‘Economy shows symptoms of middle-income curse’
Ghana’s economic growth story has been stunted by aid cuts and dwindling loan sources due to the country’s rise to the lower middle-income level that has compounded economic challenges.
Almost seen as a curse, the rise in middle-income status has taken a toll on the country’s ability to borrow on soft terms, thereby delaying key infrastructural projects.
At a stakeholders’ meeting in Accra on May 20, the Finance Minister, Mr Seth Terkper, said the much touted middle-income rise had weaned the country off several benefits.
“Ghana’s status as a middle-income country was determined by indicators shown by the economy and not a voluntary decision by government.
“We did not wish it for ourselves,” he remarked, “and we are not going to get out of it soon.”
“There is no package,” he stated, pointing out that “that is why we face some phenomena” like “facing our own debt management”.
World Bank classifications
On November 5, 2010, Ghana completed a rebasing of its national accounts that adjusted gross domestic product (GDP) estimates to account for growth in sectors such as banking and telecommunications.
Because of a structural undercounting of the services sector, official statistics had drastically underestimated overall GDP. By fixing this error, Ghana's GDP grew, at least on paper, by 69 per cent overnight to $25.8billion up from $15.3bn. This recalibrated number raised GDP per capita from under $800 to $1,363.
According to the minister, the World Bank, which gives Ghana the softest loans for roads, power projects, harbours and other infrastructural projects, has reduced the length of time for the repayment of these loans and has increased interest rates after the 2011 economic status categorisation.
Middle income enigma
The Finance Minister, however, refused to describe the middle income enigma as a curse but said it was a sign of growth and maturity. But a Senior Research Fellow at the Institute of Statistical, Social and Economic Research (ISSER), Dr Robert Osei, agreed that things had become even more difficult with the rise to middle-income status.
“Middle income is a symptom and not the root cause of our current economic difficulties,” adding, “We all know the classification to middle income comes with responsibilities.”
Structural problems in the energy sector also pose risks to growth and economic transformation, while the concentration of exports in three commodities—gold, cocoa and oil—makes the economy vulnerable to terms of trade shocks.
“We have to watch fiscal side, it has become quite problematic,” he said. The country’s economic status as a lower middle-income country has come under fire given the performance of the economy.
The President of the Association of Ghana Industries (AGI), Mr James Asare Adjei, said the country’s economic challenges was not the rise to middle-income status but its inability to live within its means.
“Let us stop the over-reliance on imports and pursue an import substitution policy to put the economy on even keel,” he said.
“The rise to middle income gives us the opportunity to position ourselves to take advantage of whatever benefits that come with that status,” he added.