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Business News of Tuesday, 22 April 2003

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Hard times ahead for Private Sector

Despite government reassurance of creating environment for private sector growth, it has been hinted that the private sector might be in for a major challenge of coping with the economic environment created by government?s fiscal policy this year, as interest rates are bound to go up.

Sam Ashitey Adjei, Business Development Director of Ecobank Ghana, speaking at a business seminar organized by the Ghana National chamber of Commerce and Industry (GNCCI) in Accra, noted that recently implemented policies of government are inflaming inflationary pressures, ?a useful indicator of private sector performance due to its ripple of interest and exchange rates.?

He noted that interest rates have been inched upwards and are expected to rise even further, especially with the increase in the central bank prime rate from 25.5% to 27.5% last month. ?This move is bound to increase the cost of borrowing by the private sector which could be a disincentive to business growth,? he stated.

Emphasizing at his point, he said net domestic financing ? which have implications on interest rates ? which the government pronounced a near zero per cent cut might not be realized judging from recent history of government?s reliance on domestic borrowings. In 2002, the level of net domestic financing projected by government was ? 139 billion or 0.3% of GDP.

However, the actual was ?2,331.7 billion or 4.9% of GDP. Government resorted to borrowing massively domestically due to shortfalls of donor inflows. This trend could be repeated in 2003. ?Although the government has introduced new measures to enhance domestic resource mobilization, the extent to which these measures will impact on the budget is yet to be determined.?

Dr. Sam Mensah, an economist and CEO of SEM financial Group Limited, reiterated the challenges the private sector is poised to face in 2003. According to Mensah, contrary to government?s projection of an inflation rate dropping to around 9.0 percent in the fiscal year ahead, Economist Intelligence Units have projected inflation to stand at 29% and budget deficits to hover around 5.7%, against 3.6% of government?s projection.

However, he noted that government?s projection of real GDP growth of 4.7% is achievable, a marginal rise from 4.5% in 2002. He told business representatives gathered at the seminar that these pressures would impact negatively on the private sector, unless the private sector positions itself strategically to absorb the hitches. He called on business to position their interval structures in such a way as to maximize the little opportunities the economy might create in the months ahead.

He said government seemed to have realized this development and the 25% of the National Reconstruction Levy for private equity funding for SMEs as indicated in the 2003 budget is timely. He noted that though most venture capital funds go mainly to expanding companies, efforts should be made by government to fund initially vibrant firms which are now distressed.

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