19 July 2013

Ghana Is Cash-Strapped, Not Broke - Economist

Photo: UN-HABITAT / Julius Mwelu
A young boy vending wares in Accra.

A Senior Economist at the Institute of Economic Affairs (IEA), Dr. Joseph Kwakye, has waded into the debate on the health of the Ghanaian economy, describing it as a cash-strapped economy.

He explained that since the 2012 general elections some public sector workers had been on the streets and in board rooms demanding their unpaid salaries and other allowances. Coupled with this, contractors and other government creditors are also demanding to be paid their arrears.

So are the Ghana Education Trust Fund (GETFund), District Assemblies Common Fund (DACF), National Health Insurance Fund (NHIF), and Road Fund. All these have really put stress on the Ghanaian economy.

The economy was dealt a fatal blow in 2012 through the fiscal window. And we are currently suffering the fallouts of this cyclical, politically-driven indiscretion. As a result of excessive expenditure, the budget deficit ballooned to 12% of GDP, along with the carry-over of a substantial level of arrears.

He was quick to say: "Currently, the economy is cash-strapped. Not enough revenue is being collected. Donor disbursements are lagging. The slack is being made up by borrowing. Arrears to contractors and other government creditors remain unpaid. The statutory funds are not being funded."

Saying that the expenditure level of the government was too high, he called on the managers of the economy, as a matter of urgency, to reduce and prioritise it. "The wage bill has to be contained. This has to be done by cleaning up the payroll system and downsizing the public sector."

Dr. Kwakye told journalists in Accra yesterday, when he presented the IEA version of the 'State of the Ghanaian economy,' that within the seven months of this year, there was little money in circulation, compounded by the freeze on new contracts.

The woes of the Mahama-led government are further aggravated by the erratic power and water supply situation in the country, while sanitation is out of control in Accra and other big cities in the West African country.

Touching on the middle-income status of the nation, the renowned Economist noted: "After the rebasing of the Gross Domestic Product (GDP) in 2010, Ghana's per capita GDP rose to within the bracket of middle-income countries (MICs) -World Bank criterion."

Based on this criterion, Dr. Kwakye added that the MIC status should be retrospectively dated to 2007, saying the current GDP of the country was about $40 billion, equivalent to GH¢80 billion, while her per capita GDP is about $1,500.

However, he observed that the country still had some of the weakest socio-economic indicators among the MIC countries.

These key indicators, the Senior Economist mentioned, include the government spending of 35 percent of GDP being too high, high aid dependence, huge infrastructural deficit, power deficit, and huge water supply deficit. "This means that Ghana has a long way to go to become a 'true' MIC," Dr. Kwakye told the journalists.

On real economy, he stated: "Ghana has achieved fairly high rates of growth for several years. Recent oil production has given further boost to growth. However, growth has not been generating as many jobs as expected, and unemployment is high."

Dr. Kwakye, whose analysis on the state of the economy comes at the back of two other analyses on the state of the Ghanaian economy by the ruling government and New Patriotic Party (NPP), indicated that the problem of jobless growth was probably best understood by looking at the sources of growth.

According to him, the services sector had been growing the most rapidly in recent years and has become the lead contributor to GDP (50%), with industry, including oil in second place (27% of GDP), and then agricultural recording 23% GDP in 2012.

Furthermore, the public sector is already over-bloated, and employment in the sector is virtually stagnant, to the extent that the private sector is not able to make up for the slack in public sector employment, and overall job creation has been constrained, Dr. Kwakye said at the press conference.

On the side of supply of labour, population growth and rising numbers of school leavers are joining the labour market yearly. The question, the renowned Economist asked, is whether the entrants have the relevant employable skills?

Dr. Kwakye lamented: "Businesses and industries complain about the mismatch between available jobs and skills, which exacerbates the unemployment problem in the country."

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