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Ghana at crossroads of economic progress

Finance Minister, Mr Seth Terkper.

Finance Minister, Mr Seth Terkper has since last week been rallying international investors to buy into the country’s turnaround story and invest their funds into its Eurobond.

The Minister was hopeful that the government’s pursuit of home tailored economic policies, backed by a very active legislative agenda in fiscal, financial and monetary management, has unlocked the country's prospects for economic take-off.

This is because country's economy had for the past two years reeled under mounting public debt climbing to over 60 per cent of gross domestic product (GDP) and inflationary pressures heightening, while businesses cried over erratic power supply and unstable currency.

The government said the home-made policies were designed to achieve fiscal consolidation and to address short-term vulnerabilities, trim the high budget deficit that impedes private sector growth. It was also meant to steady and reverse the rise in the country's post highly indebted poor countries public debt.

 The government subsequently launched a 25-page "Home Grown" policies in 2015, which became part of the International Monetary Fund's US$918 million programme with Ghana and the launch pad for the turnaround story.

In a presentation entitled the ‘The Turnaround Story’, in February this year, the Finance Minister identified some economic indicators that show some fiscal success in the economic turnaround.

Fiscal deficit as a percentage of GDP, he cited, has consistently followed a downward trend since 2012 when it rose to 11.5 per cent. Last year, the deficit was 5.3 per cent, with this year’s projected to be 5.3 per cent.

 But the key indicator of the economic story project was the consistent reduction in the wage to tax revenue ratio.

In 2012, more than 53 per cent of tax revenue was committed to pay wages of public sector workers; but over the period, the ratio has dropped to about 44 per cent with government projecting that this year’s will be a little over 35 per  cent.

It comes as welcome news to us at the Graphic Business that after selling the turnaround story in the market, investors were prepared to buy into it for a higher coupon rate, which the government had rejected.

Mr Seth Terpker has reiterated that government will not borrow on the international markets at any rate.

After achieving a growth rate of 15 per cent in 2011, Ghana saw only 4.1 percent growth last year. Meanwhile, the cedi, Ghana's currency, lost 31 percent of its value in 2014.

The slide wouldn't have been so steep if Ghana's government had been diligent about managing its oil and tax revenues during better times. But the country largely failed to save or invest its commodities windfalls. In 2012, the country already had a budget deficit amounting to 12 percent of GDP; in 2014 it was hardly any better, at 9.2 percent of GDP.

 It is the view of the Graphic Business that the country’s wealth of natural resources coupled with a democratic political system makes it undoubtedly one of Africa’s leading lights. 

The economy is modeled based on commodities such as oil, gold and cocoa. Political stability is high and this should help the country’s growth in foreign direct investment (FDI) in recent years.

 The paper believes that though the government is making progress with its increased collection of revenue, the economy has been characterized by rising inflation and interest rates, subdued economic growth and unstable (weakening) currency.

Furthermore, with significant cuts in public spending and job losses, amid progress in the IMF-program, Ghana is indeed at crossroads in 2016 particularly as the 2016 General Elections approaches.