He NADAA: Between 'the devil and the deep blue sea'

Despite the rhetoric and the one hundred-billion-cedi Ghana CARES ‘Obaatampa’ Programme President Nana Addo Dankwa Akufo-Addo, is facing a choice between “the Devil” and “the deep blue sea” with respect to the economy. These are hard choices, because whichever path he chooses, the NPP, all things being equal will incur the wrath of the Ghanaian electorate. He faces the possibility of going down in history as the all-time ‘President of Debt’ or the ‘President of Austerity’.

Ghana faces grave Economic Challenges in 2021. The Ghanaian economy is officially in a ‘Recession” after two consecutive quarters of negative GDP growth. On 16 December 2020, the Government Statistician, Samuel Kobina Annim, announced that Ghana’s GDP contracted by 1.1% in the third quarter of 2020 after a contraction of 3.2% in the second quarter.

A ‘Recession’ brings the spectre of higher unemployment, reduced revenue collection combined with increased demand for stimulus packages. Businesses would likely face reduced demand, revenues, and profits. Customer defaults would rise and there are the requisite staff layoffs and other unpleasant cost-cutting measures. The biggest threat is of bankruptcies and closures.

The standard prescription for a Recovery from Recession is an economic stimulus package and yet Ghana is ‘Broke’. The only way the country can start to fund a half-way decent stimulus package in 2020 is the proposal to borrow US$5 billion on international capital markets.

At the end of June 2020, Ghana’s debt stock was approximately GHS 258.4bn. An increase of 118% in four years. As of June 2020, 89.1% of Ghana’s revenue and grants were used to service debts. The debt service cost in 2019 was 58.1%. Ghana’s debt service cost in 2020 is projected to be 71.5%. This is the highest in 20 years. And if that was not bad enough, the energy sector debt continues to mount. Who will be the brave one to upset the international community which provides us with more and more debt.

That is the “Devil”, Ghana can continue to borrow and eventually the Ghanaian economy will ‘crash’, Lebanon style. The effects will be heavy cuts to Govt expenditure, massive layoffs, Unemployment (30% plus), currency crash, and a severely diminished standard of living.

The conclusion of the Joint World Bank-IMF Debt Sustainability Analysis on Ghana (December 2019) is that “…. Ghana is at high risk of external public debt distress with thresholds breached on the PV of external debt to GDP ratio, the debt service-to-exports ratio, and the external debt service-to-revenues ratio, with the latter exceeding the threshold throughout the forecast horizon.”

To avert the risk of debt distress, the country must reign in expenditure and increase tax revenue. Therein lies the “deep blue Sea”. To reign in expenditure, projects that have made the government popular will have to be severely curtailed or cancelled. Free SHS, free water and electricity, NABCO and payments to depositors with defunct financial institutions, etc. Ghana’s tax collection rate as a percentage of GDP is low. Good luck to the one who will eventually impose a property tax regime that works at a time of record business closures and job losses. HE NADAA epitaph could very well read “here lies HE Nana Addo Dankwa Akufo-Addo, the all-time ‘President of Debt’ or… the all-time ’President of Austerity’”.