Deficit financing spurred growth

…2008 GDP now 7.3%

Members of the past government’s economic management team may now heave a sigh of relief when their claim of spurring unparalleled growth in 2008 despite excessive public spending was confirmed by a revised GDP growth figure of 7.3%.

At a meeting with the press last Thursday, Magnus Ebo Duncan, Head of Economic Statistics at the Ghana Statistical Service announced that the Ghanaian economy expanded by GH¢ 17,617.6 million in nominal terms (current prices), with a corresponding real GDP of GH¢795.1 million.

The Services sector led growth with 9.3% and Industry and Agricultural followed in that order with 8.1% and 5.1% growth.

Under the agric sector, the crop and livestock sub-sector recorded growth of 5.82%. Cocoa production and marketing was 5.0%, whilst forestry and logging, and the fishing sub-sectors grew by 3.50% and 3.00% respectively.

For industry, growth in electricity and water sub-sectors and construction were the most significant, electricity and water grew by 19.42% whilst the construction sub-sector grew by 12%. Manufacturing recovered from a dip of -2.30% to grow at 4.53% and mining and quarrying growth was 2.11%.

In the services sector, transport, storage and communication; finance, insurance, real estate business services, wholesale and retail trade restaurants and hotels and ; government services all recorded growths above 8%, with community, social and personal services and producers of private non-profit services capping the sector’s performance with 4.50% and 5% growth respectively.

Commenting on the effect of government spending on growth, Mr Duncan noted that spending on the productive sectors in areas such as construction and increases in earnings for public sector employees had a direct impact on overall growth, acknowledging that this was a major contributor to growth in the past year.

Budget deficit was earlier this year announced to be 14.9% at the end of 2008, and World Bank sources indicate that the previous government was cautioned on a number of occasions by the bank on its widening deficit.

An economist from one of the economic policy institutes this paper talked to however extolled the massive growth achieved at the expense of fiscal discipline, saying that such an expansion was crucial in our attempt to woo more foreign investments into the country.

“Investors desire to invest in countries where the National Income and Per Capital income is very high, he said, adding that “it serves as an indication of high demand for goods and services” He was however quick in adding that, other macro indicators equally need to be balanced well to avoid instability. Mr Duncan also made mention of the significant contribution of Agriculture to growth in the past year, driven by the crops and livestock sub-sector as partly responsible for the impressive growth last year. Agriculture continues to dominate the country’s economy since independence even though its share of GDP has been falling over the years. Agricultures share of GDP in 2008 was 33.59%, down from 35.35% in 2006 and 34.27% in 2007. The services sector had a share of 31.81%, and industry constituted 25.89% of total GDP for 2008.

The Government Statistician, Grace Bediako in an interview with this reporter acknowledged that the declining share of agriculture to total growth resulted from strong growth in other sectors of the economy, a situation most economist believe comes along with restructuring of an economy towards industralisation.

Dr Bediako considered government’s projected GDP growth rate of 5.9% for this year as realistic, saying that, the government took into consideration the current challenges before settling on that estimate.

The final GDP estimate for 2007 was also released and saw a downward revision from the earlier quoted 6.2% to 5.70%.