Government must take the bold decisions
For the first time in four years Ghana's annual inflation rate hit a high of 15.3 per cent in July this year, and there is the possibility that food prices could push it up further after the harvest if the government fails to slow down its borrowing.
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Taming inflation is one of the many challenges confronting the managers of the economy. Things are not looking good and there is ample evidence to suggest that efforts to get the economy going have yielded very little by way of results.
Other challenges, in addition to the decline of the cedi, have been revenue and grant shortfalls, low gold price which is affecting production, power supply disruptions, high interest rates, problems with public sector wage management and energy subsidies.
We quite remember that with the coming on stream of crude oil, the economy recorded a growth of about 14 per cent in 2011. However, the economic growth rates now are nothing to be enthused about. We are experiencing single growth rates, which are a far cry from the growth potential of this economy.
It is quite painful that a country which was recently touted as Africa’s beacon of hope is now playing catch-up with countries which have less potential and we are even running to the International Monetary Fund (IMF) for a possible bail-out.
How did we manage to undo all the successes we achieved just three years ago?
Another question that needs to be asked is: how did Ghana get here?
The answer is in the fact that the government has underrated the importance of policy credibility for the restoration of macroeconomic stability.
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Some of the factors that create credibility problems for the government in the view of the public, development partners and the financial market are the fact that for two consecutive years (2012 and 2013) macroeconomic targets have been missed and annual budgets have not been implemented as approved by Parliament.
It is important to state that mid-year reviews have sometimes been used to introduce new policies, instead of the reviews being an assessment of policies outlined in the budget.
Budget outcomes have deviated significantly from forecasts and have tended to be perceived as not dependable. This leads to complacency and inappropriate responses.
Excessive spending in relation to the political cycle has undermined confidence in the commitment to macroeconomic discipline and stability.
Other instances are the announcement of policy measures (e.g., new tax measures) that are not implemented in accordance with the implementation schedule assumed in the budget; surprise changes in the foreign exchange market regulations, followed by selective revisions that suggest inadequate consultation with stakeholders or assessment of the reaction of the public.
Institutional arrangements have been proposed to deal with corruption, but high-profile cases remain to be dealt with frontally.
We cannot talk about the economy without mentioning that the structure of government spending is a major constraint on fiscal policy.
In the 2013 budget, government expenditure on two items – public wages and interest cost on the public debt – absorbed 57 and 25 per cent, respectively, of total government revenue, leaving only 18 per cent for other budgetary items, including capital expenditure.
All that the government needs to do to be able to resolve these challenges is a strong commitment and the necessary boldness to take certain courageous steps, though they might be painful, to ensure that Ghanaians see light at the end of the tunnel.GB