Economy in distress – GN Research

Groupe Nduom (GN) Research has added its voice to expert views on the Ghanaian economy, describing it as one in distress.

It said Ghana’s economy has been on a persistent decline over the past four years, coupled with its vulnerability to external shocks.

According to its half-year review of the economy, GN Research noted for instance that the hold on monetary policy rate from the first half of 2016 clearly revealed the impact of ineffective fiscal policies marshalled ostensibly to address the rising cost of living in the country.

It blamed among other policies, government’s unbridled borrowing for the crisis the economy finds itself in, disclosing that interest payments on loans, as well as debt maturity payments effected within the first five months of 2016, were GH¢1.37billion and GH¢61.95bilion respectively.

“The amount expended for the payment of debts is almost twice the total government revenue and grants expected for this year, over nine times the amount allocated for capital expenditure and more than six times that allocated for grants to other government units,” it said.

It found out further that allocations made from the national budget to the Ministries of Education and Health in 2016 stood at GH¢4.86 billion and GH¢1.61billion respectively, way below interest payments on the country’s debt.

“This vividly describes the ailing state of the economy and the construction of a difficult future for the generation yet unborn,” GN Research stated.

The sharp revision of Ghana’s estimated real GDP growth for 2016 to 4.1 per cent from the initial target of 5.4 per cent has been described by experts as worrying as according to them, it suggests that “contrary to expectations of a strong pick-up this year, economic growth will remain subdued and well below the average of 7-8 percent.

Non-oil real GDP growth was also revised downwards to 4.6 percent from 5.2 percent.

Total revenue and grants and total expenditure for 2016 have each been revised downwards by GH?148.7 million to GH?37.9 billion (22.7 percent of GDP) and GH?46.3 billion (27.7 percent) respectively.

Government has come under pressure from the country’s development partners to take bold steps to rein in the rising debt stock which as at the end of May 2016 stood at GH¢105.1 billion.

The pressure is even more in the wake of the elections in December as many analysts are concerned government cannot resist the temptation to indulge in wanton dissipation of the country’s financial resources.

While Business Finder’s own analysis of the debt situation in the last four years revealed an increase of over 200 per cent, GN research said “within a space of three and half years, government borrowed a total of GH¢70billion to drive home its prudent fiscal management and smart borrowing agenda.”

Indeed, government itself, worried about the implications of the debt distress especially for its bailout programme with the International Monetary Fund (IMF) has recently been making frantic efforts to restructure most of the debts.

The IMF has been keen on government developing a strategy to manage the huge debts accumulated by state-owned enterprises (SOEs) in the energy sector before the next tranche of the US$918 million Extended Credit Facility (ECF) is disbursed.

Finance Minister, Mr Seth Terkper hopes an agreement reached with creditors over debts on the books of the Volta River Authority (VRA) will oil government’s discussions with the Fund.

The VRA is indebted to about 11 commercial banks to the tune of over GH¢4 billion – out of which the current debt agreement reached with the banks with the backing of government is aimed at resolving GH¢2.2 billion.

Mr Terkper admits that state-owned energy sector firms are now faced with financial challenges which have affected their viability and necessitated a restructuring and priority repayments via special energy levies, automatic tariff adjustments and elimination of subsidies.

It will be recalled that three economic research agencies, Moody’s, the Institute for Fiscal Studies (IFS) and the Centre for Policy Analysis (CEPA) painted a gloomy picture of Ghana’s economic prospects in stark contrast to what government has been preaching.