By Christian Akorlie
ACCRA (Reuters) – Ghana’s new government will make steep spending cuts this year to recover the economy, Finance Minister Cassiel Ato Forson said on Tuesday as he announced wider than expected deficit and debt figures for 2024, particularly in the cocoa and energy sectors.
“The state of the economy … does not reflect an economy that has turned the corner,” Forson said during his first budget speech to parliament.
“It reflects an economy in severe distress, burdened by debt repayment humps, mismanagement and a lack of accountability.”
The West African country is emerging from its deepest economic crisis in a generation, with turmoil in the vital cocoa and gold industries.
President John Dramani Mahama, who took office in January, has vowed to boost the economy and create jobs. He faces the fallouts of a cost-of-living crisis, an ongoing bailout from the International Monetary Fund and a sovereign debt default in the cocoa and gold-producing nation.
Forson said Ghana, which faces significant external debt service costs over the next four years, should reduce its financing needs to improve its credibility.
He announced a “shock therapy” of spending cuts, that will be compensated for by scrapping levies on consumers and targeted measures on revenue generation to reduce deficit.
“The government’s decision to keep its promise to remove four poorly designed taxes… was a rare combination of good politics and smart policy,” said Bright Simons, an analyst at Accra-based think tank IMANI Africa.
Spending cuts should allow the country to achieve real GDP growth of at least 4% and reach an inflation rate of 11.9% by the end of the year, Forson told lawmakers.
Ghana’s international dollar-denominated bonds slid by nearly 1.5 cents after the announcement.
“The external bonds initially sold off after the announcement of a wider fiscal deficit in 2024, but the slippage was already partly expected ahead of the budget reading,” Samir Gadio, head of Africa strategy at Standard Chartered, told Reuters.
SETTLING ARREARS
Ghana is restructuring its debt as part of conditions to receive an IMF support programme agreed under the previous administration.
The country has to pay back $8.7 billion over the next four years, accounting for 10.9% of GDP, the minister said. The bulk of this is due in 2027 and 2028.
He added that the country owes $1.73 billion to independent power producers, 68 billion cedis ($4.40 billion) to the national electricity company and 32 billion cedis ($2.07 billion) to cocoa regulator Cocobod.
Forson said the government had commissioned an audit of Ghana’s arrears.
“We are committed to completing the remaining debt restructuring as soon as possible,” he said.
Ghana’s economic growth slowed in the fourth quarter of last year, the country’s statistics agency said on Monday. Economic growth for the year 2024 was at 5.7%.
Consumer inflation slowed for the second month in a row in February, to 23.1% from 23.5% in January, but remains well above Bank of Ghana’s 8% target.
Budget deficit is expected to fall to 3.1% of GDP in 2025 from a 3.9% deficit in 2024, Forson said.
($1 = 15.4500 Ghanaian cedi)
(This story has been corrected to fix Samir Gadio’s designation to the head of Africa strategy at Standard Chartered, not emerging markets strategist at Standard Bank, in paragraph 11)
(Reporting by Christian Akorlie,; Writing by Sofia Christensen and Anait Miridzhanian; Editing by Bate Felix, Tomasz Janowski and Ed Osmond)
