Coping With A Tricky Economic Situation, The Ghanaian Way

A GNA Feature by Boakye-Dankwa Boadi

Accra, June 24, GNA - The news is not pleasant to the ears but that is the reality and the earlier Ghanaians braced themselves up for the situation the better it would be for all.

The latest report by the World Bank states among other things: "Sub-Saharan Africa has been hit hard by reduced external demand, plunging export prices, weaker remittances and tourism revenues, and sharply lower capital inflows, notably FDI. Growth is expected to decelerate sharply this year to 1 per cent, down from 5.7 per cent on average over the past three years. By 2010, growth is forecast to rise by 3.7 per cent. Sharp cuts in remittances and official aid flows also represent a risk for the Region, because many Sub-Saharan countries rely on aid flows for budget support and because remittances are a vital cushion against poverty.

Another World Bank report states that the new National Democratic Congress Government "inherited a difficult macro-economic situation, the result of a series of shocks in 2008 which exacerbated a structural trend of widening fiscal imbalances. Rapid fiscal expansion in 2008 coincided with a sudden closure of access to international capital markets in September, and as a result,

the Ghanaian economy was hard hit by the combination of a widening current account deficit and a contracting capital account surplus. "While fiscal expansion was prolonging trends observed since 2005, it was

also the result of a combination of important exogenous shocks, including floods

and droughts in late 2007 and a rise in world food prices, prompting Government

to introduce food tax exemptions, and in oil prices which led the Government to

purchase oil on behalf of utilities, in the absence of effective tariff adjustment

mechanisms. "The electoral cycle which culminated in the successful Presidential and

Legislative elections of December 2008 also contributed to the fiscal expansion,

as observed during previous elections." The report said: "The newly elected President, in his address to the Nation

committed to take bold austerity measures in 2009 and 2010 to bring Ghana's

fiscal stance onto a sound and sustainable track and protect the development

objectives set forth in Ghana's Second Growth and Poverty-Reduction Strategy.

The budget law, which was passed in March 2009, foresees a reduction of the

fiscal deficit from 14.5 per cent of GDP in 2008 to 9.4 per cent in 2009, as the

first step in a medium-term fiscal consolidation strategy aimed at stabilizing the

debt to GDP ratio in 2010 to put it on a downward path from 2011 onwards. To

do this, the Government is targeting a deficit of 6.0 per cent in 2010 and 4.5 per

cent in 2011. "The Government strategy comprises immediate actions in 2009 to restore

control over expenditures and pave the way for structural reforms in the public

sector and energy in 2010. But this will not be sufficient. Without important

external support, the financing of the deficit internally will crowd out private

investors, generate further currency depreciation and inflation and lead to an

unsustainable accumulation of high interest debt. Slower growth, rapid inflation

and reduced ability to finance social programmes now threaten to reverse the

very significant developmental gains recorded in the last decade, and to weaken

Ghana's ability to generate broad-based benefits from significant oil revenues in

the near term. Faced with this bleak reality the Government has adopted the attitude many a

Ghanaian adopted during childhood. This Writer remembers that his mother like

other mothers in the neighbourhood usually bought rice for their children anytime

they were returning from the Kumasi Central market. Because every child was

sure that the mother would bring him or her some rice they were ready to share

their rice with their friends anticipating that when the mother of their friends

returned they would also share their rice with them. The practice became so established that if any child refused to share with a

friend the one thus denied could say with some level of certainty "if my mother

brings my rice I will also not give you some of it". So like the Ghanaian child according to the World Bank: "The new

Government has asked the Bank and the IMF to support an adjustment and

reform package, backed by adequate financing from the international financial

institutions to stabilize the financial and foreign exchange markets and serve as a

partial bridge to the onset of oil production. "Parallel to IMF support under the Poverty Reduction and Growth Facility

(PRGF) to stabilize the balance of payment (which is in preparation), the

proposed two-tranche front-loaded IDA-financed development policy operation

in 2009 would support Government's actions to bring the budget under control,

start addressing the structural causes of fiscal imbalances through public sector

and energy reforms, and protect the poor. "The proposed operation aims to support the authorities' efforts, in the

midst of the current global crisis, to bring their fiscal stance on a sound and

sustainable track and to protect the development objectives set forth in Ghana's

Second Growth and Poverty-Reduction Strategy (GPRS II) for the period

2006-2009. From all indications the Bank and IMF are likely to grant the request. One only

hopes that when the money comes it would be used for the purpose for which it

was negotiated and not diverted to solve other pressing problems.