The low export revenues coupled with fiscal indiscipline have created a gaping hole in the country’s revenue kitty, compelling government to impose more taxes to raise the much needed revenue to execute development projects.
Again, in the run-up to this year’s elections, some economists are worried the Central Bank will increase its monetary policy rate to accommodate inflationary pressures.
According to the economists, this means that cost of doing business will go up further as interest rates will soar. Already, the prevailing high lending rates in the country, one of the highest in the sub region is stifling investments while impacting negatively on the private sector and economy with its attendant effect on the living standards of Ghanaians.
A statement issued by the IMF mission to Ghana after its third assessment of the programme last week urged the BoG to take steps to tighten its monetary policy stance.
According to the mission, “the increase in BOG’s policy rate in 2015 has been instrumental in reducing exchange rate volatility. Building on continued progress in improving the effectiveness of its inflation targeting framework, BOG remains committed to maintaining an appropriate monetary policy stance to bring inflation down toward its medium-term objective,” the mission said.
Since Ghana entered into a bailout programme with the IMF in April 2015, the BoG has had the support of the Fund in its bid to bring down inflation and stabilize the economy.
In spite of efforts to curb rising inflation, the phenomenon has defied all measures, culminating in prices of items skyrocketing.
“Inflation remains high, over and above the upper band in terms of government’s end year target of 8 per cent,” said Professor Godfred Bokpin of the University of Ghana Business School.
He warned that further increases in the policy rate of the BoG will be at the expense of growth and job creation, “especially the real sectors of the economy-Agriculture and industry.”
Ghana’s development partners have also indicated their interest in ensuring that government sticks to measures that can guarantee prudent management of the economy, especially during this election year.
The European Union (EU), the largest donor to Ghana says prudent management of the country’s finances remains a major challenge for government and warns adherence to fiscal discipline in order not to derail the gains of the ongoing consolidation.
Head of the EU delegation in Ghana, Mr Mike Hanna said “it’s crucial that Ghana should get the macro-economic situation right, it’s crucial to deal with the deficit and its crucial during an election year to stick to fiscal discipline.”
The EU froze disbursements to Ghana some two years ago over concerns on the management of the economy but later released about €180million, the biggest disbursement in recent times.
Economist Eric Kontoh saw the EU’s concerns as timely and crucial to improving the economic outcomes in the country. He pointed out that “we need to find a good balance between policy and politics; one key example is fiscal indiscipline at the expense of economy growth during election years.
Mr Kontoh argued that the conventional notion of Government spending spurring economic growth in the long term does not always prevail.
According to him, a study of the real GDP growth for the past 10years had shown that average year real GDP growth after each of the election years declined.
“For instance, after the 2008 elections, real GDP average year growth contracted by 4 percentage points at the end of 2009. Likewise after the 2012 elections, the average year real GDP growth declined from 9.2% to 7.3% in 2013,” he disclosed.
He called on government to accelerate steps in resolving the energy crisis and speed up structural reforms to support the recovery and growth of the economy growth.
Research fellow with the Institute for Fiscal Studies (IFS), Mr Leslie Mensah explained that the Ghanaian economy had in the last three to four years experienced weak fiscal management.
According to him, the genesis of the present crisis was the large budgetary deviation in 2012 and the poor management of the aftermath of that deviation.
“Government’s expenditure shot up considerably and beyond what was considered reasonable, giving rise to a large deficit, then subsequently inflation has been rising, exchange rate began to fall with rising debt levels,” he observed.
According to him, “Those underlying fiscal deviations ought to be addressed in order to get out of the difficulties we are facing now; it’s important that we get public finances back on track as a starting point for addressing our challenges.”
By Isaac Aidoo