Kufuor gets kudos for fiscal reforms but turnaround far away

The eight-month-old government of President John Kufuor has taken bold steps to reduce Ghana's 7.5-billion-dollar debt burden but an economic turnaround is still miles away, economists say.

While agreeing that Kufuor had inherited a fiscal mess from predecessor Jerry Rawlings, who ruled for 19 years, they say the new administration needs to do much more to bring the economy back on track.

Kufuor, who took power in January, inherited a debt representing 224 percent of exports or 709 percent of budget revenue.

Inflation was pegged at around 45 percent and unemployment around 30 percent.

Inflation is currently hovering at 35 percent, according to official figures.

"If I were a teacher, I would give the government an A-," said Joe Amoako-Tuffour from the prestigious Institute of Economic Analysis think-tank.

"The government has taken hard steps but these figures that we are talking about do not take into consideration significantly higher unaccounted for liabilities.

"It's not so much reducing expenditure but waste and corruption which have proved to be our nemesis," he said. "The civil service and parastatal companies are hugely overmanned and need to be whittled down."

One of Kufuor's first corrective measures was to join the HIPC (Heavily Indebted Poor Countries) initiative of the Bretton Woods institutions -- a politically bold decision.

The scheme allows cash-strapped economies limited loan waivers, which in turn are ploughed back into poverty alleviation programmes.

Finance Minister Yaw Osafo Maafo last week said Ghana would save 110 million dollars a year annually by joining the initiative.

Nii Kwako Sowah from the Centre for Policy Analysis said an economic turnaround "will take at least four years.

"We should remember that the government inherited an inflation rate of over 40 percent, external resources of a month-and-a-quarter of import cover and a highly depreciating exchange rate."

The economist was referring to foreign exchange reserves which were so low at the time that they could only finance five weeks of imports.

But he pointed out that the cedi -- which traded for about 7,200 to the greenback in January -- had hardened to 6,900 now.

Kwako Sowah said last week's decision by the government to convert 50 percent of the total domestic debt of 6.1 trillion cedis (871 million dollars) into a three-year bond scheme was laudable.

The bond, due to be launched at an auction at the Bank of Ghana, will be listed on the Ghana Stock Exchange and yield bi-annual interest.

The government expects the bond to lead to fiscal savings of 190 billion cedis (27.1 million dollars) on domestic debt payments.

"One of the problems that we have is the short-term nature of the debt. The bond scheme will have a two-pronged effect -- it will help to lengthen the maturity of the debt and save money and also help develop the money market," Kwako Sowah said.

Another problem is a 39-million-dollar fine slapped by the International Monetary Fund (IMF) on Ghana for misrepresenting the state of the economy for the period August 21 to December 31, 2000, when Rawlings was in power.

Kwako Sowah said that had been "offset due to the tremendous goodwill enjoyed by the new government. Spain has released 40 million dollars in aid that was held up."

The new government's budget, presented in March, targetted a Gross Domestic Product (GDP) growth rate of four percent. The current level of per capita GDP is 390 dollars.

It also pledged to contain the inflation rate at 25 percent and aimed for an overall broad budget deficit equivalent of 5.2 percent of GDP.

Alhassan Wayo Seini, head of the economics division at the Institute of Statistical, Social and Economic Research, University of Ghana, said tax holidays on greenfield projects and a focus on non-traditional export items were the need of the hour.

"For Ghana, exports have traditionally meant gold, coffee and cocoa. We need to look beyond that," he said.

Seini said Kufuor also needed to widen the tax net to catch tax cheats as "tax avoidance can be as high as 50 percent in some sectors ..."

Seini also said the government needed to step up a proposed disinvestment scheme of state-owned companies through which it hopes to earn at least 500 million dollars.