'1992 excesses will not be repeated' - IEA

Accra (Greater Accra), 24th July 99-

The Institute of Economic Affairs (IEA) on Friday predicted that the economic excesses recorded in the 1992 general elections are unlikely to be repeated next year but feared the impact the absence of a defined campaign financing law could have on the economy as there is no clear distinction between state funds and party coffers.

"Therefore, it is likely that the broad deficit will fall within the range of 5.5 per cent and 6 per cent as compared to the projected 5.2 per cent".

Charting the Prospects and Projections for the Future in its Annual Economic Review and Outlook for 1998, the Institute, a non-profit donor-sponsored public policy research body, said this will be possible to the extent that dramatic decline in the rate of expenditure growth in 1998 can be credited to fiscal and monetary restraints.

It said the ability of the Bank of Ghana to check government borrowing and the re-introduction of the Value Added Tax (VAT) regime can offset mechanisms against anticipated increases in expenditure.

The Institute's Review said the boundaries of fiscal discipline will be "sorely tested in 2000 and, to some extent, in 1999".

It noted that domestic expenditures could be expected to accelerate as domestic interest payments grow in response to the increase in domestic debt and relatively high interest rates.

The Review, however, said there is real danger that fiscal and monetary controls enjoyed last year will be threatened this year, viewed against the huge wage demands that hit the country in 1992.

On inflation, the IEA said the rate of domestic inflation could be influenced by both domestic and external factors.

"At the external level, exogenous shocks such as sustained increases in oil prices and other imports will, all things being equal, in variably increase the inflation rate.

"The behaviour of the nominal exchange rate will also influence the rate of inflation".

The Review said rapid depreciation of the Cedi in relation to foreign currencies would increase the domestic currency price of imports and thus fuel inflationary impulses while a stronger Cedi would have a reverse effect.

On the domestic level, trends in the growth of money supply and performance of food crops constitute the main inflationary impulses, citing the printing of Cedis and the inability of the Central Bank to sterilise capital inflows to finance cocoa purchases in the past as one of the major factors.

The IEA said gloomy commodity price trends for cocoa and gold in particular suggest that the trade deficit will deteriorate in the upcoming year unless lower prices for traditional commodity exports are offset.

"The deterioration will, however, be moderated due to forward sales of gold and cocoa on the world market".

But current events have made other analysts more sceptical, saying lower prices will linger on for a much more protracted period.

The Services sector is expected to continue its dominance in the growth process while the agricultural sector, the most dominant, is not expected to repeat its 5.3 per cent growth rate of 1998.

This, among others, will compromise overall GDP growth rate that is not expected to exceed five per cent.

GRi?/