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Ghana is Learning the Hard Way Why Oil can be a Blessing and a Curse 

The onset of commercial crude production helped turn the West African nation into one of the continent’s hottest investment destinations, but also prompted successive governments to borrow to the hilt. Skittish investors have offloaded Ghana’s bonds and currency, the cedi, amid mounting concern over its ability to settle its debts. The tumbling exchange rate has led to a surge in prices of basic necessities, from milk to bus fares, and prompted the central bank to sharply increase interest rates. The government abandoned fiscal discipline and opened the spending taps in anticipation of an oil windfall. But the revenue it earned was insufficient to cover a succession of expensive flagship programs and the budget deficit soared as borrowing rose to plug funding gaps. Overspending was particularly rife in election years. President Nana Akufo-Addo’s administration scrapped fees for all senior high school students and pays for their upkeep and accommodation. In 2021, the government spent $1 billion on refinancing loans taken out by indebted private power producers, a move that was intended to reduce its electricity bills. A plan to strengthen a banking industry that’s been weakened by bad loans has cost taxpayers more than $2.5 billion. Covid-19 dealt a further blow to the state’s already stretched finances. After selling Eurobonds for each of the previous nine years, it was shut out of international capital markets in 2022 as investors lost confidence in Ghana’s ability to service its debts. The government shunned an initiative that would have enabled it to suspend the servicing of its loans and vowed not to tap further support from the IMF, before changing its tune in July 2022. With the economy on its knees, Akufo-Addo’s administration has appealed to the International Monetary Fund for an assistance package of as much as $3 billion.