Hard times are here and could be here for a long while. Are we heading toward some form of crisis? The Ghana economy is challenged and could get worse before we regain stability. Help is on the way but it may not be enough in the meantime.
The general statistics underpinning the performance of the economy does not look good. The debt to GDP ratio is 68%, inflation is 16.8%, exchange rate GH?/US$: 4.3. Interest to debt ratio is 75%. Payroll to revenue rate is 53%. Treasury bill rate is 26% and all of them continue to rise. With these, the managers of the economy sent a letter of intent to the international monetary fund (IMF) for help to arrest the downslide of the economy. The request is for a 3yr Extended Credit Facility (ECF) of SDR664.20 million equivalent to US$918 million which is about 180% of Ghana’s position. This is the bailout and we must come to terms with it.
Symptoms of the Malaise
The Ghanaian economy has generally suffered a slow down growth of about 4.2%. There have also been Policy slippages by managers. This is exacerbated by the external market shocks and rising interest rates. The international reserves have also been weakened. Of major concern is the sharp depreciation of the cedi against the major currencies coupled with the inflationary pressures. This is a cocktail of economic challenges.
The prevailing economic challenges are alluded to poor management of resources, fiscal indiscipline and lack of effective revenue mobilisation. The various tax exemptions have also been fingered for the current predicament. Other issues blamed are poor planning, bad disbursement of our revenues and endemic corruption.
Impact of the Crisis
The current economic challenges have compounded the high level of unemployment in the country. This has even affected essential services like the health sector where the new doctors and nurses who have graduated cannot be posted. The price of fuel hitherto regulated by the National Petroleum Authority (NPA) has been de-regulated with immediate increases at the pumps. This will reverberate in the transport industry which would consequently affect the prices of food items. This will heat the economy up and increase the cost of living. The economy is stifled and is in financial distress.
Solution To The Financial Crisis
A bailout. The IMF bailout is the obvious solution to the economic predicament we find ourselves in. A bailout has usually been the last resort at the various occasions when we have come to this financial crisis crossroad.
The IMF has offered various conditionalities in line with their acceptance to offer Ghana the assistance requested. These ranges from implementation of fiscal structural reforms, clean up the government payroll and strengthen the control of the wage bill, pursue a prudent borrowing strategy and refocus on reducing inflation to single digit around 8 per cent.
In the short term the obvious action is to stifle expenditure and maximise revenue sources. The IMF suggests a cap on employment and a freeze on payroll. It is established that the payroll to revenue ratio stands at 53% as at now. It is the requirement of the IMF for the managers of the economy to reduce this ratio to 35% to conform to the ECOWAS average. There is also the arrangement to liberalise the petroleum subsector to allow price liberalisation.
In the long term the arrangement is to adopt project finance strategy for all capital projects. This is better than the use of loans to finance our capital intensive projects. There is also the need to prioritise our spending. We are financially challenged and should not spend our meagre resources on football or the World Cup. Reference Malaysia and Singapore in this regard.
Another long term option is to transform the economy. This will demand adding value to the chain of economic activities at every level. This should impact on the agricultural and extractive sectors. There is also the need to stifle our dependency on imports. It may require the need to promote the consumption of local foods and products. We should grow what we eat and eat what we grow.
The other offer is to reform the economy especially the civil and public services. This will require the streamlining of the civil service to make it more functional and responsible. There is too much underemployment in the civil service including all the ghost names which are defying deletion. We may need a special force of ghost busters.
The public financial management system has been poor and would need critical attention to put it right once and for all. At the moment the coordination of the financial aspect of the economy is disjointed making it difficult for efficient and effective management. This is the bane of the economy of Ghana.
The financial governance structure of Ghana is strong on paper but weak on the ground. Good governance hinges on integrity, transparency and probity. Unfortunately, our DNA as a people does not support some of these moral aptitudes underpinning good governance ethics.
It is believed the management of the economy would be improved with the adoption of an effective accounting system that captures the complete income and expenditures of the operations of the economy. The resultant report then makes it possible to make informed decisions.
The biggest challenge facing us as a nation is indiscipline across all facets of our lives. It cuts across our financial, economic, social and political lives. Our democratic dispensation is made meaningless by the high level of indiscipline.
The economy is hot and will continue to heat up given the condition precedent. We are the solution. Are we prepared to relieve ourselves of the oncoming challenges? Let’s put our heads and weight to the wheel and make this nation great and strong for ourselves.