Ghana's Economy Heading for Crisis - ex-Minister

Dr Anthony Akoto Osei, a former Minister of State in the Ministry of Finance has disagreed with the claim by government that the economy is performing well. According to him, what government is touting as achievement is rather artificial and warned Ghanaians not to jubilate yet even as the country has started producing oil in commercial quantities

He said for the next two to three years the money generated from the oil will be used to service debts and therefore the money cannot be used for any development projects. "We are not out of the woods yet, and Ghanaians should brace themselves for tougher times ahead."

In an exclusive interview with Public Agenda on his assessment of the state of the economy, he said what the government is touting as success is only artificial and that in reality things are not going well.

"This is exactly what happened in 2000, which eventually led to Ghana opting for the High Indebted Poor Countries (HIPC) initiative," he pointed out.

Incidentally, The Minister of Finance and Economic Planning, Dr. Kwabena Duffour, presenting the nation's budget statement in November stated among other things that the nation's economy has performed creditably well this year and if things should continue as it is next year, things will be better.

He said government had stabilized the economy, and that there had been a consistent reduction in the rate of inflation from a high of 18.1% in December 2008 to 9.38% as at October 2010.

Dr. Duffuor also noted that the cedi has stabilized against major currencies with gross international reserves of about US$3.5bn. He was optimistic that with revenue from the oil, the economy will change for the better.

But Dr. Osei does not share those views. He says if in reality inflation is reducing it should reflect in interest rates also reducing. "The government is not spending; it is deflating the economy to reduce inflation. If the economy is doing well, then ordinary Ghanaians should also be doing well. The ordinary Ghanaian is struggling to make ends meet," he said.

According to him, government owes so much. Contractors have not been paid over a long period and contracts awarded have been stalled. This has led to the banks accruing large debt portfolio and are not able to reduce the interest rates. "People are not paying the loans they take from the banks, that is why the interest rates are still high," he added.

Ghana's indebtedness, he further observed, has increased by about GH¢3.00 billion in just two years with GH¢1.5bn owed in supplies and GH¢1.00bn to contractors. "This is the time that we have had gold and cocoa prices reaching records high but where is the money?" he asked. "The money is sitting in the bank to service our debts."

Dr. Osei said transfers to the District Assemblies Common Fund (DACF) and the Ghana Education Trust Fund have not been effected for a long time; salary cheques of Parliamentarians are being dishonoured by the banks; impress for running parliamentary business is not forth coming, and there are arrears in salaries of public servants among others.

In 2008, the former minister said, Ghana's GDP was very high, with a per capita income of about US$1.238. This, he said, however, fell drastically to about US$1.108 in 2009. Thus, the standard of living of the ordinary Ghanaian has fallen, resulting in hardships all over. Meanwhile, with the attainment of middle income status; Ghana's GDP has risen, with tax GDP reducing so the government is not able to service domestic debt with revenue from taxes.

Dr. Zakari Yakubu, Head of Programmes at the Integrated Social Development Centre (ISODEC) has also stated that the government's use of macro-economics to target lowering inflation has brought untold hardships to the ordinary Ghanaian.

In his view, even though the economy performed well in 2010, more could have been achieved if the right measures were used to stabilize the economy. "The use of macro-economics to stabilize the economy has created so much unemployment which needs to be tackled."

He said Civil Society Organizations would prefer to have inflation being in double digits - between 15% -20% - with commensurate job avenues than having single digit inflation with high unemployment.

He added, however, that it is the services sector which did well, compared to the agric sector. A country with more than half of its population (about 55%) in agriculture should be able to do well in projecting agriculture sector, he argued.

"Even with the services sector which grew about 6.1%, the growth was from the wholesale and retail of imported goods division (buying and selling) as well as the hospitality industries, with the service sector becoming the highest contributor to the nation's GDP. The services sector did not even generate from the agric sector but from imports," he said.

He therefore urged government to support and promote the agric sector as it is more sustainable. "With the revenue from oil, if we are not careful we may lose focus on the agric sector and concentrate on the oil and gas thereby allowing our competitors to overtake us in that respect. The time to act is now," he added.

He suggested to government to put measures in place to curb the high unemployment level in the country, hoping that next year will be better should the government go by the incentives it promised in the 2011 budget.

Dr Yakubu noted that government should find a balance between inflation, growth and employment, suggesting appropriate incentives for Small and Medium Scale Enterprises to enhance productivity and job creation

CSOs, he said, would like to see government take appropriate measures to build infrastructure, particularly feeder roads, small scale dams for irrigation and rural electrification. This, he said, will improve the agric sector, thereby encouraging the youth in rural areas to venture into agriculture to reduce rural-urban migration.

According to him any attempt to boost agriculture without rural infrastructure and irrigation would be in vain. "Agric productivity can be tackled in rural infrastructure", he noted.

Currently, less than 4% of Ghana's arable land is under cultivation and also dependant on rain fed agriculture. But other countries have about 30% of arable land for agric, with South East Asian countries having about 40%.