Ghana

Debt restructuring progresses

Deep pre-existing fiscal imbalances (large public deficits and excessive debt) were exacerbated by external crises in 2020-2023. The loss of investor confidence and capital outflows caused the local currency to stall (the cedi lost 50% of its value in 2022) and the country lost access to international markets in November 2021. The government had to opt for the domestic market, characterised by high interest rates, and monetary financing of the public deficit, which further fuelled inflation. All this led Ghana to request IMF assistance in July 2022, and to suspend servicing of the bulk of its external debt (eurobonds, commercial loans and bilateral debts) in December. In May 2023, the IMF approved a 3-year, USD 3 billion programme under the Extended Credit Facility (ECF). The program is conditional on the implementation of reforms (private sector development, fiscal consolidation), as well as the restructuring of public debt deemed unsustainable, in line with the principles adopted by the G20 group of countries, notably equal treatment of all creditors. In September 2023, Ghana completed the restructuring of the bulk of its domestic debt (47% of total public debt), whereby the government swapped medium- and long-term securities for lower-interest bonds with longer maturities. This restructuring lightened the stock of public debt in 2023. Together with the suspension of interest payments on a large portion of external debt, the restructuring has also led to a significant improvement in the public balance, with interest payments (mainly domestic) falling from 30% to 24% of public expenditure in 2023. External debt accounts for half of public debt and is held by bondholders (42%), multilaterals (26%), bilaterals (17%) and commercial banks (14%). In 2024, the country reached agreements to restructure USD 5.4 billion of bilateral debt and USD 13 billion of bonded debt, which will enable final agreements to be reached in late 2024 or early 2025, i.e., more than two years after negotiations began. The bilateral creditors plan to suspend debt servicing between 2023 and 2026. It will be capitalised and accrue additional interest until it is repaid in the 16th and 17th year after the original maturity date. Bondholders have agreed, in principle, to a principal reduction of up to 37% and debt service relief of around USD 4.4 billion until 2026. The final terms have not yet been formalised, but such an agreement could provide further relief to the public balance. Progress on debt restructuring has enabled the completion of a second review of the agreement with the IMF, resulting in an additional disbursement of USD 360 million, bringing total financing to USD 1.6 billion.

After reaching breakeven in 2023 thanks to fiscal consolidation, then subsequently easing against the backdrop of the 2024 elections, the primary balance should show a slight primary surplus (i.e., excluding interest) in 2025, estimated at 0.5% of GDP. A rise in revenues (to 16% of GDP in 2023) is likely, thanks to stronger tax collection and higher customs revenues boosted by increased gold and oil production. After a slight rise in expenditure in 2024 due to the elections, spending (19.2% of GDP in 2023) will continue to be rationalised in 2025. The government will strive to improve the management of public enterprises and accelerate the restructuring of the cocoa and energy sectors. A new, more cost-reflective electricity tariff will reduce the state's arrears to independent power producers.

Since the suspension of servicing on a large part of the country's foreign debt, the current account has been in surplus, and should remain so in 2025. The structural trade surplus is fuelled by rising volumes and high prices for crude oil and gold exports, as well as by the recovery in cocoa prices. However, the recovery in domestic demand, both for consumption and investment, will lead to an increase in imports. The services deficit will increase due to spending on oil and mining developments. In addition, expatriate remittances (5.4% of GDP in 2023), mainly from Nigeria, the US and the UK, will support the current account surplus. However, profit repatriation by foreign investors, which has increased due to their enhanced activity, will continue to weigh negatively on the income account. In addition, FDI, after bottoming out at 1.7% of GDP in 2023, is expected to be a major source of financing as investor confidence strengthens. Ghana will also rely on disbursements under the IMF arrangement. Foreign exchange reserves, which had reached an all-time low in November 2023 (1.6 months of imports), reached the equivalent of 3 months of imports in April 2024.

Fragile recovery in growth

After an electoral crosswind in 2024, growth should rebound in 2025, driven by a recovery in domestic demand and increased foreign investment. Household consumption (84% of GDP in 2023) will pick up as inflation eases. Growth will also be underpinned by investment (18% of GDP), thanks to monetary loosening on back of disinflation, and the return of investor confidence with progress on debt restructuring and new IMF disbursements. Despite the authorities' determination to develop its manufacturing sector, industry (34.2% of GDP in 2022) remains dominated by gold, bauxite and manganese mining. Ghana also covets the status of lithium producer with the planned Ewoyaa mine. Agriculture (20.9% of GDP) remains a pillar of the economy, employing 40% of the country's workforce. The service sector (44.9% of GDP) will be supported mainly by tourism (7.6% of GDP in 2022), as well as telecommunications, driven by a growing population and increasing use of smartphones. Despite smuggling, exports will be boosted by increased gold production, thanks in particular to the recommissioning and expansion of the Bibiani gold mine, and the start-up of production at the Ahafo North mine. Hydrocarbon production will benefit from the expansion of the Jubilee offshore field and other fields. Cocoa production (11% of exports in 2023) remains uncertain. In 2023-2024, the spread of the cocoa shoot edema virus, weather conditions and smuggling caused a drop in cocoa production, which was subsequently offset by soaring prices. These obstacles, if they persist, could still disrupt production in 2025.

Double-digit inflation is due to monetary financing of the public deficit (now prohibited by the IMF agreement), rising food and import prices aggravated by the depreciation of the cedi. To reduce inflationary pressures, the Central Bank of Ghana (BoG) raised interest rates to 30% in July 2023. Thanks to this monetary tightening, the easing of world prices, as well as a lesser depreciation of the exchange rate due to the return of confidence linked to progress on debt restructuring and foreign currency injections from the IMF and other multilateral bodies, inflation should fall by 2025. This suggests a drop in rates, which already began in January 2024 (a 100 basis-point drop). However, inflation will remain above the 6-10% target range in 2025.

Alternation looms against a backdrop of economic crisis

In office since January 2017, President Nana Akufo-Addo (NPP, New Patriotic Party, center-right) has reached the constitutionally-imposed two-term limit and is therefore ineligible to stand again in the presidential election scheduled for December 2024. Mahamudu Bawumia, his vice-president (NPP), and John Mahama, former president and candidate of the social-democratic National Democratic Congress, are the two main contenders. The image of the presidential party, the NPP, has been tarnished by the crisis, falling living standards and worsening poverty (the poverty rate is estimated to be 33% in 2025, compared with 27% in 2022), automatically fuelling the popularity of the opposition party and bringing into play the usual bipartisan confrontation and alternation. Whoever wins the presidential and legislative elections in December 2024, the challenges and constraints, particularly budgetary, will remain the same.

In terms of international relations, Ghana enjoys strong ties with China, a major destination for its crude oil and manganese exports, as well as a major creditor. However, the situation with neighbouring Burkina Faso remains tense, due to the infiltration from that country of armed jihadist groups affiliated to Al-Qaeda and the Islamic State organisation in the north of the country. The risk of insecurity motivated Ghana in 2017 to launch the Accra Initiative with other countries in the sub-region to promote the exchange of information on jihadism in the Sahel. In addition, the Gulf of Guinea continues to be the stage for acts of piracy. Last, relations with certain Western countries and international institutions could be overshadowed by the government's adoption of an anti-LGBT+ law in February 2024. The law has not yet been ratified by the President, and its constitutionality may be contested.

Last updated: July 2024