ghana remained in category 5/7, with a stable outlook. Ghana’s short-term political risk classification in category 4/7 was also maintained, as the current account deficit has only slightly widened. The cedi remained relatively stable at the cost of foreign exchange reserves drawdowns. However, reserve levels still reached an acceptable 3 months of import cover in August 2020. Inflation is expected to rise up to 10% again by the end of the year, limiting the Central Bank’s monetary easing possibilities to counter the crisis.

During his second term, President Nana Akufo-Addo will be confronted with the exceptionally hard task of revitalising the economy while letting efforts trickle down to the poorest and, at the same time, putting debt levels on a sustainable path again. The perception of widespread corruption is another major obstacle to be addressed.

Analyst: Louise Van Cauwenbergh – l.vancauwenbergh@credendo.com