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Opinions of Saturday, 27 June 2009

Columnist: Appiah-Kubi, Kojo

President Mills Government cannot fail Ghana

It goes without saying in the Akan language that “he who is born on the hilltop does not have difficulty in making it big in life”. The implication is simple: the start chances of such a person are very secured and these chan¬ces provide firm foundations for a successful future. The same can be said of the Presi¬dent Mills government, that it is very fortunate to have very good start chances. Indeed never before in the history of Ghana, since inde¬pendence, has a government had so very good start chances than the Mills government. It is true that the developed economies are currently reeling under worldwide reces¬sion as a result of the reigning financial crisis, which can impact negatively on Ghana. That notwith¬stan¬¬d¬ing the relatively good socio-economic fundamentals that the President Mills government has inherited put it in a very good stead to considerably improve upon the fortunes of the country. This article therefore argues that on account of the relatively good start chances that the Mills government is inheriting from the previous government, it can hardly afford to disappoint Ghanaians during its reign of government. It should be successful. The evidence for this assertion is presented below.

Economic growth Record: The Ghanaian econo¬my began to experience a slowdown in GDP growth right from independence and has remained turbulent during much of the period since then. Indeed most post independence governments, including civil and military regimes, inherited negative or declining economic growth records. The exception is President Mills government. For instance, both the NLC and NRC govern¬ments on assumption of power inherited negative growth records of 5 per cent in 1966 and 3 per cent in 1972 respectively, with the Liman government taking over a negative growth record of about 1.7 per cent in 1979 using 1987 as the base year. Similarly the Rawlings PNDC inherited a nega¬tive growth record of about 3 per cent in 1981, whilst the Rawlings NDC took over power in 1993 with a GDP growth rate that had fallen from a positive rate of 5.2 per cent in 1991 to about 3.5 per cent in 1992. The beginning of Kuffuor’s government in 2001 also coincided with the period when the GDP growth rate had declined suc¬ces¬sively to hit a low of 3.7 per cent in 2000. Contrary to these unfavour¬able past GDP growth records, the Mills government has been fortunate enough to assume power at a time when the GDP growth record has risen successively to hit a peak level of 7.3 per cent in 2008. This unprecedented growth record could only have been possible against the backdrop of a sound economic environment that the Mills government is inheriting. Consequently all that the Mills government needs to do is, at worst, to continue to pursue the growth path of the previous government or, at best, initiate better policies to accelerate the growth rate.

Poverty Levels: The acceleration of economic growth has translated itself into upward trend increases in the per capita GDP growth from less than 2 per cent in 2000 to about 7 per cent in 2008 or from about $220 to $712 over the same period. This has resulted in the movement of a substantial number of Gha¬naians out of poverty. Never before are so fewer Ghanaians living in poverty than today. Official sta¬tistics available from 2006 show that only about 28.5% of Ghanaians lived in poverty, with this propor¬tion having fallen from 52 per cent in 1991/92. Given the rising increases in per capita income in recent years the current proportion of people living in poverty can be said to have reduced further. It is thus no wonder that the country has been able to halve the proportion of Ghanaians whose average income can¬not allow them three square meals or meet the country’s set minimum daily calorie requirements (extreme poverty) from the l990 levels. The relatively low levels of poverty in Ghana afford the Mills government the opportunity to easily identify those really in need of social protection and effectively target the chronically poor.

Macroeconomic stability: Indeed the macroeconomic picture concerning inflation, fiscal and current account balances and exchange rate may not be rosy, but it is the best that a new government has ever inhe¬rited from an outgoing government in the country. At the various epochs of changes in government, the average annual inflation, for instance, was 22.7% in 1966, 10.7% in 1969, 73.2% in 1979, 93.7% in 1981, 12% in 1992, 25.2% in 2000 but 18.1% in 2008, when President Mills was elected into office. Exchange rate depreciations have been sturdy during the last two decades. But the cedi-dollar deprecia¬tion of 2008 for President Mills was the lowest at the time of regime change, compared with 49.8 per cent in 2000 and 33 per cent in 1992. Maintaining relatively large interna¬tio¬nal reserves for an adequate import cover has always been the bane of the economy. In 2000 the country was left with only about two weeks of import cover of international reserves. This had, however, risen about two months in 2008. Apparently this record appears to be the best level ever attained during a regime change under the fourth republic. The last few years also saw successive rapid declines in interest rates, which are impor¬tant determinants of investment and economic growth. The average commercial bank lending interest rates, having peaked at about 47 per cent in 2000 when Kuffuor took over power from Rawlings, has declined successively to about 27 per cent at the end of 2008 when Mills won the general elections. Under the fourth republic overall government budget deficit had remained large and appears to be rising at every change of government. From a deficit of about 6 per cent of GDP in 1992, it rose to 8.5 per cent in 2000 to peak at 11.25 per cent (including divestiture receipts but excluding sovereign bond receipts) in 2008. No doubt the large budget deficit presents a serious challenge that the Mills govern¬ment has to grapple with.

Public Indebtedness: Undoubtedly the country’s indebtedness continues to remain relatively large. But the good news is that the ability of the country to service its indebtedness has never been stronger than today. Whereas the Kuffuor government inherited a total debt of US$7.5 billion in 2000, which repre¬sen¬ted 224 per cent of exports, 709 per cent of budget revenue and 124 per cent of GDP, the Mills go¬vern¬ment is inheriting a total debt of US$8 billion, which but represents only about 65.9 per cent of exports, 83.9 per cent of budget revenue and 45.42 per cent of GDP in 2008. Truly the Mills govern¬ment is in a far better position than its previous counterparts in terms of the maturity of the debts. The ave¬rage term to maturity of the external debt port¬folio is currently about 23 years, indicating that the pre¬sent external debt is largely of a long term profile. In terms of cost profile, interest and other charges falling due within the next 12 months represents about 2.1 per cent of the external debt portfolio. This is in stark contrast with the situation in 2000. In 2000 interest on domestic debt alone, which constituted less than 23% of total public debt, represented 43 per cent of budget revenue. Total debt service (exclu¬ding the cost of rolling over the Treasury Bills) at that time absorbed almost 100 per cent of domestic bud¬get revenue, leaving virtually no room for domestic financing of other social expendi¬ture measures.

The Business Environment: The private business environment continues to face several bottle¬necks. How¬ever, recent broad-based progress on past reforms has resulted in improvements in the busi¬ness envi¬ron¬ment and this has led to substantial improvements in Ghana’s ranking in the Doing Busi¬ness index from a low base of 138 in 2001 to 87 in 2008 out of 178 countries to become the top reformer in Africa. In 2007, for instance, Ghana attained the 9th position in the world in terms of international rank¬ings of ease of doing business. These improve¬ments, par¬ti¬cularly, in the coun¬try’s policy and institutio¬nal environment, also contributed to raise Ghana’s ranking on the World Bank’s CPIA index of the qua¬lity of overall economic policies on 16 di¬men¬sions of performance from 3.5 (medium perfor¬mer) in 1998 to 4 (strong performer) in 2008. These ratings thus put Ghana among the top 5 policy perfor¬mers in the Sub-Saharan Afri¬can region. In confirmation of its sustained track record in prudent econo¬mic management and good governance Ghana has obtained a B+ sovereign credit rating (since 2004) from Stan¬dard and Poors, Fitch Ratings and at par with fast growing emerging coun¬tries like Turkey, Brazil and Indonesia, in terms of sovereign credit risk. This has led many eco¬no¬mic analysts to see Ghana today as a "fro¬ntier" emerging market economy, worthy of attract¬ing heigh¬tened interna¬tional investor inte¬rests and en route to achieving its desired middle in¬come status ahead of sche¬dule in 2015. Against the background of improved economic environment the country has attracted increasing private capi¬tal flows rising annually from about US$182 million in 2000 to over US$1,092 in 2008. This is indeed the legacy of good economic governance that the previous government has bequeathed the current govern¬ment to build on.

Good Governance: Undoubtedly governance has experienced significant improvements over the last decade and this has led to responsive relations between the state, the private business sector and civil society in an environment of sustained economic growth, freedom, rule of law and respect for human rights. As part of the strategy for ensuring good governance, Ghana was one of the first few countries to subscribe to the African Peer Review Mechanism (APRM) under the NEPAD initiative. Consequently the sustained government’s commitment to ensuring the rule of law, respect for human rights and the attain¬ment of social justice and equity, protect property rights, reduce the fear and aversion to savings, promote fidelity to contractual agreements and boost investor confidence contributed immensely to raise the country’s international standing as the most peaceful nation to conduct business in Africa.

Resource Mobilization: In the context of government revenue mobilization the Mills government can count itself fortu¬nate for inheriting recent major fiscal consolidation efforts that have explored, streng¬thened and intensified revenue enhancing instruments and collecting agencies. These efforts expanded the frontier of government revenue perspective to include the HIPC initiative and the Multilateral Debt Relief Initiative and thereby expanded the government’s fiscal space to fund social sector, poverty-reduction and growth enhancing expenditures. For this reason government revenue increased from 17.7 per cent of GDP in 2000 to 27.9 per cent in 2008. Flows from these initiatives would continue into the foreseeable future to the benefit of President Mills presidency. In addition to that the future revenue perspective appears enhanced with expected new sources of revenue from the oil discovery. At worst the Mills government only needs to sustain these efforts or at best explore new innovative ways of diversifying internal revenue mobilization.

Indeed the advantageous position of the Mills government on assumption of power can be said to be quite remarkable. Unlike its predecessors, the Mills government takes office at a time when commodity prices of Ghana’s main export earners including gold and cocoa as well as non-traditional exports are at unprecedented high levels. In addition to that the Mills government stands to benefit considerably from the lessened pressures of high crude oil prices, which rose to hit a record high of US$147 per barrel in July 2008 but has since then fallen successively to about below US$50 at the end of 2008.

These records point to the strong legacy that President Mills regime inherits from its predecessors to build upon and which do not allow it or give it any excuse to fail the nation.

Author: Kojo Appiah-Kubi (PhD)

Published in Daily Guide on 20.06.2009