Ghana's limited fiscal space will weigh on public spending and the value of the cedi

MNCs should prepare for tax hikes and review their market assumptions

MNCs exposed to government demand should prepare for tough negotiations with public sector clients. More broadly, companies should remain alert to tax hikes and increased efforts to ensure tax compliance, and assess their impact on margins and customer demand. Cedi volatility will result in pricing difficulties, directly (by weakening the value of offerings in hard currency) and indirectly (by sustaining inflation pressures). Firms should develop cedi scenarios, consider using currency hedges to limit FX risks, and monitor discussions between the government, its creditors, and the IMF to track sentiment that could affect the cedi’s value. MNCs can also assess the financial resilience of their local partners and consider extending payment terms for those facing elevated FX volatility. Firms should also review their product portfolios and pricing strategies, either to help protect margins or to sustain customer demand in the face of volatile and rising costs.


  • On December 12, 2022, the government agreed to a preliminary deal with the IMF over a US$ 3 billion bailout that it had requested in July amid a fiscal crisis. Less than two weeks later, it announced that it will default on its eurobond repayments.
  • The 2023 budget introduced a VAT hike from 12.5% to 15.0% and increased the top rate of personal income tax from 30.0% to 35.0%. Meanwhile, in a massive tax clampdown, in January 2023, Africa’s largest telecom company, MTN, said it received a US$ 773 million bill from the Ghanaian authorities for back taxes.
  • Having depreciated about 60% to GHS 13.11 per US dollar at the interbank rate in 2022, Ghana’s cedi rebounded to GHS 8.00 per dollar following the IMF deal. Since the default announcement, the cedi has again weakened, beyond 10.30 per dollar. The cedi’s weakness drove inflation above 50% YOY in November.

Our View

The preliminary agreement for an IMF bailout means that the worst ramifications of a debt default will be avoided. The timeline for a full agreement is unclear; however, ongoing discussions between the government, its lenders, and the IMF are likely to continue at least through H1 2023, before a final deal is approved. Meanwhile, government demand will stagnate in 2023 but is not expected to face a sudden collapse. Public spending on health and education will be more resilient than in other areas, such as transport infrastructure, in line with the IMF’s approach to protect social spending. Still, the country’s weak fiscal position—and its need to find a sustainable financial path to win the final approval for the IMF deal—puts pressure on the government to increase its revenues, which means there will likely be more tax hikes and increased drives to enforce tax compliance during 2023. Multinationals, particularly those selling goods that are prone to sin taxes (such as those on alcohol and tobacco), as well as large, high-profile companies, are probable targets. Moreover, the rise in VAT and top rate of income tax will soften headline growth and the demand environment. Until a final deal is made, the cedi will face excess volatility, with the currency reacting to the negotiations. The cedi will likely trade between GHS 9.50 and 13.50 per USD through H1 2023.

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