Address fundamentals before implementing growth initiatives - IFS

The Institute for Fiscal Studies (IFS), says government must focus on addressing the macro-economic fundamentals before it begins to implement its ambitious policy initiatives.

The Institute maintains that while the initiatives outlined in government’s 2017 budget were laudable, implementing them without addressing problems with the fundamentals could pose problems.

Among the IFS concerns are the depreciation of the cedi, inflation and interest rates, energy challenges and fiscal consolidation.

It said implementing the initiatives immediately would be tantamount to building a house on a weak or non-existent foundation.

Speaking at a press conference to present its review of the 2017 budget statement and economic policy, Professor Newman Kusi, Executive Director of the IFS, said it was important for government to properly sequence the roll out of its initiatives to ensure that the basic fundamentals were in place.

Citing the One District One factory project, he noted that while the initiative was commendable, would provide employment and contribute to the growth of the economy, there were basic prerequisites for the siting of factories.

Prof Kusi said the economy could be grown sustainably if the macro-economic fundamentals were in place.

However, he said, if the initiatives were implemented on a weak foundation, they would not be able to achieve the objectives for which they were established, and would create more problems in the future.

“Accelerated growth cannot be achieved in adverse fiscal and macro-economic environments, there is a more conducive fiscal and macro-economic conditions should be sought in 2017 before the government rolls out the ambitious growth policies it intends,” he stated.

He called on government to pursue stronger fiscal consolidation strategies in the initial stages of its administration as macro-economic stability in Ghana, largely depended on fiscal outcomes.

Dr said Boakye, Senior Research Fellow at IFS said government was trying to kill two birds with one stone: tackling fiscal consolidation by capping transfers to earmarked funds at 25 per cent, and growing the economy by spending on growth initiatives.

He noted that while government had tried to tackle the issue of fiscal rigidity, an issue that the IFS also raised in its policy paper presented before the budget, by placing a cap on the transfers to earmarked funds.

He said there should also be the use of the extra funds on additional spending, instead being used to finance other traditional expenditures like capital expenditure.

“One would have wished that after capping, the extra amount is directed towards financing the traditional expenditures like capital expenditure and others in order to create enough room to extensively reduce the deficit ratio.

“If you do that then you provide the foundation for macro-economic stability,” he stated.

He said only when government was able to achieve fiscal consolidation and ensure macro-economic stability, could it roll out its growth initiatives.

Mr Leslie Dwight Mensah, an Economist at the IFS, said many of the issues raised by the IFS at its pre-budget policy paper had been largely addressed in the budget.

He noted, however, that while the growth rate of 6.3 per cent projected in the 2017 was encouraging, it was mainly based on projected additional oil production, while non-oil growth projections remained at 4.6 per cent, same as in 2016.

This, he said, meant that the growth projections could not be met if the projected output of the oil sector did not materialise.

Also, the budget, he noted, failed to address the link between the projected growth and economic transformation from a high dependency on export of raw commodities to finished exports.

Mr Mensah said although there were some interventions in the area of agriculture and manufacturing, which were critical in economic transformation, the targeted growth in these sectors, 3.5 per cent and 2.6 per cent in 2017, were ‘disappointing’ and raised questions on whether the interventions in these sectors will be on a sufficient scale to create enough job to deal with unemployment challenge.

“To successfully grow the economy, create jobs, increase incomes and reduce poverty will require a comprehensive planning and packaging of programmes and projects, developing a proper implementation strategy, right sequencing of programmes and projects, forging right coordination among the levels of government and relevant institutions and establishing discipline in execution.” he said.