Dr Joe Abbey, Executive Director CEPA
Three economic research agencies have rejected government’s claims of a robust Ghanaian economy in 2017 and have rather painted a gloomy picture.
Moody’s Ratings Agency has maintained its downgrade of Ghana’s sovereign ratings at B3 warning of a negative outlook for the economy, the Institute for Fiscal Studies (IFS) says Ghana’s economy is too weak to provide the threshold for further fiscal consolidation envisaged by government while the Centre for Policy Analysis (CEPA) has also lamented the financial crisis the Ghanaian economy has found itself in.
Government has been touting its achievements and insisting that its economic reform agenda is bearing fruit and will reposition the economy on a stronger trajectory.
It is targeting single-digit inflation, a deficit to Gross Domestic Products (GDP) of below 3 per cent, debt to GDP of below 60 per cent and a stable currency and significantly lower interest rates by the time Ghana exits the current three-year International Monetary Fund (IMF) bailout programme next year.
Ghana’s inflation is currently at 16.7 per cent, debt to GDP at 66 per cent, a cedi to dollar rate of GH¢3.95 and a high interest rate of between 32 and 40 per cent. With four months to end the year, the research agencies are wondering how these indicators can metamorphose into positive drivers and propel the expected growth in 2017.
Moody’s is worried fiscal slippages including those related to the December 7 elections as well as challenges with the implementation of IMF conditionalities could jeopardize the continuation of the bailout programme.
Already, there have been concerns about the delay by the IMF Board to approve the disbursement of the third tranche of aid to Ghana following the third staff review of the Programme in May this year.
The delay has been occasioned by Ghana missing critical targets agreed under the programme including a breach of IMF’s financing restriction. Following these hiccups, government was compelled to hold talks with the Fund to reaffirm its commitment to the aid programme.
Business Finder has learnt of another postponement of the review by the IMF Board to mid September instead of the August 29 date earlier communicated.
Communication received from the IMF last Monday said “Discussions between staff and the authorities are currently ongoing to update macroeconomic projections, firm up the fiscal outlook for the remainder of 2016 and ascertain that financial pressures in SOEs will not pose additional risks to the central government budget. Subject to a quick and positive conclusion of these discussions, staff expects the third programme review to be considered by the IMF Executive Board around mid-September.”
According to Moody’s, Ghana’s fiscal strength has been assessed as ‘very low (-)’ and is reflected in the significant increase in the government debt ratio to 71.6 per cent of GDP in 2015 from 56.8 per cent in 2013, driven by the large fiscal deficit at 10.2 per cent in 2014, followed by 6.3 per cent of GDP in 2015.
“Ghana's debt affordability is already among the weakest in Moody's-rated universe, with annual interest payments amounting to almost one third of revenues in 2015 and around 25 per cent in 2016 and 2017,” the Ratings Agency stated.
Ghana's relatively high share of foreign-currency debt exposes it to adverse debt dynamics during bouts of currency volatility.
The IFS expressed doubts over the economy turning around in 2017, saying
the weak economic conditions that had prevailed for quite some time in the country may not be mitigated within the remaining period of 2016 and provide the threshold for robustness the following year.
The Institute advised government to re-examine its borrowing plans for the rest of 2016, with the view to limiting the interest cost burden and debt distress risks.
“The trend of weak economic growth, high inflation, high interest rates and debt unsustainability has not been reversed, and debt vulnerability could worsen as the government contemplates more external borrowing at an expensive cost,” IFS said in a statement.
The economy, the IFS said had continued to experience high inflation ranging between 18.4 and 19.2 per cent in the first half of the year and has been eroding real incomes.
According to the Policy Think-Thank “the high inflation, tight central bank policy stance and high level of government activity in the debt market have kept interest rates at elevated levels, despite a slight dip at the short end of the market over the past year.”
IFS said the sharp revision to the 2016 real GDP growth estimate from 5.4 per cent to 4.1 per cent in the supplementary budget was both surprising and worrying as it suggests that contrary to expectations of a strong pick-up this year, economic growth would remain subdued and well below the average of 7-8 per cent.
On expenditure, the Institute pointed out that sacrificing the much-needed capital expenditure on the altar of fiscal consolidation could do more harm than good to the economy in the long-term.
CEPA has also added its voice to calls for government to be restrained in its borrowing culture, warning that “the Ghanaian economy is in financial crisis and cannot continue the borrowing spree.”
According to Executive Director of the Centre, Dr Joe Abbey, “current economic conditions – rising inflation, volatile exchange rate, growing public debt call for immediate and sound macro-economic policies if stability is to be restored.”
