‘2016 Growth targets to be missed’

Economists and analysts say they are sceptical of government achieving growth targets set in the 2016 budget.

They are worried that the current deteriorating macroeconomic environment, unfavourable external market conditions for Ghana in 2016 and expected costs associated with the elections will make achievement of the targets difficult.

For 2016, government is projecting a Gross Domestic Product (GDP) of 5.4 percent (including oil) and 5.2 percent (non-oil). While inflation is set at 10.1 per cent from 17.4 per cent as at October 2015, the budget deficit is projected to decline to 5.3 percent of GDP.

Government maintains that its fiscal consolidation efforts are yielding positive results, making the economy more efficient and so is confident of achieving its set targets.

It appears government’s renewed confidence in achieving higher growth numbers is fuelled by estimates from the Ghana Statistical Service (GSS) that the economy will grow at 4.1 percent at the end of 2015 compared to the 3.5 percent initially projected.

Indeed, the IMF has on its two reviews of Ghana’s performance under the programme commended government for its adherence to fiscal consolidation measures.

The 4.1 percent is however in stark contrast with projections made by international finance institutions and rating agencies.

The IMF itself, it will be recalled predicted that economic growth would fall to as low as 3.5 percent this year while the World Bank projected 3.4 percent in 2015 from 4 percent in 2014, “as energy rationing, high inflation, and ongoing fiscal consolidation continue to undermine economic activity.”

Economists are warning that growth targets in 2016 could be over ambitious, bearing in mind Ghana’s recent disappointing indicators. These challenges, they insist are not ending anytime soon.

Dr Raziel Obeng-Okon of the Ghana Institute of Management and Public Administration (GIMPA) points out that “even though the fiscal consolidation is on track, there may be tighter conditions on both the domestic securities market and international capital markets and this may pose financing risks for 2016.

According to him, Ghana’s medium- to long-term growth prospects will depend on how fast the ongoing electricity crisis is addressed, adding that “we must also hope for an improvement in commodity prices (oil, cocoa and gold) since declining commodity prices could weigh on our fiscal and external balances.”

“We need to increase investments in the agriculture and manufacturing sectors to increase job creation for a fast growing workforce to increase productivity and GDP,” Dr Obeng-Okon says.

There are also increased concerns both locally and internationally about government’s commitment to prudent fiscal management in the face of the 2016 elections.

It will be recalled that the IMF in September 2015 advised government to as a matter of urgency put a cap on expenditure in relation to the 2016 general elections to avoid the risk of fiscal overruns.

“To avoid the risk of fiscal overruns in connection with next year’s election, it is imperative to identify the full cost related to the elections as early as possible and provision for it in the 2016 budget while ensuring that the fiscal targets will be achieved,” Deputy Managing Director of the Fund, Min Zhu said.

Ghana has over the years suffered budget overruns, especially in election years. However, with an IMF programme covering 2016, a high-level fiscal discipline is required to ensure that the country remains on the track to economic recovery.

“Election year budgets don’t deliver on the core promises made in those budgets and there is nothing about the 2016 budget that makes it different,” Economist, Dr Godfred Bokpin said in an interview.

He described as overambitious, fiscal targets set by the government in its 2016 budget statement and economic policy.

“In terms of the extent to which the budget will actually transform the economy, we are a bit limited especially where the economy is trying to transform it, we need more than twelve or twenty-four months.”

He added “there have to be a consistent plan based on productivity-enhancing reforms, infrastructure investment and private sector leadership. As it stands now, we don’t have the financial resources to be able to do all of these.”

The GSS in its first quarter GDP report for 2015 indicated that the Ghanaian economy dropped from $48.6 billion in 2013 to $38.3 billion in 2014.

Economists warned that the drop in the size of the economy in 2014 (over $10 billion), which was due to the exchange rate depreciation, which saw the cedi decline in value by more than 30 percent against the US dollar would have repercussions on the import-dominated economy.

“It is also bad for the country, which seeks foreign direct investments (FDIs) for development, as international investors usually look at the dollar value of the size of the economy among other factors, before making decisions on where to invest their money.”

It therefore came as no surprise when a report issued by the Ghana Investment Promotion Centre (GIPC) revealed over 50 per cent dip in Foreign Direct Investments (FDIs) this year.

Ghana recorded US$587 million from FDIs for the third quarter of this year, down from US$1.324 billion in the same period in 2014.

Inflation has remained high at 17.4 per cent despite the tighter monetary policy stance and slowdown in economic activity.