As Finance Minister Seth Terkper prepares to present the 2016 budget to parliament tomorrow the Institute of Statistical, Social and Economic Research (ISSER) has admonished government to stop borrowing to pay debts.
ISSER is worried about government’s recurrent expenditure which it says it is not sustainable in relation to the gap in revenues. Ghana’s budget deficit in the 2015 revised budget was pegged at GH¢9.7 billion, equivalent to 7.3 percent of GDP as against the earlier estimate of GH¢8.8 billion, equivalent to 6.5 percent of GDP.
According to ISSER ‘ahead of the budget presentation, many are looking forward to government’s planned spending especially since 2016 is an election year.
Will expenditure overshoot revenue? Elections years in Ghana have become known for huge financial irresponsibility.
It’s only in 2004 which despite being an election year, some fiscal discipline was maintained. This has been attributed to the HIPC initiative. With about a year to the 2016 elections could the IMF bailout help ensure fiscal prudence?’ it queried.
ISSER in an over 200 page document published the latest edition of the State of the Ghanaian Economy in 2014.
The semi-autonomous research institution during a road show in Takoradi in the Western region presented details of Ghana’s economy over the last year to government agents, civil societies, the press, students and the general public.
ISSER also donated copies of the report to the Takoradi Polytechnic.
The Institute seeks to inform Ghanaians and also international development policy makers about the socio-economic status of Ghanaians and opportunities for improvement.
Ghana’s economic growth has been described as fairly resilient in the wake of global financial meltdown. In 2011 Ghana historically achieved a record high GDP growth rate of 14%.
However the country has failed to sustain its growth about four years down the road. Growth in the year 2014 fell to 4.2%, below the Sub-Saharan African average of 5%.
This (4.2%) is a record low in about 25 years. Ghana has since failed to sustain its growth momentum although advanced economies appear to be emerging from their economic doldrums.
This consistent failure by Ghana contrasts with that of the global economy which in 2014 has slightly improved from 3% to 3.4% growth.
The recovery of the global economy generally has not been without the help of the declining prices of oil in 2014. In 2014 Ghana faced major economic challenges.
The cedi, according to the Bank of Ghana depreciated by 31.2% (more than double the previous year) and was described as one of the worst performing on the continent, next to the Zambian kwacha.
The cedi in January 2014 sold at 2.2 cedis against 1 US dollar and ended the year in December at 3.2 cedis against 1 US dollar.
It’s currently trading at around 3.8 cedis.In 2014 the rate of inflation was 17% on the average and consumer price index CPI rose from 13.5% to 17% from January to December 2014.
The economy strained with more pressures from high interest rates, persisting energy crisis and rising public debts.
For some time now Ghana’s total indebtedness has assumed an upward trend, accompanied by an increasing debt servicing burden. This certainly poses a challenge for the economy in the medium term.
In 2013 the debt stock shot up from a level of about 46 million cedis to about 76 million cedis in 2014.
This is about a 65% increase over 2013 to 2014, the highest annual increase in the debt stock since the year 2000.
Government has said the increase in external debt stock is largely due to the increase in external net disbursement for infrastructure projects and net domestic issuance, as well as the depreciation of the cedi.
Public spending efficiency still remains problematic and the appetite for borrowing and spending needs to be put in check.
ISSER warns a debt crisis looms if critical corrective measures such as cutting down on profligate expenditure and working within budget are not put in place.
Doing so would correct the imbalance between spending and revenues.
The emphasis on revenue is positive but the managers of the economy ought to know they cannot over-tax an economy that is expected to grow.
In order to get out of our fiscal challenges, non-oil growth should be seriously taken into consideration.
The estimated 4% growth in 2014 falls below what was hoped for and is expected to drop further in 2015.