Amidst the upcoming 2024 elections, Ghana's government may be tempted to prioritize electoral victory over fiscal discipline, warns Professor Godfred Bopkin, an economist at the University of Ghana. He cautions that the gains made under the three-year IMF-supported program could be sacrificed if the government perceives any risk of losing the elections.
Ghana's economy has experienced some stability in recent months, with a GDP growth rate of 3.1% in the first half of the year, surpassing the IMF's forecast of 1.5%. Inflation has also declined to a 14-month low of 35.2% in October, and the primary balance on commitment basis for the first half of the year was a surplus of about GH¢2 billion compared to a target of a deficit of GH¢4 billion. Additionally, Gross International Reserves (GIR) stood at US$2.1 billion, equivalent to 1.0-month import cover, compared to US$1.5 billion (0.6 months of import cover) at the end of December 2022, with the Cedi stabilizing.
However, with Ghana entering another election year, there are concerns among investors about how to sustain this growth path due to overspending, which is usually associated with election years and results in significant budget deficits. Professor Bopkin warns that all the successes achieved under the IMF program could be derailed next year, similar to what happened in 2016.
In 2016, Ghana recorded a budget deficit of 8.7% against a program target of 5.3% during an election year, sacrificing the successes achieved under the IMF program that began in April 2015. The IMF program, which was supposed to end in 2018, had to be extended for another year due to this setback.
Professor Bopkin believes that going into the 2024 election year, there is a real risk that the government may not be able to keep to the assumptions underlying the 2024 budget. He notes that in all competitive election years, the last four months of the year are usually unproductive as government officials focus on winning votes instead of tracking budget performance. Once they take their eyes off the fiscal dashboard, pressure mounts on the Minister of Finance to open the floodgates and spend.
The professor warns that when it comes to a crucial point where the government is at risk of losing elections, they will prioritize their interest in winning over fiscal discipline and the interest of the country. He cites examples from previous election years where Ghana recorded budget deficits despite having achieved debt relief and success under IMF programs.
The government has set a budget deficit target of 5.9% of GDP for 2024, with one critical component of the IMF program being to ensure debt sustainability and reduce Ghana's debt-to-GDP ratio to 55% by 2026. The Minister of Finance, Ken Ofori-Atta, assures investors that the government will restrict itself to budgeted expenditure despite 2024 being an election year. He emphasizes that Ghanaians expect macroeconomic stability, low inflation, and a sustained stabilization of the value of Cedi instead of an increase in public spending.
It is crucial for Ghana's government to maintain fiscal discipline and prioritize the interest of the country over electoral victory in the upcoming election year. The gains made under the IMF program should not be sacrificed for short-term political gains. Instead, Ghana's government should focus on sustaining economic growth and reducing debt-to-GDP ratio to achieve long-term stability and prosperity for its citizens.
-By Bella Ayoni | Mydailyreports24
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