The World Bank has cautioned Ghana to resist spending excessively during good economic times due to the non-predictability of commodity price movements on the world markets.
“Large fiscal deficits and inefficient government spending remain sources of vulnerability for many countries of the region. It is urgent that these countries strengthen their fiscal positions and fortify their resilience against external shocks,” said Ms Punam Chuhan-Pole, a World Bank Lead Economist for Africa.
Ms Chuhan-Pole said this during a World Bank press briefing on the latest African economic developments.
The session, carried out via video conferencing, was hinged on the publication of the World Bank Group, authored ‘Africa Pulse,’ which, among others, predicted a lull in Sub-Saharan growth this year amid falling commodity prices.
Chief Economist for Africa at the World Bank, Francisco Ferreira also criticised Ghana for its excessive borrowing in expectation of oil revenues, describing it as a gamble.
“Ghana is an example of a country which has borrowed a little ahead of forecast oil revenues in the future, coupled with a very large public sector wage bill, which have necessitated the present crisis,” he said.
According to Mr Ferreira, it was hard to predict commodity price movements even though “we can often have a sense of the direction as to which way it will go, but it’s extremely impossible to predict the exact time.”
Since predictability is not a given, “it leads to the incredible importance of saving during good times and the importance of building and growing up other assets in various forms such as stabilisation funds so as to be able to smoothen out during bad times.”
Mr Ferreira expressed the World Bank’s support for Ghana’s deal with the International Monetary Fund (IMF), but advised government to be fiscally prudent in its spending.
Beyond macroeconomic policies, the report stresses the need across the region for structural reforms to ignite and sustain productivity growth in all sectors and to foster a job-creating, inclusive process of structural transformation. Boosting fundamentals such as lower transport costs, cheaper and more reliable power, and a more educated and skilled labour force will benefit all sectors.
The report further expects fiscal policy stance to remain tight throughout this year in most net oil-exporting countries across the sub-region “as countries take measures to rein in spending in light of anticipated lower revenues.”
As at end March 2015 fiscal year, the World Bank delivered $15.7 billion in new lending for over 160 projects across Africa. They include a new record of $10.2 billion in zero-interest credits and grants from the International Development Association (IDA), the World Bank’s fund for the poorest countries, representing the highest level of IDA delivery by any region in the World Bank’s history.