The precarious economic conditions prevailing in the country, which has culminated in the sharp fall in the cedi against the country’s major trading foreign currencies, high inflation, revenue shortfalls and a ballooning wage bill among others seem to confusing the managers of the economy as they struggle to find solutions to tackle the crisis.
There are many who have argued the government to look within for solutions to deal with the problem but the home-grown policies seem not to be paying any dividends as the economy continues on its downward trend.
As a result, some leading economists in the country including policy think-tank, the Institute of Economic Affairs (IEA) have sparked calls for an International Monetary Fund (IMF) bail out for Ghana to restore economic and policy stability.
This, they argued, was necessary to curb a budget gap that Moody’s Investors Service forecast will exceed 10 per cent of Gross Domestic Product (GDP) for a third consecutive year.
Senior economists of the IEA,Dr John Kwakye, economics lecturer, Dr Eric Osei Assibey and Dr Peter Quartey were unanimous in their calls for an immediate subscription of an IMF programme to restore economic stability.
To them, the present situation requires that the government go for a bail out to help bring the economy back on track.
Justifying his point at the IEA’s mid-year economic review in Accra, Senior Economist, Dr John Kwakye, said the government must get tough on its expenditure and tackle the domestic factors that created the challenges confronting the economy.
“Unless we are willing to and able to implement a home-grown fiscal discipline regime, the alternative will be to have one imposed from outside, including from the IMF, so as to unlock much-needed donor support for the economy,” he said.
Government is struggling to reduce the huge budget deficit and inflation has also sky-rocketed to 15 per cent. International rating agencies have also predicted further decline of Ghana’s economy.
But Kwakye warned that inflation was returning to historically alarming levels and is one of the highest in the world.
According to him, achieving the new target remains a daunting task and will largely be dependent on stability in fuel, utilities and food prices.
He described as unfortunate government’s revision of the budget deficit target to 8.8 per cent of GDP from 8.5 per cent, saying it undermined policy credibility. He, however, said the upward adjustment of the inflation target from nine per cent to 13 per cent was realistic since June inflation already reached 15 per cent.
The Finance Minister, Seth Terkper, in his mid-year review of the 2014 budget announced a revision of some economic macroeconomic targets. Key among these were economic growth, revised downwards from eight per cent to 7.1 per cent, and the budget deficit, which was increased from 8.5 per cent of GDP to 8.8 per cent.
“To tame inflation on a more durable basis, we need to address these driving forces and, in particular, close the demand-supply gaps in the economy.”
According to the economist, the first half of the year saw the country’s debt rise from GH¢52 billion (55 per cent of GDP) to GH¢62 billion (59 per cent of GDP), moving closer to unsustainable levels should government continue borrowing.
That view is also subscribed by the Head of the Economic Department of the University of Ghana, Dr Peter Quartey, on the sidelines of the national Economic Dialogue at Senchi in an intervirew with the Graphic Business.
Assibey backed calls for IMF bail out
Last month, a senior Lecturer at the Economics department of University of Ghana, Dr Eric Osei Assibey, asked government to, as a matter of urgency, turn to the International Monetary Fund (IMF) for a bailout.
According to him government’s attempts to stabilise the declining economy have still not yielded the needed results.
“The currency will continue to deteriorate if we don’t resort to the IMF to bail us out; to supply the needed dollars to balance the balance of payment,’’ he said.
“We have huge balance of payment disequilibrium, the imbalance is huge; we’ve recorded about 12 per cent trade deficit which is putting enormous pressure on the country’s forex reserves. The buffer has depleted so low that it is very difficult for the country [Ghana] to actually meet any demand pressure on the currency [Cedi],’’ he explained.
Government blowing hot and cold on bail out calls
In May this year, the Finance Minister, Mr Seth Terkper, had stated that the government had not excluded the option of seeking a bail out from the IMF to help finance its budget and current-account deficits.
“We haven’t ruled it out,” Terkper said in an interview in Mozambique’s capital, Maputo, where he was attending an IMF conference. “The government is still assessing whether measures put in place to help narrow the fiscal shortfall have been effective,” he said.
Mahama denies IMF bail-out moves
But President John Mahama in delivering his keynote speech at the National Economic Forum in Senchi in May this year said the government has not entered into an IMF programme to bail out Ghana from current economic challenges.
He said the government had not presented a programme to the IMF, which will form the basis for the economic strategies being developed to fix the country's economic challenges.
"This document contains what the government describes as "home grown policies" which was formally submitted to the IMF during the recent Spring Meetings in Washington DC".
The economic challenges and prospects
Rising bond yields, mounting inflation and a weakening currency have taken the shine off Ghana, a country until recently hailed as a model for African growth.
An oil boom helped fuel five years of GDP growth above eight per cent, making Ghana an emerging market star, a stable democracy with a population of 25 million which was moving steadily into middle income status.
It is now, however, paying a steep price for not coming through with a new tranche of fiscal reforms