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IMANI’s Perspectives On The Mid-Year Economic Performance And Way Forward


Prior to commencement of Ghana’s fiscal year 2014, it was evident that challenges lay ahead given the 56% of GDP debt tag that the country had acquired . Adopting the budget theme of ‘Rising to the challenge, re-aligning the budget to meet key national priorities’ was therefore strategic and a good start for the economy. However, subsequent implementation of the theme has been nothing short of disappointing.

The honorable Finance Minister rendered a mid-year review of the fiscal year in June 2014. In it, an assertion was made that the medium term economic prospects were bright. Sharing in that optimism is tough, against the backdrop of international rating agencies, Fitch and Moody’s downward revision of Ghana’s economy, mainly on account of the rising debt, worsening debt affordability and a low confidence in the country’s ability to service its debt.

Exacerbating the poor fiscal climate is the depreciation of the cedi by 17.5% this year alone, making it one of the continents worst performing currencies against the dollar, depreciating against it by some 30% . Similarly, since the start of this year, a mere 21% of grant disbursement have been fulfilled; a staggering 72% less than the same period just the past year.

Given the trends in expenditure, it is evident that the government’s grapples with prioritization as the fiscal practices of the first half are not indicative of a strategic prioritization plan. This article attempts to demystify the economic challenges, present the level of compliance to the budget theme and to put forth the priority areas that should receive undiluted focus for the second half of the year.

Priority one: Debt Sustainability

Stated simply, the unprincipled expenditure of the government comes at very high cost. Proof of that high cost is reflected in the total debt stock of GHS 62,861.72million, which is 54.8% of GDP (a reduction from the end of 2013 56% of GDP). At the current rate, the country is steadily inching towards the 60% of GDP limit at which point the economy will be characterized as fiscally unstable . To avoid this outcome, public expenditure must be contained and more importantly high interest borrowing must be curbed.

The high cost of borrowing is due in part to the resistance of the government to strenuously fix the economic challenges, echoed several independent thinkers and civil society organizations and by the people of Ghana through the massive and frequent strike actions, and finally by virtue of the downward revisions of the Moody and Fitch ratings. Interest rates continue to be high, reflecting the poor domestic and international credit confidence in the country. Against this backdrop, the government hopes to gain respite through the cocoa syndicated loan and the issuance of the Eurobond which have an estimated total of USD 3billion. An IMF bailout plan is on the books too.

A Business and Financial Times (B&FT) news report on the progress of these loans, indicates that, not all may share in the Bank of Ghana’s optimism that, these loans will revive the failing cedi. In the report, a key industrialist is quoted saying that the panacea to the cedi’s depreciation lies in bridging the trade deficit gap (addressed under priority 3).

The rationale behind the short term high interest borrowing is for the servicing of mature debt and for capital investments. However, a simple prioritization in spending, and cutting back on big expenditure items can free up resources, alleviating the need for the costly alternative. Such cuts can be made in expenditure on wages and salaries.

Priority two: Expenditure on Wages and Salaries

Expenditure on wages and salaries represents the single largest expenditure item on the budget. Bearing the risk of stating the obvious, expenditure on wages and salaries need to be cut. Resources have been invested in a public sector reform to date. Yet, a modest expectation of a corresponding decline in public sector wages and salaries as a result of increased efficiency has eluded the country.

An article published this month (July 2014) asserted that the Controller and Accountant General’s Department (CAGD) has uncovered and deleted three thousand (3000) ghost names from the pay roll of public institutions in Greater Accra between April and June of 2014 . Arithmetically, a drop in wages and salaries expenditure should accompany this discovery; rather an increase has been recorded for the first half of 2014.

His Excellency the President spares no opportunity, to trumpet the 10% cut in pay checks of the executive. It is laudable; however, it has not manifested in an aggregate decline in wages and salaries expenditure even though it has yielded meager revenue gains of GHS 327,000 generated over a five month period . Is it the case that the meager gains have been negated by the perceived expansion of the size of government? Most recently, 11 new ministers of state were sworn in, presumably to add to existing officials and not to replace them.

On the issue of government size, H.E the President dissolved the Ministry of Communication this past month, and the speculation is that, it was done to rid the government of redundancies. If so, some verification that the Ministry including its staff is no longer reflected in the payroll of the government is of essence. We can do with further cuts or mergers. The Ministry of Lands and Forestry should be merged with Environment, Science and Technology.

Food and Agriculture Ministry with Fisheries Ministry. We definitely must merge the Transport Ministry with Roads and Highways. The Ministry of Chieftaincy and Culture can be merged with the Tourism Ministry. Finally merge Youth and Sport Ministry with Employment and Social Welfare Ministry. We will be saving loads of money and free fuel on government allocated vehicles.

All the dog and pony show aside, the government has missed the salient point that the upward trend in expenditure on wages and salaries must be reversed. In the first half of the year expenditure is 26.2% higher than the outturn for the same period last year, and 2.2% higher than the target for that period. To aggravate an already gloomy situation is the introduction of a 10% cost of living allowances, (COLA) . First and foremost, the idea of Single Spine was to alleviate the need for unbudgeted, indiscriminate, unregulated and unmerited increases in wages and salaries. The 10% COLA is strongly discouraged as the economy cannot continue to carry the weight of the public sector demands.

Secondly, H.E the President has encouraged all to bear necessary sacrifices to build the economy. The ordinary Ghanaian has weathered increases in utility tariffs and increase in the cost of petroleum products, amongst others. The public sector can also sacrifice the 10% COLA when they see demonstrable fiscal prudence in government.

Priority three: Balance of Payment

In a nutshell, Ghana imports more than it exports. The discussions surrounding the forex constraints have dominated the media for weeks, only perhaps, to be overthrown by the world cup debacle. The discussion is pertinent because it relates to a fundamental of the economy, which is exports and trade.

The Honorable Finance Minister presented encouraging data that, the trade deficit, currently stands at USD 156.6million, a significant decline from USD 990.8million for the same period in 2013. Exports came in at 7.5% less than the outturn for the same period last year. It is therefore particularly worrying for the Minister of Finance to attribute our foreign exchange shortfalls to dwindling cocoa and gold revenues. They have only been marginally reduced.

However as the usual suspect as always was the decline in commodity prices. Given that primary commodities form the bulk of Ghana’s export portfolio, more innovative measures should be adopted to mitigate these shocks. For example, since two third of all cocoa is derived from West Africa, an international community akin to the Organization of the Petroleum Exporting Countries (OPEC) may be pursued with a similar agenda of securing a ‘steady income to the member states and to collude in influencing [world oil] prices through economic means’ ; in the case of this example cocoa prices.

This model must also be buttressed by strengthened integration of the ECOWAS body, where a huge market resides untapped. We could also begin to add more value to our cocoa beans by processing more locally or setting up processing units in countries that require chocolate paste for varied products. It would be wise to take advantage of the Economic Partnership Agreements to increase our earnings from non-traditional exports.

To mitigate the balance of payment challenges, H.E. the President has issued a directive for all MDAs and MMDAs to patronize made in Ghana products to preserve foreign exchange. It is somewhat strategic, albeit, the high cost of production in Ghana renders the price of the final product higher, relative to foreign counterparts. Rational consumers in a market economy are guided by the cost of a commodity and ideally the government of Ghana should act as a rational consumer. Therefore, while forcing the hand of MDAs and MMDAs to patronize solely made in Ghana products efforts should be made in the areas of capital expenditure, to ensure that the price of goods rival the foreign counterparts in both price and quality; which also has positive externalities of increasing our export competitiveness and further improving balance of payments.

Priority four: Capital expenditure

In H.E, the President’s state of the nation address delivered earlier this year (February 2014), he indicated infrastructure as a pillar in building the economy. However, the Honorable Finance Minister disclosed a worrying trend in the mid-year review, whereby capital expenditure is 22.8% less that estimated for the period. The slow progress was attributed mainly to the ‘lower than expected foreign financed capital expenditure due to slow disbursement of project loans and grants’. Given the volatility of foreign financed capital, it is bemusing that a pivotal aspect of the country will be hinged on that.

As a nation that has ‘faith’ in its economic fundamentals, given that it has shrugged off cautions by Moody and Fitch’s, it is reprehensible to turn around and knock on the doors of the same international community, asserting that the donor partners have abandoned the country at its most pressing time of need . Similarly, the issue of the country’s ascent to lower middle income status and subsequent stricter loan terms is often contextualized as though punitive. It is not encouraging that those in charge of driving our development cite their inability to take soft loans as an impediment to running the economy.

The recent decision to abandon the pursuit of $1.5bn of the famed Chinese Development Bank Loan is indication of our lackluster approach to serious international loan arrangements. The key to having the freedom and liberty to adopt a successful home-grown strategy is to have home-grown financing.

On a brighter note, the Ghana Infrastructure Fund, wholly owned by the Republic has been approved by Parliament to manage, coordinate, and invest in infrastructural projects in the country. A general consensus is that a dire gap exists in the funding of capital expenditure, and the inclusion of private actors through public private partnerships might symbolize the most viable and sustainable alternative available to the burgeoning lower middle income economy. It also reflects an inward looking approach to solving the infrastructural challenges rather than the outward looking alternative.

Capital expenditure in key areas such as agriculture reflects an increase in growth from 2.3 % in 2012 to 5.2% in the first half of 2014. There has been a focus on irrigation, livestock and expanding the fisheries industry. Additionally, the budget statement included plans to create specialized farmer’s markets in the three Northern Regions. However, a perennial challenge to agriculture which is transportation remains disconnected from the growth in the agricultural sector. Even as, pro-poor solutions target the rural poor, without adequate roads, the agricultural investment will not yield commensurate gains.

This example typifies the need for policies that complement each other. The government cannot do everything at once; it must prioritize, focusing on a concerted approach to policy on key focal areas that complement each other. As we write the Cape Coat Fosu Lagoon is begging for $250m in private capital to build one of the best modern landing ports for fishing in West Africa. Government will spend very negligible sums under the project as international businesses have shown interest and are ready to hit the ground running.

We must however do more if we truly needed investment to open up the country. The decision by the Ghana Investment Promotion Council and subsequent Parliamentary approval for pegging sole foreign investor capital at $500,000 and $1m for venturing into the retail market in Ghana has no legs in economics, except to create very few local champions who can’t compete amongst their peers. A business man and political strategist, Kofi Blankson Ocansey asks ‘in any market, the price goes up when there is too much demand or too little supply. Is there too much demand for investing in Ghana? A scarcity of investment opportunities?’ The answer is obvious- No.

Another key policy lesson stems from Education, where even as contracts have been awarded for the construction of 50 of the promised 200 day SHS school blocks, quality remains dire. The earlier decision to build 10 additional colleges of education against all advice that the existing 38 colleges of education needed expansion instead may have come to haunt us. Most of the clauses in the Minister’s speech concerning education referred to social campaigns rather than direct impact on the educational sector, in comparison to the November statement that laid out a number of aims for the Education sector. Ghana as a country cannot continue to dance around the issues. Capital investments must be tailored, concerted, and prudent in addressing the key priority areas.

Priority five: Revenue Mobilization

The Honorable Finance Minister indicated that revenue mobilization efforts did not live up to the expectation for the period. This was attributed in part to the lower national output in the case of taxes, and the shortfall in grants and concessions, (the latter which has already been tackled above). The national pie cannot grow when the essentials such as uninterrupted power, constant supply of water, adequate transportation systems rendered at global competitive prices, i.e., the fundamentals do not exist.

The mid-year review laid out five strategies for mobilization of revenue of which three have been presented in the earlier sections. The subsequent section focuses on the last two revenue mobilization strategies, which are pegged on the Ghana Revenue Authority (GRA) and the mobilization of revenue from the oil and gas sector.

For a very long time, there has been vast dialogue on roping in the informal sector in order to increase the total tax revenue. Some have cautioned that, excessive optimism should not be pinned on the informal sector explaining that tax revenue from the informal sector alone cannot transform the structure of the economy. In a nutshell, roping in the informal sector must be undertaken alongside strategic capital investments to boost the entire economy. Again, a more concerted approach to policy making must be adopted.

Oil Revenue mobilization: Revenue from oil and gas exploration and production is expected to increase, particularly from the Jubilee, Sankofa-Gye Nyame and Tweneboa-Enyenra-Ntomme (TEN) fields and by the building of a second Floating Production Storage and Offloading (FPSO) vessel, thus the government’s focus should be on prudent expenditure. In the education and agriculture sector, the Annual Budget Funding Amount (ABFA) constitutes the second largest contributor to capital investments. It is indisputable that the ABFA is vital to capital expenditure.

However, a report by Africa Center for Energy Policy (ACEP) has insinuated that, the oil revenue is so thinly spread that very little utility is derived from the several projects it funds . Herein is another opportunity for prioritization of strategic infrastructural instruments that will receive undiluted financial support with monumental effects capable of transforming the economic fundamentals.

A subsequent growing assertion by ACEP is the deliberate under forecasting of oil revenues in order for transfer of the excess to the contingency fund which is not under tight scrutiny and as heavily regulated as the ABFA . These assertions if bear some truth, ought to be checked.


In conclusion, the current economic outlook of the Ghanaian economy is bleak, unless the measures suggested in this document are considered alongside other credible ones. Secondly, a gap exists in the motivation behind policy formation which the National Development Planning Commission (NDPC) must rise and fill, following the order of prioritization presented in this article. Doing it all, concurrently, is not clever. Botswana or Singapore did not achieve economic success by doing it all. The key is to focus through prioritization. How well have we risen to that challenge?


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