Ghana still has a weak economy

Ghana has been described as being in a "low-level equilibrium trap" that provides insufficient impetus to overcome structural weaknesses in the national economy.

This covers areas such as poor infrastructure, low productivity, high transaction costs and widespread poverty.

Executive Director of the Institute of Statistical Social and Economic Research (ISSER), Professor Ernest Aryeetey, who made these observations, said unless more radical steps were taken to improve the conditions for growth and investment, Ghana's fragile economy would remain "small, open and highly dependent on external inflows, including aid, for the foreseeable future."

He was presenting the 2002 State of the Ghanaian Economy Report in Accra. Giving an overview of the economy last year, Prof Aryeetey said Ghana's performance was mixed with progress in some areas and stagnation in others.

"Inflation and interest rates, the balance of payments and international reserves were among the macroeconomic indicators that improved." He said the 4.5 per cent growth rate of gross domestic product was good when compared with those of several other African countries and only a little lower than the 4.7 per cent average since 1984 describing the current stability as "significant."

The Report published annually since 1991, contains detailed information on performance in major sectors of the Ghanaian economy and explains why there has been progress, setbacks or stagnation.

Prof Aryeetey said the report looking at the medium term states that in view of the structural and institutional bottlenecks, economic actors must collaborate to "promote the establishment of institutions, including effective private markets that would bring transaction costs to a more manageable level and help to put the economy on a dynamic growth path."

He said despite higher than intended government spending, the overall fiscal deficit of 5.3 per cent of GDP was lower than the 6.9 per cent target and much lower than the 7.2 per cent recorded in 2001 because rising expenditure was matched by rising revenue. He noted that inflation at the end of 2002 was 15.2 per cent instead of the target of 13 per cent.

"The primary balance at year-end stood at 2.1 per cent of GDP compared to the 3.1 per cent target with foreign aid inflows falling far short of expectation, as well as divestiture receipts." He said actual growth rates for reserve money and broad money of between 42.6 per cent and 50.0 per cent, far exceeded original targets of between 18.7 per cent and 25 per cent.

Statutory payments, he said, fell short of budgetary targets by 3.17 per cent as a result of the government's inability to transfer resources to statutory funds, adding that at the end of 2002, arrears to the District Assemblies' Common Fund (DACF) were 29.82 per cent of its budgetary allocation, GETFund 50 per cent of its budgetary allocation, Road Fund of 32.15 per cent and Social Security, 13.84 per cent.

While merchandise imports were down 8.9 per cent, merchandise exports were up to 10.5 per cent last year, saying minerals, cocoa and timber remained the dominant exports - despite the continued spate of smuggling of cocoa. He said cocoa purchases were down 12 per cent, after a two per cent fall in 2002 and despite a two-stage boost of nearly 94 per cent in producer price, the play between the world price and the exchange rate left the domestic producer price at 49.4 per cent of the world price at the end of 2002, partly explaining the continued smuggling to neighbouring countries.

Industry grew up by 4.7 per cent much better than the 2.9 per cent in 2001, but still far too low for an "engine of growth."

Dr Baffuor Osei, a Senior Lecturer of the Economics Department at the University of Ghana, Legon said since Ghana had a high consumption rate, it was just right to ensure that taxes were reduced so that there could be growth in the economy. "Government should cut taxes, as is done in developed countries, in order to increase growth." He said it was important for government borrowing to be limited by law and the Central Bank made to play its real role in monetary policy.

Dr Samuel Ashong, Minister of State at the Ministry of Finance and Economic Planning, said since statistics was a major component of managing the economy, the Ghana Statistical Service would soon be equipped to collect correct data and conduct accurate research, "for all bodies, be it private or public".