Previous Quarterly Editions
Expropriation Risk: 53 54 54 53 ►Political Violence Risk:39 39 39 39 ►Terrorism Risk:48 48 48 48 ►Exchange Transfer and Trade Sanction Risk: 45 55 55 55 ►Sovereign Default Risk:65 74 74 74 ►
TREND ►
Protest intensity to date* 2022 2023 Low Low Unrest risk in 2024**Cost of living: Very-HighAnti-austerity: High
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Ghana received a US$600 million cash injection in May — the first installment of the International Monetary Fund’s (IMF’s) US$3 billion bailout package agreed in December — helping to restore a semblance of macroeconomic stability, dampen fluctuations in the value of the Ghanaian cedi (GHS) currency and inject some confidence in the economic outlook.
Nonetheless, it will be years before the country recovers from the twin shocks inflicted by the COVID-19 pandemic and the economic reverberations triggered by Russia’s invasion of Ukraine in February 2022, along with the penchant of successive governments to borrow excessively on the international capital markets and the eagerness of international creditors to extend new lines of credit to a serial debt defaulter.
President Nana Akufo-Addo’s government currently owes teachers two months’ back pay, is unable to pay more than US$1.3 billion to local and international construction companies, and remains in debt to various independent power producers to the tune of US$1.58 billion.
Ghana owed an estimated US$63.3 billion dollars to foreign and domestic creditors before announcing in December 2022 that it was unable to service its debts for the 17th time since independence. Officially, those debts amounted to 80% of GDP, but Finance Minister Ken Ofori-Atta admitted that if off-the-books loans were included, the debt-to-GDP ratio was in excess of 105%.
Global events may have triggered Ghana’s insolvency, but they did not create it. Ghana had been spending far more than it was collecting in revenues for years and looked to the international capital markets to bridge the gap. Like other sovereign debtors, the country was caught off balance when the advanced economies began raising interest rates to tame a surge in inflation, which was further spiked by Russia’s invasion of Ukraine.
Since 2022, the cedi has lost half its value against the U.S. dollar. This has hit businesses and consumers alike in a country that imports everything from pharmaceuticals to capital equipment. Purchasing power and savings have been cut in half, resulting in an acute cost-of-living crisis for the bulk of the country’s 33 million people. Another outcome is mounting popular fury at the inability of successive governments to manage the national finances.
Foreign investors continue to face little or no risk of outright expropriation of physical assets, but the impact of the country’s sovereign debt restructuring will be both severe and protracted for both external and domestic bondholders.
Domestic debt restructurings have seen coupon (interest) rates slashed by 30% to 50% — with some notable exceptions, such as pension and insurance funds — and capital repayment dates extended by five years or more. Foreign debt restructurings remain a work in progress, with similar outcomes expected across the board. South Africa’s four main banks are still licking their wounds after absorbing losses of US$270 million — with some taking losses of 60%. Talks with Chinese creditors remain ongoing.
Ghana raised some US$17 billion in successive Eurobond issues by both National Democratic Congress and New Patriotic Party governments over a nine-year period, which the Finance Ministry said were oversubscribed in every single year. While the painful losses that creditors have been forced to swallow have led to criticism that the Ghanaian government should have sought IMF help before the country’s indebtedness became overwhelming, there has been little introspection over the willingness of international creditors to keep throwing good money after bad.
Popular protests of the runaway cost of living have been mounting over the past 12 months, with 87% of the electorate thinking that the government is heading in the wrong direction, according to a recent Afrobarometer poll. President Akufo-Addo’s two four-year terms of office come to an end next year, with citizens expected to deliver a resounding rebuke against the ruling New Patriotic Party.
Although inflation fell to 41.2% in May from a two-decade high of 54% in December 2022, the vast majority of the population is struggling to make ends meet. An annual income of GHS10,000 — worth US$2,000 before the fall in the value of the currency — is worth less than US$900 today. A bag of tomatoes that cost GHS20 in January had risen to GHS50 by May.
The economic fallout from the debt crisis has been felt hardest by the lower socioeconomic groups. An increase in the daily minimum wage to GHS14.8 in January simply fails to come anywhere near compensating for constantly rising prices. But while the government blames the external shocks of COVID-19 and Russia’s invasion of Ukraine, the electorate is increasingly blaming home-grown economic mismanagement for their ills.
Ghana — along with regional neighbors Benin, Côte d’Ivoire and Togo — has long been wary of the growing threat of a violent spillover from an ongoing jihadist war across the border in Burkina Faso. All three of the West African country’s neighbors have suffered violent incursions across their borders, which Ghana increasingly fears.
A recent attempt by criminals to blow up a bridge in the northern Bawku region — where ethnic tensions run high, illegal gold mining and smuggling are rife, and borders are porous — resulted in the deployment of some 500 troops to help quell tensions and deter jihadis from attempting to exploit the situation. The recent military coup in Niger in July (and others in the region in recent years) has further highlighted the deteriorating security situation across the Sahel, which mercenary groups such as the Russian Wagner Group have sought to exploit.
Ghana’s inflation moderated to 40.1% in August — a 10-month low — after accelerating to 42.5% in June from 42.2% in May, due largely to food price spikes and momentarily raising the specter of further interest rate rises. The cedi was trading at 14.8 to the U.S. dollar in September 2023, less than half its value a year earlier, largely resulting in a bag of groceries that cost GHS1,000 in 2022 now costing GHS3,000 in 2023.
As central banks in developed countries began their latest tightening cycle to rain in galloping inflation, Ernest Addison, governor of Ghana’s central bank, has been forced to raise interest rates by 1,250 basis points since March 2022 to 40%.
The Finance Ministry cut its economic growth forecast to 1.8% of GDP for 2023 — down from 8% in 2019 before the onset of the pandemic. The government expects growth to rebound to 2.8% in 2024, 4.7% in 2025 and 4.9% in 2026, all of which pale in comparison with pre-COVID-19 growth rates as a direct result of IMF-imposed fiscal tightening.
Although the IMF’s US$3 billion bailout package has helped restore the sovereign finances, Ghana faces a long and painful road to macroeconomic stability, and the inevitable cuts to public finances may well jeopardize many of the hard-won gains made in health and education and poverty reduction over the past 70 years.
The issue faced by Ghana is not why it lost control over its finances in 2022 but why it keeps doing so; this is the 17th IMF bailout package since independence in 1957. Ghana’s politicians appear to have lost sight of the unpalatable fact that Ghana remains over-dependent on primary exports (i.e., cocoa, gold and hydrocarbons) — revenues that are cyclical — while the country’s industrial base, which accounts for a mere 10% of GDP, remains insufficient to compensate for the peaks and troughs of the commodities cycle.
As Ghana lacks the domestic savings needed to invest in infrastructure, education, technology and renewables, it turns to the international capital markets to provide alternative sources of funding. Such a strategy, while compelling at the peak of the cycle, becomes calamitous at the trough — and the pattern keeps on repeating.
Return to contents Next Chapter
