The World Bank has warned the Ghanaian government, as a matter of urgency, to reduce the country's huge fiscal deficit of GH¢6,442.2 million, or 7.3% of Gross Domestic Product (GDP), it recorded within eight months of the year, to save the country's economy from collapse.
The Acting Chief Economist, World Bank Africa Region, Francisco Ferreira, added that Ghana, like many African countries, had been building mountainous fiscal deficits which could pose a threat to macroeconomic stabilities in those countries.
Mr. Ferreira and the Team Leader of the annual Africa's Pulse Report, Madam Punam Chuhan-Pole, told African journalists via teleconference: "Government spending is generally expansionary, and fiscal buffers in the region are yet to be restored to their pre-crisis levels."
The authors of the 2013 Africa's Pulse Report added that the expansionary fiscal policy in the region was reflected in the 0.3 percentage point deterioration in the cyclically adjusted fiscal balances in 2012. Adding that Ghana's carried forward huge fiscal deficit was a result of the 2012 elections.
A further 1 percentage point deterioration is projected in 2013, with the largest deterioration occurring among oil exporters, including Ghana, according to the International Monetary Fund (IMF). Large positive outpace gaps are emerging in some countries, suggesting that further expansionary fiscal policy could actually be counterproductive, because it could induce macro instability, with negative impacts on the investment environment and growth, the World Bank's Economists stated.
The report was to add that government gross debt-to-GDP, though rising, is overall moderate. The debt ratio has edged up from 29% of GDP in 2008 to over 33% in 2012. There remain significant differences among countries in the region, however, it noted that the debt-to-GDP ratio being as low as 8% in Equatorial Guinea, and as high as 83% in Cape Verde (and even higher in Eritrea).
A few countries such as Ghana and Senegal have seen a sharp rise in debt ratios in recent years. Recent results from IMF-World Bank debt sustainability analysis for 37 International Development Association (IDA) countries show that the number of countries in debt stress fell from 17 to 7, between 2006 and 2012.
The bank, therefore, challenged the Ghanaian and African governments to ensure that "the hard-earned gains of the last 15 years in terms of macroeconomic and fiscal stability are preserved, while continuing to lay the foundation for long-term growth."
Touching on the Sub-Saharan Africa (SSA) economic growth, the report says growth in the region remains strong, with growth forecasted to be 4.9% in 2013.
Almost a third of countries in the region are growing at 6% and more, and African countries are now routinely among the fastest-growing countries in the world, according to the World Bank's new Africa's Pulse, a twice-yearly analysis of the issues shaping Africa's economic prospects.
Buoyed by rising private investment in the region, and remittances now worth US$33 billion a year supporting household incomes GDP, growth in Africa will continue to rise and pick up to 5.3% in 2014, and 5.5% in 2015. Strong government investments and higher production in the mineral resources, agriculture and service sectors are supporting the bulk of the economic growth.
As Africa's growth rates continue to surge, with the region increasingly a magnet for investment and tourism, Africa's Pulse notes that poverty and inequality remain "unacceptably high, and the pace of reduction unacceptably slow." Almost one out of every two Africans lives in extreme poverty today. Optimistically, that rate will fall to between 16% and 30% by 2030. The report suggests that most of the world's poor people, by 2030, will live in Africa.
Following the global financial crisis and recurring climatic volatility on the continent, a growing number of African countries are setting up social safety nets to protect the health and livelihoods of poor and vulnerable people during periods of adversity. Africa's Pulse noted that safety nets can protect families from the worst effects of crises, and also contribute to growth as well, by allowing people to raise their incomes.
Africa's rising growth is underpinned by strong private investment. Gross fixed capital formation in the region has steadily increased from about 16.4% of GDP in 2000 to about 20.4% in 2011. The pickup in investment has directly contributed to economic growth, and has also helped boost the productive capacity of the region's economy.
Increasingly, infrastructure projects are being financed from new funding sources, such as China, but increasingly from Brazil and India, according to the analysis.
Despite strong growth, Africa's progress on ensuring that growth translates into considerably less poverty has been slow and hindered by high inequality.