In the past few weeks, the performance of the economy has dominated newspaper headlines and radio and television discussions. Why not?
After all, our lives revolve around the world of finance and therefore any actions or inaction that seek to take money away from our pockets or worsen a seemingly bad situation would create nervousness.
It seems the alarm bells had been ringing for a long time, warning that the economic situation was anything but satisfactory. Unemployment has generally been bad, which admittedly could not be the fault of the Government alone; inflation has not been under control; interest rates on loans especially have been too high and the local currency, the cedi, has enjoyed a free-fall against the currency of the country’s trading partners, averaging a fall of more than 17 per cent in the first quarter of the year alone.
The government recognises this economic underperformance also but on most occasions has remained bullish about the future prospects of the economy, assuring that the basics were strong enough to support future growth.
But about two weeks ago, there was yet another warning, this time from the Finance Ministry. The ministry, through its sector minister, warned that the measured path adopted to ensure that at least tomorrow becomes better than today would border on austerity.
Since that statement was made, social commentators and analysts have tried to explain, from their point of view, what that could mean.
So, I hope that we will also be able to understand what austerity measures are from our point of view in this week’s column!
So what really are austerity measures? Well, during my research on this topic, l realised that most of the experts preferred to rather describe the consequences of austerity measures before delving into an attempt to explain it.
Read what Investopia said about it: “Austerity measures are generally unpopular because they tend to lower the quantity and quality of services and benefits provided by the government.
Beginning in 2009, several nations were forced to embark on unprecedented austerity measures.
These measures were necessitated by budget deficits that soared to record levels because of actions these countries took to stimulate their economies following the massive credit crisis and global recession of 2008.”
And this is how it was defined: “A state of reduced spending and increased frugality in the financial sector. Austerity measures generally refer to the measures taken by governments to reduce expenditures in an attempt to shrink their growing budget deficits.” Simple!
So from this definition, l am sure that you can just imagine what the Government’s actions would be regarding the announcement that indeed it was what was needed to address the growing budget deficit that we are facing as a country.
Make no mistake about budget deficit. In fact, budget deficits in itself is not necessarily a bad thing but when the quantum of the deficit reaches unsustainable levels, that is where the problems or the cracks begin to emerge.
What we are experiencing now, according to the economic managers, is something that should not be a cause for concern, even though others disagree.
But significantly, as economics is actually what plays out on the street and not necessarily what the books say, let us now look at, in detail, what these measures could mean for your pocket.
First off, note that austerity programmes can be extremely controversial, especially in a society where there are no social safety nets to address the potential situation of many falling below the poverty line because of these measures.
Take the removal of subsidies on petroleum products in this country; it is all part of the grand plan of austerity.
Full cost recovery on petroleum products, with an attendant increase in petroleum prices, is likely to affect the pocket of many.
If you are already living on the edge, certainly this could trip you over! That is one controversial issue of austerity.
Another issue that has also generated debate among many is the decision by Government not to increase salaries of public sector workers this year.
Facing austerity could mean an increase in the cost of living due to either a removal of subsidies on products or government’s withdrawal of direct subsidies. Therefore, technically, the value of your income reduces.
So, when in the face of this you are also told that you couldn’t ask for more, of course, it creates discomfort for those on very low budget.
But it is also important for the government to demonstrate fiscal discipline to creditors and even credit rating agencies, now that Ghana is in the international bond market, by bringing revenues closer to expenditures so as to seal the budget deficit.
It is indeed a tough call so the jury is still out on this, as to whether the current measures could reverse some of the economic problems experienced so far.
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