Adhere strictly to fiscal consolidation – IEA

Dr. John Kwakye, Senior Fellow at the Institute of Economic Affairs (IEA), says Ghana’s economy performed below expectation in the first half of 2015, and called for strong adherence to fiscal consolidation to bring about macroeconomic stability.

He noted that for the period reviewed, growth remained sluggish while macroeconomic instability remained heightened.

He explained that the combination of low growth, high inflation, and high budget deficits among other challenges was a very difficult situation to be in, and thus getting the right policy to address the situation was critical.

Dr. Kwakye made the statements when he presented the IEA’s Economic Review Report for the first half of the year, ending June 2015.

The IEA carries out the reviews to assess the economy for the information of the public and policy makers.

The 2015 half year report covered the real sector, fiscal developments, money and prices, and the external sector.

He stated that considering the level of Ghana’s public debt, which stood at GH¢94.5 billion (70.9% Gross Domestic Product (GDP)) as at the end of June 2015, strict adherence to the fiscal consolidation under the IMF-supported programme was necessary to avoid the risk of getting into HIPC.

“Any departure from this path will have disastrous consequences,” he stated, adding that, the 2016 elections posed the greatest risk, given the political cycle of expenditure overruns.

Dr Kwakye noted that in the long term, Ghana needed to diversify its economy, add value to exports and industrialise to be able to produce a significant part of its currents locally in order to address the structural financial and economic imbalances for sustained growth.

Findings from the report for the real sector of the economy for instance, showed that for the first quarter of 2015, non-seasonally adjusted real GDP declined by 12.7 percent, while seasonally-adjusted real GDP increased by 2.0 percent, a year-on-year increases of 4.1 percent and 6.1 percent respectively.

While government’s total receipts for the period was GH¢14,983.2 million (11.2 percent of GDP), total expenditure stood at GH¢17,336.7 million, out of which recurrent expenditure, especially compensation was very high.

Dr. Kwakye stated that there was the need to rebalance expenditure to foster economic growth.

The report also called for the institution of state-supported affordable financing schemes for Small and Medium Enterprises (SMEs) and the informal sector; who are often crowded out of credit, in order to accelerate economic growth and job creation. It also called for a strengthening of the fundamentals of the economy to ensure durable exchange rate, stability since foreign inflows would only bring temporary relief to the foreign exchange market.

Dr. Kwakye also called for the need for Ghana to build up its international reserves to a comfortable cushion level of about four months of imports cover as a buffer against future shocks.

He said as at June ending, gross international reserves was US$4,539.7 equivalent to 2.9 months of import cover, less than the US$5,461.0 billion or 3.8 months of imports at the beginning of the year.

He attributed the decrease to low foreign inflows, adding that although the position was likely to increase in the second half due to expected foreign inflows, it would be imprudent to run down reserves just to reverse the cedi depreciation.

Dr. Eric Osei Assibey, Senior Lecturer at the Economics Department, University of Ghana, who moderated the session also stressed that while consolidation was ongoing, it was important that the economy also grew and that the growth was visible in the lives of the citizens.

He commended the IEA for the initiative to give an independent view of the economy, especially as Ghana’s economy was going through challenging times.