In Ghana, post-election fiscal crunch is politics as normal

Ghana’s President Nana AkufoAddo has taken power with ambitious plans to revive once spectacular economic growth, only to discover a $1.6 billion hole in the budget and a deficit twice as high as expected. He may have a strong sense of deja vu. The country has a vigorous democracy, with voters ready to eject any leader who falls short of expectations. But for a third successive time, the national finances have gone off track before elections, forcing the winner to confront a fiscal crunch.

With Ghana more than half way through a three-year International Monetary Fund program, the new government must reveal in its first budget next month how it intends to restore financial discipline while staying true to Akufo-Addo’s election promises to boost growth and fight poverty.

Akufo-Addo entered office last month on pledges to spend the equivalent of $1 million a year on development in each of Ghana’s 275 parliamentary constituencies, build a dam in every village to ensure reliable water supplies and bring a factory to every district. In winning a big victory in December over incumbent John Mahama, he also promised to cut taxes. His plan is to stimulate private sector investment to raise economic growth - which peaked at 14 percent in 2011 - back into double digits from around 4 percent last year.

The government said last week it would follow through on its promise to make secondary school education free. It has adopted a triple track approach: preparing the budget, reassuring investors who are major holders of Ghana’s local currency and dollar debt that it will not overspend, and holding fresh talks with the IMF.

Finance Minister Ken Ofori-Atta acknowledges the balancing act. “One thing that I can commit to is there will be discipline. One thing that I can also assure you is that we are pro-private sector,” he told reporters. “(But) you cannot win a sweeping mandate of this nature where the cry out there is for jobs and come and have a budget that does not seem to address that,” added Ofori-Atta, a former investment banker.

While the budget crises have coincided with the four-yearly election cycle, Ghana does not entirely fit the model of struggling governments spending freely just before voting in the hope of holding on to power. The fiscal blowout in the 2012 election year was largely due to pay rises for civil servants. But this was part of a long-term wage reform agreed by government and opposition parties.

The current overshoot has several causes. Shortly before his defeat after only one full term in office, Mahama toured the country opening new schools, roads and bridges. But many of these projects, and spending on them, had been underway for several years. Revealing that the new government had inherited debt from state-owned enterprises and government ministries of at least 7 billion cedis ($1.6 billion), OforiAtta said “unchecked overspending” was part of the problem but he also blamed decreased revenue.

Ghana’s boom years were fuelled by exports of oil, gold and cocoa. The 2014-15 dive in commodity prices hit it hard, along with a technical fault that halted production last year at its Jubilee oil field, operated by British company Tullow. —Reuters