The policy trip to Accra was the culmination of the fall semester Africa Lab reading group organized jointly by the Africa Policy Network and the Julis-Rabinowitz Center for Public Policy & Finance (JRCPPF). As part of the Africa Lab, students met six times over the course of the semester to analyze the causes and impacts of the African sovereign debt crisis, with guest presentations by Professor Layna Mosley, Professor Christopher Bradlow, and Dr. Katerina Gratcheva. 

During the intense eight days in Accra from January 13-20, 2024, the students (all candidates for the 2-year Master’s in Public Affairs degree) spoke with over 25 national and multi-lateral stakeholders about fiscal and monetary policy, debt distress, and climate financing. The students met with staff at the Bank of Ghana and the Ministry of Finance, as well as civil society and private sector leaders from Wangara Green Ventures, the African Center for Economic Transformation, Caritas Africa, and EcoBank Ghana. They also met with representatives of key international organizations interviewed, including the World Bank Group, the African Development Bank, the United Nations Development Program (UNDP), the International Finance Corporation, and the United States Agency for International Development (USAID). 

Below, four students who participated in the trip and the Africa Lab discussion group share their reflections and offer insights on Ghana’s development challenges, the country's monetary and fiscal policies, and the path forward for debt sustainability. 

Development 

by Mehdi Isse 

Imagine navigating a labyrinth where every twist and turn leads to a new dimension of challenge in governance and development. This is precisely what Ghana persevered in the face of obstacles, including the debt crisis, the COVID-19 pandemic, and spill-over effects of the Russian-Ukraine War in supply chain disruptions that increased food and energy prices. It was a truly enlightening experience to witness firsthand the diligent and intellectual efforts of policymakers and professionals working on international development projects to overcome these challenges. A week of educational policy trip allowed us to interact with experts from various institutions, enriching our understanding of public and international affairs. While all institutions were remarkable in their hospitality and productive discussions, I was particularly captivated by the development initiatives undertaken by USAID and UNDP. Additionally, I must mention the impressive monetary policies the Bank of Ghana implemented. These policies effectively address the country’s monetary challenges despite the debt crisis and limited access to international capital markets, which are essential for maintaining financial stability in developing nations. 

Despite stringent government regulations, the UNDP and USAID have successfully implemented development initiatives. They can overcome these obstacles and access development sectors by fostering government cooperation or coordination. This is a common challenge faced by development agencies in every sovereign nation. USAID experts emphasized the immediate necessity of the International Monetary Fund’s (IMF) response to alleviate Ghana’s debt crisis. This endeavor would require enhanced public financial management, enhanced economic governance, and increased involvement of civil society in the policy development process. UNDP has provided us with its strategic plan for 2022-2025, which can be tailored to Ghana’s specific needs. They focus on six key pillars of strategy: poverty, governance, resilience, employment, energy, and gender equality. 

While the World Bank prioritizes investment to promote economic growth in the hope that growth will trickle down to foster human development, the UNDP focuses directly on human development programs rather than relying on the potential trickle-down effect. A joint UNDP-World Bank program on local governance to improve local government structure, foster better citizen-state relations, and promote women's empowerment in local government could leverage both organizations' combined expertise and resources to enhance local resilience in the face of climate challenges and global financial insecurity. 

Another noteworthy observation during this trip was that unlike in several African countries I have visited, where corruption is openly discussed, even in political campaigns and on television, Ghana stands out as a unique case where such discussions are noticeably absent in public forums. This absence could indicate a lower prevalence of corruption or a societal preference for upholding a positive national image through restrained public discourse. The lack of public discussion on corruption also reflects strategic or cultural considerations to prioritize national unity while navigating the path toward development and stability.

Monetary Policy 

by Jing Xie

On 14th January 2022, Fitch Ratings, one of the world's “Big Three Credit Rating agencies,” downgraded Ghana's sovereign debt to B- with a negative outlook due to concerns regarding the surge in government debt and high-interest expenditure relative to revenue ratio. A month later, another rating agency, Moody's, joined the action and downgraded Ghana from B3 to Caa1 with a stable outlook, citing challenges related to liquidity, high risk of debt default, and weak revenue generation. The credit rating downgrades introduced tremendous challenges to Ghana's access to international financial markets, worsening the economic crisis due to accumulated government debt, COVID-19, and the Russia-Ukraine war. 

When we met with the Bank of Ghana (BoG), they had just celebrated the success in controlling the inflation rate to 26.4% in December 2023 from more than 54% at the same time the previous year. Although the inflation rate is still far from the target range of 8% plus or minus 2%, the news is already a triumph for the Bank given the elongated period of stubbornly high inflation. The BoG mentioned that success combines increasing monetary policy rates, decreasing fiscal deficits, and increasing reserve requirements, along with discussion about the IMF's $3 billion bailout program. 

Envisioning continued monetary policy strategies to control the inflation rate further, BoG acknowledged several challenges ahead:

1. Due to the downgrade in sovereign debt credit, Ghana still needs more access to international financial markets.
2. Food price inflation remains high, as most essential food supplies are import-oriented. Recent cedi depreciation has primarily reduced the Ghanaian purchasing power of imported products.
3. BoG emphasized the importance of establishing appropriate communication channels with the public, the Ministry of Finance, other government agencies, and the IMF.

As BoG colleagues repeatedly mentioned, "Ghana has now turned around the corner from the crisis." Nevertheless, there remains a significant journey ahead for further progress.

Fiscal Policy 

by Tom Carter

Before coming to Princeton, I worked for the UK’s Finance Ministry, and so it was fascinating to spend a week in Ghana learning about the fiscal policy of a country with such a different economic context. I came away with an increased appreciation of how difficult the job is for civil service counterparts in Ghana, who have to deal with a whole set of economic issues that are firmly second-order in the UK context but absolutely fundamental to the solvency of the Ghanaian government. 

Informality in the private sector is a prime example: 62% of all commercial enterprises in Ghana, employing 65.3% of the active workforce, are in the informal sector. This level of informality makes it extremely difficult for the government to collect taxes and is a key driver of Ghana’s low tax revenue-to-GDP ratio (15.8% in 2022). While the government could raise taxes that are only paid for by the formal sector, the risk is that doing so might erode the tax base as more companies move to the informal sector to evade the tax. 

In recent years, one of Ghana’s main attempts to increase taxation and reduce the primary deficit was through the introduction in 2022 of an e-levy on mobile money transactions. This tax falls victim to the risk. It discourages people from using e-commerce platforms, and encourages them instead to revert to cash transactions. The e-levy increases the cost of transacting digitally, which will likely impede Ghana’s ability to grow its e-commerce sector (crucial to future growth) and to formalize the economy more generally, given the role that digitalization can play in formalization. One stakeholder we spoke to argued that the Ghanaian government should adopt the opposite approach: it should encourage businesses to formalize by offering them tax credits, which they could only receive once they had formalized. However, given the government's lack of fiscal space, this policy would increase the primary deficit in the short run and may be difficult to adopt.

This is just one of many examples of the increased headwinds that the Ghanaian government faces in tackling its fiscal challenges. In this incredibly difficult context, it is remarkable how much Ghanaian policymakers have already done to tackle the country’s primary deficit.

Debt and Debt Restructuring 

by John Kearns

What does a path back to domestic debt sustainability look like for Ghana? One term that continuously came up in our meetings was domestic resource mobilization. Ghana lags behind peer countries in converting the output of its dynamic, resilient economy into tax revenue. For instance, according to USAID estimates, Ghana only collects 19% of potential consumption tax (VAT) revenue, compared to the regional average of 39%. A continued push to digitalize the Ghanaian economy, with carefully designed policies and incentives, can help the government raise tax revenues without adding to the burden of consumers facing a cost-of-living crisis. 

Improving reliable access to the Internet and point-of-sale technologies, like electronic credit card machines, could make small businesses more efficient and also strengthen the government's ability to track potential revenue sources. Other evidence suggests that moving tax administration activities to digital platforms leads to multiple gains like widening the tax base and time and cost savings for both tax collectors and taxpayers. Potential reforms include streamlining the procurement and implementation process for new government technology, resolving gaps in tax software capacity, and simplifying VAT exemptions.

However, other policies may prove to be counterproductive to creating a more efficient tax system. In 2022, the Ghanaian government introduced an “e-levy” on all mobile money transactions (as noted above). While this may lead to a small revenue bump, such a tax may not be sustainable in the long run as it could dissuade consumers and businesses from using mobile money or dampen flows of remittances from family members abroad. Policies that boost tax revenues should also foster greater economic inclusion and business formation wherever possible. According to the UNDP team in Ghana, moving solo entrepreneurs and small businesses onto e-commerce platforms is an important part of their capacity-building program and critical for firms’ financial resilience. The e-levy is now set to be an important issue in this year’s election, as the incumbent party’s candidate, Mahamudu Bawumia, has announced that if elected, he would remove the tax he helped implement two years ago.