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March 10, 2021

Africa

GHANA: Scramble for majorities set to continue amid bullish government outlook

BY Malte Liewerscheidt

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( 4 mins)
  • President Nana Akufo-Addo has presented a bullish post-pandemic recovery plan.
  • The main domestic downside risks stem from overly optimistic revenue expectations and unresolved power sector debt.
  • Meanwhile, despite the dismissal of a legal challenge to the presidential election results, Akufo-Addo’s parliamentary majority still hangs in the balance.

In his 9 March state-of-the-nation address, Akufo-Addo charted a way for a bullish post-pandemic economic recovery fueled by a public investment program. The fiscal sustainability of Akufo-Addo’s bold plan will not least hinge on a dramatic expansion of the tax base as well as progress in stalled negotiations with independent power producers (IPPs) to restructure expensive take-or-pay energy contracts.

While the Supreme Court last week provided Akufo-Addo a boost by dismissing a legal challenge to the December presidential election results, his New Patriotic Party (NPP) may still lose its razor-thin majority in parliament as numerous seats remain subject to legal challenges. As such, even though Akufo-Addo recently succeeded in getting lawmakers’ approval for his first batch of cabinet appointments, he may soon be scrambling for majorities.

According to Akufo-Addo, revenue losses and additional expenditure in the context of the pandemic accumulated to GHS 25.3bn (USD 4.42bn) or 6.6% of GDP in 2020, resulting in a fiscal deficit of 11.4% of GDP. However, the president is bullish on the prospects for a short-term economic recovery, with the government targeting 5% growth this year, against the International Monetary Fund (IMF)’s 4.2% forecast. A major boost is supposed to come from the three-year GHS 100bn (USD 17.5bn) Ghana Alleviation and Revitalization of Enterprises Support (Ghana CARES) recovery plan. With its eight objectives – some rehashing existing programs – the plan is heavily focused on job creation in agriculture and light manufacturing.

While details of the budget for the remainder of 2021 – due to the December election, the current budget runs until end-March – are expected to be presented on 12 March, this year’s fiscal deficit is expected to narrow to 8.3% of GDP (which would still be well above the 5% limit set by the 2018 Fiscal Responsibility Act).

Apart from external factors beyond the government’s control, whether this target can be achieved will critically hinge on growing the tax base and progress in resolving the energy sector debt crisis. Akufo-Addo promised a great leap forward regarding the former, as a new national ID card doubling as tax ID is supposed to grow the tax base from 3mn Ghanaians currently to 15.5mn by year-end. While the figure itself is ambitious to begin with, the forthcoming budget should give an indication of how realistic the corresponding revenue target may be.

Meanwhile, Akufo-Addo promised that talks with 12 IPPs to renegotiate take-or-pay contracts that cost the government an estimated USD 500mn annually should be concluded by year-end. However, while negotiations have been ongoing since November 2019, to date not a single IPP has agreed to stop charging fees for unused energy. Highlighting the difficulties in dealing with this legacy of the final phase of John Mahama’s (2012-2016) government, the International Court of Arbitration in February awarded USD 164mn in costs and interest against the government over the cancellation of an emergency power agreement.

The power sector’s persistent challenges were also highlighted in recently concluded cabinet minister confirmation hearings, which provided an unprecedented degree of scrutiny as the ruling NPP’s parliamentary majority relies on the support of just one independent MP. While this fragile arrangement passed the test this time – unlike when a member of Mahama’s National Democratic Congress (NDC) was elected speaker in January – and secured parliamentary approval of all appointees, the future looks still uncertain. In fact, the high court has yet to rule on 16 seats which have been contested by either the NPP or the NDC following the December general election. Against this background, the 4 March Supreme Court decision to unanimously reject Mahama’s legal challenge of the presidential election results, important as it was for Akufo-Addo, did little to remove the veil of uncertainty concerning his ability to govern.

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