Economic recovery: Let’s keep to basics
Ghana’s economy has been battling with severe challenges in the last two years, with inflation hitting a 22-year high of 54.1 per cent in December 2022, and an unsustainable public debt which represented over 100 per cent of GDP.
In July 2022, the government formally approached the International Monetary Fund (IMF) for a $3 billion extended credit facility (ECF) which is expected to restore economic growth, bring inflation down and also bring debt to sustainable levels.
In May 2023, the country successfully secured a deal from the Bretton Woods institution and five months after implementing the fund supported programme, the economy seems to be recovering, with macro-economic stability emerging once again.
Gross Domestic Product (GDP) growth has averaged 3.2 per cent in the first half of the year, inflation has dropped to a 12-month low of 38.1 per cent in September this year, and the primary balance on commitment basis for the first half of the year was a surplus of about GH¢2 billion compared to a target of a deficit of GH¢4 billion.
Gross International Reserves (GIR) also stood at US$2.1 billion, equivalent to 1.0-month import cover, compared with US$1.5 billion (0.6 month of import cover) recorded at the end of December 2022, with the Ghana cedi also stabilising against the major foreign currencies.
Post the domestic debt exchange programme, debt to GDP has also dropped to 72 per cent.
After the first review of the programme by the IMF staff recently, the staff indicated that it was so far satisfied with the progress being made, pointing out that growth had rebounded stronger than even anticipated by the fund.
Although this is commendable, the concern of many has been how to sustain this stability, especially as the country enters an election year.
Ghana has long suffered from expanded deficits in election years as spending balloons in a bid to win votes, sometimes causing the government to miss its target by as much as double.
As we look ahead to the 2024 election, concerted efforts must be made to live within our means.
As we are all aware, election years in this country have been characterised by huge public spending which often ends in huge budget deficits which require borrowing to finance.
While the Daily Graphic believes the recent assurance by the government that it would strictly comply with the IMF programme and not overspend in 2024 was a step in the right direction, we urge the government to stay true to its word and not allow election year pressures to influence it to overspend.
Considering that borrowing was one of the major factors that got us here in the first place as a country, the Daily Graphic joins calls for the government to ensure that it stays within its 2024 budget which is expected to be presented to Parliament soon.
Currently, the international capital market is closed to the country and the bond market too is no longer attractive post the domestic debt exchange programme.
The only market currently available to the government is, therefore, the treasury bill market which is noted for its short-term nature and high interest rates.
In view of the fact that the DDEP was meant to extend the country’s yield curve and reduce interest rates, the Daily Graphic believes the overreliance on the T-bill market to finance huge budget deficits will threaten the country’s quest to bring debt levels to 55 per cent of GDP by 2028.
Government’s activities on the treasury bills market should, therefore, be limited to financing critical expenditure items only.
As the government focuses on putting in place measures to rake in additional revenues, we also expect it to be prudent with its expenditure.