Analyzing Q1 2025 Economic and Exchange Rate Prospects for Ghana

Introduction

Ghana stands at a critical crossroad as the newly elected President, His Excellency John Dramani Mahama, takes the reins of leadership. With the first quarter of 2025 in focus, the forthcoming national budget will be a litmus test of the new administration’s ability to address the myriad of challenges confronting the economy. From high inflation and a volatile exchange rate to a debt-to-GDP ratio exceeding sustainable thresholds, Ghanaians expect bold, actionable strategies that will provide immediate relief while laying the groundwork for long-term recovery for prosperity.

This article delves into the projections for Q1 of Ghana economy 2025, considering the legacy challenges from the previous administration and the policies outlined in the NDC’s manifesto.

Ghana’s Current Economic State (End Of 2024)

As of December 2024, Ghana’s economy was grappling with several critical issues:

• Inflation: Hovering about 23% at the end of November 2024, inflation had significantly eroded household incomes and consumer purchasing power.
• Exchange Rate Volatility: The Ghanaian cedi depreciated sharply, trading at 14.70 to the US dollar, causing import costs to soar, and fuel prices increased at the pump.
• Debt-to-GDP Ratio: IMF projected Ghana’s Debt-to-GDP Ratio of 83%, the debt burden limited the government’s ability to invest in growth-stimulating sectors.
• Stagnating GDP Growth: Estimated at 6.2% for the first Q3 of 2024, growth lagged due to fiscal constraints, high input costs, and low investor confidence.

These issues were exacerbated by poor governance, resource mismanagement, and the controversial debt restructuring program that left bondholders and pensioners with significant losses, further undermining public confidence in the previous administration.

Comparative Analysis: Change of Government and Economic Impact (2001 – 2024)

Historically, transitions between governments in Ghana have profoundly influenced key economic indicators such as inflation, exchange rates, and debt-to-GDP ratios, as well as the performance of critical sectors. By examining the outcomes of these transitions during Q1 of each new administration, we can uncover patterns that inform projections for 2025.

1. Economic Data Performance During Q1 Transitions

2001: Transition from Rawlings (NDC) to Kufuor (NPP)

• Inflation: Q1 2001 began with inflation near 40%. The Kufuor administration, emphasizing fiscal discipline, reduced inflation to 21.3% by the end of the year. Q1 inflation remained high due to lagging effects of the previous administration’s monetary policies.
• Exchange Rate: The cedi depreciated from GHS 0.70 to GHS 0.78 against the US dollar in Q1, reflecting initial market uncertainty and a trade imbalance inherited from the Rawlings administration.
• Debt-to-GDP Ratio: The debt-to-GDP ratio exceeded 120% at the start of 2001. Initiating the Highly Indebted Poor Countries (HIPC) program helped improve debt sustainability over the following quarters.

New government policies tend to have delayed effects. Q1 performance largely reflects inherited economic conditions, with gradual improvement seen in subsequent quarters.

2009: Transition from Kufuor (NPP) to Mills (NDC)

• Inflation: Q1 2009 saw inflation decline slightly to 20.5%, from an annual high of 18.1% in 2008. Mills’ focus on price stability led to reductions, but persistent fiscal imbalances slowed the decline.
• Exchange Rate: The cedi depreciated from GHS 1.280 to GHS 1.414 to USD in Q1 due to declining export revenues.
• Debt-to-GDP Ratio: Debt rose marginally during Q1 to 36%, reflecting the combined effects of global economic crises and an expansionary budget aimed at social programs.

When governments prioritize social interventions over fiscal consolidation, economic metrics like inflation and exchange rates remain under pressure in the short term.

2017: Transition from Mahama (NDC) to Akufo-Addo (NPP)

• Inflation: Inflation in Q1 2017 was 12.8%, reduced from Mahama’s tenure. Policies introduced to control public spending and boost investor confidence helped stabilize inflation.
• Exchange Rate: The cedi depreciated marginally from GHS 4.20 to GHS 4.35 against USD during Q1, reflecting market optimism tempered by external shocks.
• Debt-to-GDP Ratio: Q1 2017 began with a debt-to-GDP ratio of 49.55%, driven by ambitious capital projects during the Mahama administration. Akufo-Addo’s government initiated fiscal reforms to manage this.

Focused reforms, even when ambitious, typically require time to impact key economic indicators meaningfully, with Q1 serving as a foundational period.

2. Projections for Q1 2025 Under the Mahama Administration

Drawing from these historical trends, we can anticipate the following:

Inflation

• Expected Outcome: Inflation is likely to decline modestly to 18–25% in Q1 2025 as the government focuses on fiscal consolidation and stabilizing food prices. Lessons from 2001 and 2017 suggest that while initial efforts may reduce inflationary pressures, full stabilization will require sustained interventions in subsequent quarters.
• Key Drivers: Agricultural revitalization through subsidies and mechanization will ease food inflation, while tight monetary policies will manage liquidity.

Exchange Rate

• Expected Outcome: The cedi is projected to stabilize at 12–13 GHS per USD by the end of Q1, provided export-oriented sectors like agriculture and manufacturing receive timely support.
• Key Drivers: Reduced import dependency, particularly in food and energy, and increased export earnings from agriculture.

Debt-to-GDP Ratio

• Expected Outcome: Debt-to-GDP may show a slight improvement, potentially reducing to 76–85% by Q1 2025 as the government negotiates better terms with creditors and prioritizes revenue-generating projects.
• Key Drivers: Reallocation of resources toward productive sectors, coupled with transparent management of public finances.

Sectoral Performance in Q1 2025

1. Economic Sector

• Agriculture: Increased access to credit, fertilizer subsidies, and irrigation projects will stimulate growth, addressing food security concerns.
• Manufacturing: The Women’s Development Bank and support for SMEs are expected to drive modest gains in industrial output. Tax rebates and simplified tax frameworks for compliance will support growth.

2. Social Sector

• Education: Completion of abandoned E-Block schools will enhance access to quality education, particularly in underserved areas.
• Healthcare: Expedited construction of healthcare facilities will begin to address access inequalities. The Free Senior High School should avoid Boarding fees and focus on day to reduce burden on the state.

3. Political and Governance

• Stronger anti-corruption measures and transparency initiatives are expected to rebuild public trust and investor confidence. Transparent Asset Declaration and accountable governance will canvass support from the public.

4. Environmental Sector

• Early Q1 investments in renewable energy and waste management will create green jobs and position Ghana as a leader in sustainable development in the region. The fight on illegal mining (Galamsey) should be treated as a livelihood issue over the excessive militarization of fight the canker. 

Historical patterns indicate that the first quarter of a new administration is critical for setting the tone of governance but reflects largely on inherited economic conditions. Mahama’s administration is likely to prioritize stabilization over rapid growth, leveraging lessons from past transitions to foster modest improvements in inflation, exchange rates, and debt sustainability.

By focusing on pragmatic interventions in agriculture, manufacturing, and social infrastructure, Q1 2025 will serve as a springboard for broader economic recovery in subsequent quarters.

ANALYSIS AND CATEGORIZATION OF MAHAMA’S PROMISES BASED ON FEASIBILITY AND TIMELINE

The promises outlined in Mahama’s manifesto, while ambitious and transformative, require a realistic assessment of their likelihood of completion within Q1, the first year of governance, or later due to the current economic challenges in Ghana. Below is a detailed analysis and categorization of the promises:

Promises Likely to Be Completed in Q1 (First 120 Days)

These are promises that rely on administrative efficiency, political will, and minimal financial resources. They are achievable within the first three months of governance:

Governance and Administrative Reforms

• Nomination of Cabinet Ministers Within 14 Days: This is a straightforward administrative task and can be accomplished quickly if there is no significant political resistance.
• Constituting a Lean and Efficient Government Structure: A government restructuring to reduce redundancies is achievable within the promised 90-day timeline.
• Establishing a Code of Conduct for Government Officials: Crafting and implementing a code of ethics is a priority task that requires commitment rather than financial input.
• Holding a National Economic Dialogue: This can be convened within the first few months, as it involves engaging stakeholders and developing consensus.
• Abolishment of Teacher Licensure Exams: This requires a policy directive and does not necessitate large financial outlays, making it feasible in Q1.

Tax Reforms and Economic Policies

• Removal of E-Levy, COVID Levy, and Emissions Levy: These tax removals are achievable within Q1, as they involve legislative amendments or executive orders. However, compensatory revenue streams may be required to balance the budget.
• Review of Taxes and Levies on Vehicles and Equipment for Industrial and Agricultural Purposes: This review process can start immediately with policy amendments implemented in Q1. It may involve parliamentary approvals but that can be easily and timely.

Promises Likely to Be Completed Within the First Year of Governance

These promises are more extensive, requiring policy development, legislative backing, or infrastructural adjustments. Their implementation may stretch across the first year due to the scale of the projects:

Educational Reforms

• Extension of Free SHS to Private SHS and Elimination of the Double-Track System: While feasible, this will require negotiations with private schools and the provision of infrastructure, which could take a full year.
• Training 1 Million Youth in Digital Skills: Developing and rolling out large-scale digital training programs will need time for curriculum development, partnerships with tech organizations, and resource allocation.
• No Academic Fees for First-Year Public Tertiary Students: This promise can be implemented within the first year if financial allocations and disbursements are prioritized early.
• Free Technical and Vocational Training for Youth: Rolling out free TVET training involves setting up or improving infrastructure, recruiting trainers, and mobilizing resources, making it more achievable over the year.

Economic Policies

• Establishing the Accelerated Export Development Council (AEDC): The council’s formation and operationalization will require consultations, legal frameworks, and stakeholder engagement, likely extending beyond Q1.
• Implementation of the 24-Hour Economy Policy: This policy will involve regulatory changes, investments in infrastructure, and labor consultations, making it a longer-term project within the first year.

 Promises Likely to Face Delays Beyond the First Year

These promises are ambitious but could face significant challenges due to Ghana’s current economic state, including high debt-to-GDP ratios, inflationary pressures, and fiscal constraints:

Educational Infrastructure and Funding

• Dedicated Oil Revenue for Secondary Education and Infrastructure: While the idea is sound, it depends on the availability of oil revenue and how quickly funds can be reallocated from other commitments, which may not be immediate.
• Ending the Double-Track System: While tied to Free SHS reforms, this involves addressing severe infrastructural deficits in public schools. It is unlikely to be achieved immediately given current budgetary constraints.

Broad-Based Economic and Industrial Reforms

• Review of Taxes and Levies to Support Industry and Agriculture: While initial reviews can be completed quickly, comprehensive tax policy reform and implementation will require significant time and resources.
• Large-Scale Job Creation Through Industrial and Agricultural Initiatives: These initiatives, though critical, require substantial investments and infrastructure development, making immediate results unlikely.
• Drafting and Implementing Legal Amendments for Policy Changes: While the drafting phase can start early, the legislative process and execution might delay actual implementation.

A Promising Yet Challenging Agenda

Mahama’s proposed policies are ambitious and, if implemented successfully, could herald a period of significant economic and social progress. However, execution challenges such as resource mobilization, stakeholder cooperation, and external economic shocks (e.g., global inflation, commodity price volatility) could affect outcomes. The 2025 Q1 outlook will depend largely on the efficiency of governance and the swift implementation of these reforms.

Projections For Q1 2025

• Inflation: Anticipated reduction to 18–25%, contingent on fiscal discipline and agricultural productivity gains.
• Exchange Rate: Stabilization around 12–13 Cedis per USD, driven by export growth and reduced import dependency.
• GDP Growth: Recovery to 4–5%, supported by manufacturing and agriculture.
• Debt-to-GDP Ratio: A modest decline as restructured debt obligations take effect.

Conclusion

The first quarter of 2025 will be a defining period for Ghana under President Mahama’s leadership. The national budget must address inflation, debt, and exchange rate volatility while laying the foundation for sustained growth. By prioritizing transparency, inclusivity, and pragmatic policy implementation, the administration can begin to rebuild trust and position Ghana for a brighter future.

It is crucial to note that while these policies aim to address systemic issues, the Ghanaian economy is unlikely to experience a robust and rapid economic transformation in the near term. Instead, the nation is expected to witness stagnation and moderate growth, as the structural challenges facing the economy will take time to resolve. Careful planning, efficient resource allocation, and collaboration across all sectors will be vital to ensuring these promises translate into measurable progress for the country.

The article was written by Solomon Adu Sarpong, Institute for Liberty and Policy Innovation (ILAPI), Tema, Ghana.

Photo source: Ghana Remembers https://ghanaremembers.com/stories/people/