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Ghana’s economy after exiting the international Monetary Fund(IMF) Extended Credit Facility Program (ECF) in April 2019 has started posing signs of recession due to rising fiscal risk in terms of widening of the fiscal deficit from a target of 2.9% in the first six months to 3.3% of GDP which has led to an upward revision of the year fiscal deficit target from 4.2% to 4.5% of GDP which in my estimation may even hit 7% due to non adherence of the fiscal rules. Rising public debt which is gradually wiping out the fiscal space also stood at GHC 205 billion as at the end of July 2019 and a decelerating growth from 8.8% in 2018 to a projected rate of 7.6% in 2019. This has the tendencies of eroding the macroeconomic gain and drop investors confidence in the economy. In view of these pragmatic and credible policies which ought to be pursued by the managers of Nana Addo led administration in the 2020 budget to restore growth and confidence in the economy are proposed below;
An off-budget transaction should be avoided going into the 2020 fiscal year to enhance budget and policy credibility. Rationalization of public spending by downsizing the public sector particularly ministries that are seemed to be the duplicating function as well as presidential staffers, NABCO which is not ensuring any productivity, rising expenditure on goods and services needs to be controlled and other financing needs of the public sector. This will help strengthen the fiscal consolidation effort in line with the Fiscal Responsibility Act.
The GHC 45billion revenue target set for GRA is likely not to be met in 2019. To justify fiscal sustainability going forward requires that exemptions regime at the ports should be reviewed to maximize revenue, improve tax compliance measures, facilitating easy payment of taxes, ensure continuous efficiency measures at the port aimed at revenue maximization, quicken the pace of formalization of the economy for effective taxation, resource GRA and other related agencies and department tasked with the responsibility of taking fees and fines, build capacity of MMDA’s to ensure efficiency in revenue mobilization and possibly taking them off government subventions to help decelerate rising public debt and other expenditure obligations.
The country’s debt in nominal values stood at GHC 205billion as at July 2019 according to the Bank Of Ghana economic summary and financial data and the debt to GDP ratio is also projected to hit 63% by end of 2019 fiscal year. This has led the economy into distress status according to the debt sustainability analysis of the International Monetary Fund on Sub Saharan Africa in recent times. Therefore the need for debt accumulation should be contained as debt servicing ratio against total revenue in 2019 also constitute 49%. This remains the biggest worry to the International Monetary Fund as this debt are not supported by any investment in capital expenditure.
Monetary policy by the central bank has been impressive and is expected to continue in case but in case of any emergency in exchange rate volatilities and inflationary pressures the Central Bank should not hesitate to adjust the prime rate to contain pressures and tight monetary policy stance. The Central Bank should also focus on enhancing our external environment by avoiding the “TURKISH TYPE” of reserve; that is borrowing to shore up a reserve which is not sustainable in my view
THE REAL SECTOR/NON-EXTRACTIVE SECTOR
Is likely the projected growth target for the 2019 fiscal year will not be met looking at how sluggish and bullish growth have been for the first two quarters is 6.7% to 5.7%respectively. Focus on the non-oil sector of the economy which has suffered some contractions in some sub-sectors since 2018. This sector has the tendencies to address the structural challenges of the economy, create jobs and reduce poverty among the citizenry. The government in 2020 budget should adopt policies to address the ailing technical and vocational skills to make those in that fraternity competitive to that of the BRICS nations to drive investment into the economy. Also, the textile industry ought to be looked at critically as it poses the potential to drive exports, reduce imports drastically and Improve our external position. The pace of modernization in agriculture should be expedited especially rice, vegetables, fisheries, livestock and scaling up the production of cash crops. Similarly, the stimulus package ought to be provided for defunct industries who possess a competitive advantage. Expanding the production and operations of VALCO and TOR is also welcomed. Provision of socioeconomic infrastructure that supports and enhance efficiency in production is highly encouraged to possibly meet its overall growth targets in subsequent years which is fast decelerating now.
FINANCIAL SECTOR CLEAN UP
The impact of recapitalization and banking sector reforms has not really entrenched market confidence which has resulted in total banking asset grew up by just 14% in 2018 as compared to 30% in 2016. This reflects how the sector reforms were carried out without any well thought out strategy and blueprint. The purpose of ACT 930 is to use administration as a major tool for reviewing and restructuring of distress banks to it survival and viability. Adopting the following proposal in my view will provide a turnaround for the financial sector particularly the upcoming clean up in the rural banks.
- a. Asses and reconstruct financial situation of the rural bank based on audited financial data and capital requirement.
- b. Proposed financial engineering strategies such as issuing additional shares to existing shareholders to raise the needed capital for the bank.
- c. Issue new share to prospective shareholders for the needed capital.
- d. Improve corporate governance in rural banks.
- e. Institute a program of debt and liability management.
- f. Strengthen the Credit Referential Bureau to reduce non-performing loans following an upsurge of non-performing loans from 17.6% in 2016 to 18.2% in December 2018
Pursue a viable energy sector through the Energy Sector Levies Act (ESLA) to help reduce liabilities and shore up efficiency
STRENGTHENING OF ANTI CORRUPTION AGENCIES
Anti-corruption agencies like Commission On Human Rights And Administrative Justice(CHRAJ) should be a resource to implement the National Anti Corruption Action Plan(NACAP), the Auditor General and Public Procurement Authority Act respectively should be reviewed to enhance transparency and value for money in public spending.
In conclusion, I will urge the managers of the economy to subscribe to the International Monetary fund(IMF) Policy Support Program to sustain policy credibility, curb rising fiscal risk and ensure investor confidence.
Akorli Michael Ofoei
NDC Deputy Eastern Regional communications officer