Service internal debt with HIPC savings - IEA

A senior Economist at the Institute of Economic Affairs (IEA)on Monday asked the government to service internal debt with savings from the Heavily Indebted Poor Countries (HIPC) initiative to reduce pressure on its expenditure and facilitate the reduction of the inflation rate.

Speaking at a workshop to discuss the current edition of the Ghana Poverty Reduction Strategy (GPRS), Professor Bart Armah named high inflation, mostly fuelled by high government domestic borrowing, cutting of money and its resultant high interest rate, high cost of credit to private sector, coupled with low productivity, as the causes of macro economic instability and poverty.

"Moves must therefore be initiated quickly to check (the) government's internal borrowing, cut wastage by ensuring that wages in the public sector are productivity-related and to minimize the leakage in government revenue collection by employing an independent body to set realistic other than nominal targets for revenue collection," he said.

The workshop, organised by the IEA in collaboration with the Ministry of Economic Planning and Regional Cooperation, was to discuss and design all-inclusive strategies for the poverty reduction process.

About 40 participants from the civil service, private sector, academia, ministries, parliament, the media and other sectors of the economy discussed various issues including human resource development, governance, production and gainful employment and macro-economic framework.

Prof Armah said the government expenditure was mostly on social investments, such as provision of infrastructure and wages without proper monitoring to ensure effective expenditure control and cost effectiveness of investments.

"Expenditure on campaign financing during elections coupled with the low inflow of capital from the foreign market is another factor that has led to the high internal debt situation," he said.

"The past government also did very little to cushion the economy against external shocks, rather, there was an over-expectation of capital from the external sources."

Prof. Armah said under the given circumstance, it was only prudent for the government to channel the savings from the HIPC initiative into internal debt service, so as to focus the meagre gains from the few productive ventures such as tax collection into transforming the agricultural and agro-based industrial sectors.

He said though the biggest chunk of the country's Gross Domestic Product (GDP) came from the agricultural sector, about 59 per cent of poor people were in that sector.

The sector also harbours 60 per cent of the work force.

This he observed was due to a relatively low government investment into agriculture, adding that between 1995 and 2000 agriculture growth rate was only 4.1 per cent as compared to 5.3 per cent in the service sector and about 7 per cent in the industrial sector.

Prof. Armah said between 2000 and 2004, GDP growth rate is expected to increase from 3.2 per annum to 5.1, adding however that due to HIPC initiative and its conditionalities, the estimation was a mere projection.

"This is why we need a transformation in the agricultural sector to boost agro-based industrial growth as the means to industrialization," he said.

"This would automatically impact positively on the service sector."

Ms Angela Farhat, Head of the Poverty Reduction Unit of the National Development Planning Commission (NDPC) said research conducted by the commission among 32 communities in six regions revealed that poverty rate in rural Ghana ranges between 70 to 88 per cent, and 40 to 60 per cent in the urban areas.