Economist highlights need for sustainable economic reforms

The Institute for Economic Affairs (IEA) has renewed its call for the country to create and execute a strong domestic national development programme, emphasising that shifts in global economics necessitate proactive preparedness to overcome future economic shocks.

At an Economic Policy Forum titled ‘The 17 Steps to Navigate Financial Crises in Ghana: Lessons for the Future’, Professor Alexander Bilson Darku – a senior fellow at the IEA, expressed concerns over the sustainability of relying heavily on development partners for continuous support; adding that nations that are ill-prepared will have an increasingly harder time coming out of future turbulences.

He noted that previous programmes and financial bailouts from the International Monetary Fund (IMF) have failed to deliver long-term benefits to the nation’s economy.

To achieve sustainability, he advocated that government “must implement complete structural reforms to make the economy resilient to both internal and external shocks. These reforms must be based on a broad-based national development plan that ensures sectoral realignments and interconnectivity to improve productivity and increase government revenue”.

The economist added that this will reduce budget deficits and borrowing, and eliminate the chaotic development and implementation of industrialisation programmes.

Another crucial aspect of his proposal is an industrialisation strategy that focuses on natural resources and agricultural transformation. Under this, Prof. Darku stressed the necessity of changing the current natural resource fiscal regime to ensure the country receives its fair share of revenues generated within the sector. Additionally, the strategy should address the issue of import dependency and aim to increase the complexity of value-added exports to earn more foreign exchange.

To promote macroeconomic stability, Prof. Darku recommended the adoption of fiscal and monetary rules as anchors for policy conduct. These rules include enforcing the Fiscal Responsibility Act, 2018, which limits the fiscal deficit to five percent of the previous year’s gross domestic product; and amendment to the Bank of Ghana Act 2002 (Act. 612), which restricts total loans to government at not exceeding five percent of the previous fiscal year’s total revenue.

Furthermore, the economist cautioned against the potential spill-over of the current debt crisis into a banking crisis through the Domestic Debt Exchange Programme (DDEP). In this vein, he wants the Bank of Ghana to allow banks and financial institutions affected by the DDEP to delay recognising the full extent of losses in their loss provisions to avoid insolvencies.

Regarding the country’s debt burden, Prof. Darku emphasised the importance of debt restructuring to kick-start economic growth. Once the restructuring is completed, he recommends prioritising growth over the deficit and implementing strategies aligned with the Fiscal Responsibility Act 2018.

Meanwhile, to avoid excessive reliance on short-term borrowing, the IEA fellow urged caution, as such borrowing is heavily influenced by market sentiment swings. He also proposed the establishment of a special fund for savings from boom periods and tax collections, as well as the avoidance of unsustainable debt that could lead to rating downgrades.