CDG-Gh: Economy in Deep Distress

Ken Ofori-Atta, Finance Minister with the Vice President, Dr Mahamudu Bawumia

Accra, Ghana, September 15, 2020//-In its analysis, Caucus for Democratic Governance, Ghana (CDG-Gh) reminded Ghanaians of government`s decision in March 2020 to run to IMF and World Bank respectively for urgent intervention, after three weeks of COVID-19 crisis.

 Some of us were surprised and worried because this country generally has no enough capacity to survive three months imports during crises.

But official macroeconomic figures at that time interpreted the economy as strong and robust. The strong and robust economy however could not contain the stress and so went on its knees.

The Ghana cedi (GHC) is falling as never before and is now rated the cheapest currency in Africa. Besides, the energy sector has huge debt; a condition which is bringing back the much dreaded “Dumsor”.

Additional Budget    

After receiving hundred million dollars,  followed by one billion dollars from IMF and World Bank respectively, the Finance Minister , still fearing a collapsing  economy, went to Parliament with an additional budget; requesting the use of all remaining funds, including the  Heritage Fund, Oil Fund and Stabilization Fund.

Meanwhile African contemporaries such as Senegal, Ivory Coast and Kenya, in spite of GOVID-19, had growth rate figures of 2% to 3%, while Ghana was struggling with a growth rate of 0.9%.

How weak is the economy?

The true weakness of the economy is not known because of divers manipulations the true figures have to go through. In March this year, the economy was at Intensive Care Unit, desperately looking for healing.

The Finance Minister presented polished figures to Parliament, proving the economy is strong ; but sent the true damming figures  to IMF for more loans.

Ghanaian asserts sold

Out of desperation, Ghana`s 10% mineral royalties is to be used by Agyapa Royalties Ltd, as mortgage for 15 years, for payment of 500 million dollars.

Similarly the Sino-Hydro deal agrees to use the country’s bauxite as mortgage, at the cost of $2 billion for 15 years.

The GETFUND (used to finance school infrastructure among others) has been given to China for 10years at the cost of $1.5 billion. Even Cocoa trees have been mortgaged for $600 million.

As if that is not enough, the government is borrowing an additional GHC22.7 billion in three months to keep the fragile economy afloat.

These are a few of many Ghanaian asserts that have been sold by government.  The monies for our children have been collected and are being used by the Akufo-Addo-led government. Certainly posterity will be our judge.

Reasons for weakness

Bank of Ghana, which apparently has lost its autonomy to Ministry of Finance, is forced to print GHC5.5 billion ghc to finance Government operations and is planning to print more. This practice weakens the economy.

Excessive borrowing and ever increasing volume of imports, accelerates the depreciation of the cedi and so weakens the economy and reduces its credibility.

In an economy where economic figures on Internal reserves and Fiscal Deficit of GDP are manipulated (eg, in the 2019 budget), the economy will be weak.

True Figures

The true economic figures give the total tax revenue collected as GHC42 billion, while the Government budget is GHC150 billion. This means, we need about GHC108 billion to get the economy running.

Debt payment and loan servicing, is GHC38 billion. If you subtract this from total revenue collected, we have GHC4 billion left over for projects and payment of salaries.

Many government workers have not been paid. The country’s national debt of GHC255 billion is the highest national debt in the history of Ghana.

Out of this amount the current government alone has borrowed GHC135 billion, the highest ever, since 1957. Our financial future  is gloomy.

Advice to government

CDG-Gh advised the government to stop manipulating the economic figures, and open it up for discussion. If it can avoid creative accounting (putting a number of debts under the baseline to escape accounting) things will be transparent.

If it can go back to the original “baseline to GDP”, the economy can be fairly well assessed. If we can reduce imports and borrowing, the economy will react.

Recommendation

The government should aggressively embark on pruning its size by reducing number of its 135 ministers and over 2,000 presidential staffers).

It should also reduce imports and taxes, and invest in productivity instead of consumption then the economy will react positively.

By Dr E.K.Hayfod, Executive Director, CDG-Gh

                                                                                                       

 

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