Investors want Ghana to retain fiscal stance

Investors are hoping that the incumbent, President Nana Akufo-Addo, will retain his position in order to sort out Ghana’s fiscal challenges by winning a second term in Monday’s election. A

As at Tuesday, December 8, the votes were still being counted but the incumbent president had a slight lead.

The New Patriotic Party’s Akufo-Addo faced off against his main opponent and predecessor, John Mahama, of the National Democratic Congress on Monday December 7. The two parties have dominated Ghanaian politics since 1992.

International investors with an interest in Ghana seem to have more confidence in the Akufo- Addo administration than one that would be put together by John Dramani Mahama in the event that we overturn the incumbent’s early lead and wins the election.

The havoc wreaked by the coronavirus pandemic drove Ghana’s ratio of debt to gross domestic product to 71% in September, the highest in four years. Before the global health crisis, Ghana was already under fiscal pressure due to the costs of cleaning up the banking sector and meeting energy-sector liabilities.

The government was forced to abandon a fiscal rule it introduced in 2018 to cap the budget deficit at 5% of GDP in any year, with the shortfall forecast to reach 11.4% for 2020.

While both parties say they’re in favor of sustainable budget deficits over the next four-year term, they differ on how quickly they’ll get there. Akufo-Addo’s NPP plans to cut the deficit to 8.3% of GDP in 2021, and below 5% of GDP by the third year of the presidential term. Mahama’s NDC has said a “more realistic” deficit for 2021 will be about 12%, even with serious structural reforms.

Here’s a round-up of investor views:

Simon Quijano-Evans, chief economist at London-based Gemcorp Capital LLP:

“If the incumbent government were to win the elections, markets would probably award them the benefit of the doubt, given their track record of recent years.”

“The current government’s fiscal plan makes sense as a baseline scenario and markets will probably judge performance on a quarterly basis.”

“Securing credibility in the fiscal space will help lower interest costs” to support growth and job creation.

Kevin Daly, portfolio manager at London-based Aberdeen Standard Investments:

All issues related to debt, including the need to increase tax revenue, “are likely to be addressed quicker by the incumbent party as they can hit the ground running.”

The government’s deficit plan for 2021 is “positive.”

The country should consider tapping international debt markets early and issuing up to $3 billion, Daly said.

Payment for energy-sector liabilities, “another key issue that must be addressed,” could be sought from multilateral lenders so as to reduce the amount of market financing.

“The new government should be open to approaching the IMF given the large 2021 financing needs.”

Mark Bohlund, senior credit analyst at REDD Intelligence:

“Most of the fiscal slippage occurred during the NDC’s time in office.”

“I expect the NDC and Mahama to be more fiscally expansive and more likely to approach creditors for a renegotiation of terms than Akufo-Addo.”

Nana Adu Ampofo and Kobi Annan, analysts at U.K. and Ghana-based Songhai Advisory:

The NPP deserves credit for the economic successes maintained between 2017 and 2020 pre-Covid-19, they said.

Taming debt “will remain the critical challenge if the NDC wins.”

Reorganization of debt on the heels of an NDC victory would introduce waste “at a time when the country can ill afford it.”

Dylan Smith and Andrew Matheny, Goldman Sachs economists:

“The market’s focus on the outcome of the vote may be missing the point. We see little to separate the economic ideology or actual policies of the two main parties.”