Ghana’s macroeconomic position is good – Dr Osei-Assibey

Senior Lecturer at the University of Ghana, Dr Eric Osei-Assibey has emphasised that government is on the right track to ensure fiscal consolidation and stabilise Ghana’s ailing economy.

He said even though government has reduced its expenditure, which affects economic growth, it is a bitter pill the nation has to swallow in the short-term to ensure macroeconomic stability in the long-term.

“It is important to achieve macroeconomic stability. Achieving macroeconomic stability could be done at the expense of growth. In the short-term, it may not be good but in the long-term, it will inure to the benefit of country,” he noted.

“Once you achieve that stability, you are able to attract much more investments and your growth will begin to accelerate to create more jobs. I think the position now is good – making sure that you don’t worsen the already weaker macro economic fundamental. So even if you are going to achieve it at the expense of growth, it is better in the short-term,” he added.

Dr Osei-Assibey was speaking at the Institute of Economic Affairs’ (IEA) Mid-Year Review of the 2017 Budget in Accra.

He said it was prudent on the side of the government to have cut expenditure within the first six months when it assumed office because revenue was well below total expenditure.

“It was prudent rather than keep spending otherwise it would have widened the fiscal gap and government would be forced to borrow more,” he explained.
On debt, the Senior Lecturer said government had no other way out than to increase the debt stock by GH?15 billion from January to May 2017.

He indicated that so long as government has decided, in the budget, that it is going to have a budget deficit of 6.5%, which means that revenue will fall short of expenditure by that margin, then that gap has to be financed.

“The issue is, what is the rate of accumulation compared to the previous years? Because that will tell you whether the debt is increasing at a decreasing rate or increasing at an increasing rate,” Dr Osei-Assibey stated.

Indeed, the Akufo-Addo-led government has reduced interest rates to reduce government’s appetite for borrowing.

Interest rates have dropped by some 400 basis points in the first half of 2017, testament to government’s quest to cut borrowing from the money market.

According to Bank of Ghana’s Summary of Microeconomic and Financial Data for July 2017, the monthly average interest rate for the 91-Day Treasury Bill dropped from 16.16% in January 2017 to 12.08% in June 2017 while that for the 1-Year Note fell from 19.50% in January to 15.25% in June.

Free SHS funding

He urged the government to revise its funding sources for the free Senior High School (SHS) by mobilising domestic revenue, including increasing the Value Added Tax Rate by one per cent, to ensure its sustainability.

The institute proposed that the one per cent VAT should be ring-fenced for the exclusive funding of the SHS Policy, explaining that domestic tax revenue provided a more stable and predictable source of financing expenditure for free education.

He called for a national forum on how to ensure sustainable financing for the free SHS programme.

Dr Osei-Assibey noted that while the funding arrangement could introduce another level of rigidity in the budgeting system, the ABFA source of funding, which contributed the major part of the total amount was not stable but highly volatile.

This, he explained, was due to dynamics in the oil and gas industry, which specifically related to fluctuating oil prices, posing risk to sustainable funding for the programme.

“IEA believes that successful implementation of the policy will not only ensure equity in the educational system but also have positive multiplier effect in all sectors of the economy through a skilled and competent work-force,” he added.