Ghanaians must prepare for tough times — Razia Khan

Ghana must brace itself for some tough times ahead if it is to meet the various benchmarks and performance targets set by the International Monetary Fund (IMF), Ms Razia Khan, the Chief Economist of Standard Chartered Bank (Stanchart), Africa, has said.

According to her, the IMF wants the country to strictly go by what the managers of the economy have described as ‘home grown policies’ to be able to bring the economy back on track.

Ms Khan said one of the major demands of the IMF was for the government to embark on serious fiscal consolidation by raising more internal revenue and cutting excessive borrowing.

That will imply a reduction in major development projects that invariably affect businesses that rely on government contracts.

As a result, the roads, hospitals and other infrastructural projects that have either taken off or are in progress will have to wait until things get back on track. 

Speaking in an interview during the Africa Summit, organised in Accra by Stanchart for policy makers, economists, bankers and researchers across the continent, the Stanchart Chief Economist for Africa said: “From the 125-page document it is evident that the IMF is not going to make things easy for Ghana. There are, among others, the many structural benchmarks and performance criteria that need to be met and the pressure will be on Ghana to show that it is making progress and to show that it is meeting the performance criteria and the benchmarks.”

Ghana for the past couple of years has been going through some serious economic challenges which experts believe is leading to a point of collapse.

For instance, what is making the economy look fragile is the growing debt, both domestic and external which stands at about 67 per cent of total Gross Domestic Product (GDP).

According to the Monetary Policy Committee (MPC) of the Bank of Ghana report from February, this year “The stock of domestic debt stood at GH¢34.6 billion (30.5 per cent of GDP) at the end of 2014, up from GH¢26.7 billion (28.4 per cent of GDP) in 2013. 

External debt stood at US$13 billion (36.6 per cent of GDP) at the end of 2014, up from US$11.5 billion (26.9 per cent of GDP) in 2013. 

Other challenges

Ghana still suffers one of its worst energy crisis which is seriously affecting industry and other businesses in the country. Much as many are trying to stay afloat, the worsening situation coupled with what many described as a ‘plethora of failed promises’ by the government in its quest to resolve the problem has forced many to lay off workers in an attempt to manage their ever-growing cost of doing business.

The country’s currency, the Ghana cedi, is also depreciating at a faster rate making imports expensive for the many who rely on imported raw materials to produce in the country. 

The cumulative depreciation for 2014, the MPC report said, stood at 31.2 per cent compared with 14.5 per cent in 2013. 

Again in January 2015, things got better as the cedi depreciated by 1.3 per cent compared with 7.8 per cent depreciation a year ago but this situation has worsened over the months.

Inflation is presently above 16 per cent and experts believe it will rise further before slowing down if the energy crisis abates.

Fiscal consolidation

Ms Khan said the country had seen high interest rates and worsening forex depreciation and  warned that unless Ghana puts in place a faster fiscal consolidation “we can see those factors — higher interest rates and the pace of depreciation —worsening.”

The danger is that if Ghana does not put in place some of those reforms, its debt situation will easily become unsustainable and that will be because of the way it is financing that debt.

“The big part of this is to bring Ghana back out of the situation in which it can issue external debts such as the eurobond because that will help to deal with its maturing commitments in 2017 and it should also allow it to finance its debt at a lower cost because it can reach the dollar market at a lower rate than it can borrow in a currency that until recently the BoG was able to print with relatively fewer controls in place.”