Economy yet to turn the corner — Experts
Two experts say the economy is yet to turn the corner on account of government’s downward revision of its macro-economic targets even though finance minister expressed optimism at last week’s mid-year budget presentation.
Advertisement
The finance and economic experts agreed that although the economy has seen some form of stability as a result of the implementation of the austere International Monetary Programme (IMF) programme, the stability has come at great expense to the overall growth of the economy, households and individuals.
The two, Professor Godfred Alufar Bokpin, a Prof. of Economics and Finance at the University of Ghana and Michael Cobblah, the Chief Executive Officer of C-nergy, were speaking at the first Graphic Business Dialogue Series on Twitter now called X.
Giving an overview of the mid-year budget, Prof. Bokpin said “eight months ago, government was more optimistic about how the economy would perform in 2023, but what we see in the mid-year review is an admission that eight months down the line government is less optimistic now about the economy.”
That, he explained, has informed the revision of all the macro targets, adding that “overall Gross Domestic Product (GDP) was projected to be 2.8 per cent to 1.5 per cent, a variance of more than 46 per cent”.
The implication of this revision, according to Prof. Bokpin, was that the economy was going to be in a recession, explaining that once the GDP growth was lower than the population growth, “then technically your economy is in recession in GDP per capital terms”.
Population growth, he said, was expected to grow by two per cent.
Giving further figures to back his claim that the economy was yet to turn the corner, Prof. Bokpin said non-oil GDP growth of the economy was estimated at three per cent and this has also been revised to 1.5 per cent, a difference of 50 per cent.
Inflation was also projected at 18.9 per cent at the end of 2023, however, government has revised inflation targets to 31.3 per cent representing an over 65 per cent variance. Primary balance which was at projected 0.7 per cent for 2023 has been revised to -0.5 per cent.
Gross International reserves have been revised downwards from 3.3 months of import cover to 0.8.
“With the IMF supported programme, we have seen some relative stability. However, if you look broadly across all the economic variables, we are not out of the woods yet”, adding that “we still have a long way to go because we have to see all these indicators heading in the right direction then we can conclude that we have turned the corner”, Prof. Bokpin stated.
The economic professor noted that another way of judging whether the economy was turning the corner was to also look at the recent MPC report.
He said a look at the spikes in the inflation figures for May and June indicated a worrying signal against all projections and that accounted for the MPC tightening further the supply of money by increasing the prime rate by 50 basis point to 30 per cent.
“That is a reflection of the fact that on the balance of risk, the risk was towards inflation,” Prof. Bokpin explained.
Under the IMF supported programme, he stated, the fiscal adjustments were heavily tilted towards revenue, that is, fiscal adjustment alone was to contribute more than 50 per cent of that 5 five per cent of GDP fiscal savings of the adjustments while expenditure accounts for just two per cent.
Explaining further, Prof. Bokpin said government expenditure cuts which included a freeze on government employment and containment of wage increases in the public sector presupposes that the private sector should be the area for growth.
However, he expressed worry that giving the level of taxes introduced since the COVID- 19 pandemic and adjustments made to existing taxes, it would not position the private sector to expand and engineer the growth that was expected, adding that the new taxes were unbearable for the private sector.
“If you put all these together, what is of concern is that we may not be able to engineer an inclusive growth that will rope in moderate and low income earners, that will benefit every Ghanaian”, he stated.
Going further, he explained that a look at the IMF supported programme projects growth for the economy from now to 2026.
However, he said “growth would not be broad-based, would not be inclusive and would not lift majority of Ghanaians out of poverty”, Prof. Bokpin enumerated.
Advertisement
Beyond the GDP growth, the country should talk about growth that is “job-rich and inclusive growth” and that with government limiting spending and increases in taxes on the private sector, the economy will contract instead of expanding.
“All these indicate that the recovery will be slow and it would be costly,” Prof. Bokpin stated.
For his part, Mr Cobblah said the inconsistencies in policy statements and the DDEP did not encourage investments as investors shy away from uncertainties, adding that the investor public was already deflated.
He said there was the urgent need to get the haircut and the second round of government proposed DDEP out of the way quickly so as to position the economy to attract the needed investments.
Advertisement
He, however, noted that the relative macro-economic stability seen was beginning to yield some positive results as investors were beginning to re-look at Ghana, adding that “Ghana enjoys some goodwill on the international market”.
Mr Cobblah said there was need to do something drastic instead of focusing on taxes, adding that “we have to find very creative ways to increase our revenues”.
He suggested that government takes a re-look at the integrated aluminium industry, adding that “policy initiatives especially in the value chain of the aluminium sector was one surest way of improving our revenues”.
The investment banker and analysts also pointed to the cocoa industry and the need to partake in the US$120 billion in the value chain of the chocolate industry.
Advertisement
“We should be intentional about these projects” adding that these are the policy that can give us a quantum leap and not to be too dependent on taxes that tend to slow down the private sector,” Mr Cobblah stated.
Mr Cobblah also suggested a review at what he described as the “fancy” government projects such as “planting for food and jobs, one-district one-factory, one-village one–dam” stressing that over the past six years if these projects had worked, they would have reduced our import bills.”
Background
Finance Minister last week presented the 2023 mid-year budget statement to Parliament in which the minister expressed optimism that the economy had turned the corner.
Among mnay other things, Ken Ofori-Atta’s Mide-year budget revised macro-economic targets such as GDP growth projections. The government has also proposed a second round of DDEP.
Graphic Business has in its April 18th edition in an exclusive story hinted of government’s second round of DDEP in which pension funds were targeted.
The first round of the DDEP saw the government swap 12 old bonds valued at GH¢82 billion for new ones at reduced coupon rates and longer tenors.
The second round of DDEP which involves the restructuring of local dollar denominated bonds and cocoa bills is also currently ongoing.