The Ministry of Finance (MoF) and University of Ghana (UG) have held an inaugural quarterly economic roundtable in Accra.
The event offended industry players opportunities to deliberate and share ideas on restoring macroeconomic stability in Ghana.
On his paet, Dr. Nii Kwaku Sowa, Country Director for the International Growth Centre (IGC Ghana) emphasized the critical need for effective resource management to ensure Ghana's macroeconomic stability.
Dr. Sowa shed light on the persistent fiscal deficits and their implications for the country's economic future.
Dr. Sowa explained that deficits are a natural part of economic management, with a nation's deficit often reflecting another's surplus.
"For countries like the U.S., deficits are often balanced by domestic surpluses. In Ghana, however, our deficits are primarily due to debts owed to foreign creditors, meaning those resources don't return to our economy," Dr. Sowa noted.
Addressing the methods of financing the deficit, Dr. Sowa outlined three main options: borrowing domestically, borrowing internationally, and printing money.
He warned that each option carries significant drawbacks.
"Domestic borrowing can restrict private sector growth, international loans can lead to unsustainable debt levels, and printing money can trigger inflation and currency devaluation," he said.
Dr. Sowa highlighted the risks associated with macroeconomic imbalances, including inflation, currency depreciation, and resource mimisallocation.
He cautioned that these issues can destabilize the economy and lead to recession.
"In the 1980s, Ghana experienced inflation rates as high as 123%, causing severe economic disruption. We must learn from the past to prevent similar occurrences," Dr. Sowa emphasized.
He stressed the importance of investing borrowed funds in high-return projects.
"Borrowing should focus on investments that generate more than the interest owed. This prevents us from falling into a debt trap," he advised.
On her part, Madam Abena Osei-Asare, Minister of State at the Finance Ministry said "In our pursuit of economic stability and growth, it is imperative that we engage in continuous dialogue with all sectors of society,"
"This roundtable provides a unique platform for exchanging ideas, sharing research, and developing strategies that will propel our nation forward."
"We recognize the invaluable contributions of our universities in shaping economic policies. Your research and analytical capabilities are vital in guiding our decisions and ensuring that our strategies are grounded in evidence and best practices," she remarked.
"Engaging civil society is essential to ensure that our economic policies are inclusive and address the needs of all segments of our population," Minister Osei-Asare noted.
"Your insights and advocacy play a crucial role in shaping a fair and equitable economic landscape."
"The success of our economic policies depends on our ability to work together, harnessing the strengths of each sector. I am confident that this roundtable will yield valuable insights and strategies that will drive our nation's economic growth"
Prof. William Baah-Boateng, Head of the Department of Economics at the University of Ghana, offered insights into the potential for savings through pragmatic fiscal policies and reduced government spending.
Prof. Baah-Boateng suggested a shift towards a more sustainable model where officials manage these expenses independently.
"Imagine if the government only provided essential benefits, such as a modest voucher for housing and transportation, while officials handled their own expenses," Prof. Baah-Boateng proposed.
Prof. Baah-Boateng's proposal involves reducing the number of government-provided amenities and encouraging officials to maintain their own properties. This approach, he argued, could lead to considerable reductions in public spending.
"For instance, if we cut the number of ministers by 50% and provided vouchers instead of maintaining cars and houses, we could save a significant amount of money," he explained. "These savings could then be reinvested in essential public services and infrastructure."
Prof. Baah-Boateng emphasized that while these measures may seem minor individually, their cumulative effect could lead to a more sustainable and balanced budget.
"These changes require political will and public support," he noted. "However, the long-term benefits for the economy make them worth considering."
As Ghana strives for macroeconomic stability, adopting efficient fiscal policies and reducing unnecessary government expenditures can play a crucial role.
The insights from Prof. Baah-Boateng provide a roadmap for policymakers to explore practical solutions that ensure sustainable growth and economic resilience.
Dr. Alhassan Iddrisu, Director of the Economic Strategy and Research Division at the Ministry of Finance emphasized the urgent need for a comprehensive productivity study to guide fiscal policies and improve efficiency within the public sector.
"We need to understand where our money goes and how we can enhance productivity," Dr. Iddrisu stated.
He noted that compensation, including wages, salaries, and employee benefits, constitutes about 50% of Ghana's medical bills.
When combined with interest payments and transfers related to earmarked funds, this figure rises to 115% of the medical bills, highlighting the need for urgent reform.
Addressing the issue of compensation, Dr. Iddrisu emphasized the need for sustainable wages and salaries. He pointed out that every percentage point increase in base pay for public servants on the single spine salary structure costs the government approximately $30 million. Therefore, negotiating sustainable wage increases with organized labor is essential.
"We must ensure that wage increases are sustainable and do not burden the economy," Dr. Iddrisu stated.
Dr. Alhassan Iddrisu's call for comprehensive productivity studies and sustainable compensation policies underscores the need for strategic fiscal management in Ghana.
In a push for greater fiscal responsibility, Dr. Leslie Dwight Mensah, Economist and Research Fellow, Institute for Fiscal Studies has urged the government to undertake a thorough examination of public expenditure.
His call for action highlights the need to scrutinize every aspect of spending, aiming to identify and eliminate inefficiencies that burden the national budget.
Dr. Leslie Dwight Mensah's call for a comprehensive review of public expenditure and the establishment of a fiscal rule for public sector pay highlights the need for prudent fiscal management in Ghana.
By identifying unnecessary spending and setting limits on public sector pay, the government can work towards a more sustainable and balanced budget, fostering economic stability and growth.
Prof. Peter Quartey, an esteemed economist and Director of the Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana, has emphasized the importance of responsible borrowing for sustainable economic growth.
Drawing on insights from a recent IMF report, Prof. Quartey highlighted key considerations for nations seeking to manage their debt effectively.
Prof. Quartey underscored that countries must learn how to borrow responsibly to ensure that debt levels remain sustainable.
He pointed out that while borrowing can be beneficial, it must be done with the capacity for repayment in mind.
“Your debt-to-GDP ratio should be manageable,” he said, “and should take into account economic shocks and fluctuations.”
Prof. Quartey stressed that borrowing should primarily fund investment rather than consumption.
He advocated for a private investment mindset, where borrowing is guided by thorough cost-benefit analyses.
“When private entities borrow, they conduct extensive appraisals and analyses to ensure the viability of their investments,” he noted.
Franklin Cudjoe, Founding President and CEO of the Imani Centre for Policy and Education, has provided a detailed analysis of Ghana’s debt management issues and policy shortcomings.
Mr. Cudjoe pointed out a significant gap between policy thinking and its actual implementation.
He noted that irrespective of the government in power, there has been a consistent failure to translate policies into effective action.
This disconnect, he hinted, has led to repeated borrowing and inefficient use of funds, exacerbating the nation’s debt situation.
The CEO remarked on the role of the COVID-19 pandemic in highlighting the deficiencies in policy-making.
Contrary to popular belief, he argued that sovereign credit agencies are not to blame for the current economic downturn, instead, the pandemic revealed existing structural weaknesses and poor financial planning.
Furthermore, Mr. Cudjoe stressed the importance of building a resilient economy that can withstand external shocks, such as the COVID-19 pandemic.
Samuel Arkhurst, Director of the Treasury and Debt Management Division at the Ministry of Finance elucidated the intricate nature of national debt, emphasizing its roots in accumulated deficits.
Mr. Arkhurst explained that debt essentially represents the accumulation of annual deficits over time.
He illustrated this by noting that a consistent deficit of 5% each year over 20 years would equate to a cumulative deficit of 100% of GDP.
He emphasized that financing these deficits requires proper appropriation and that without it, financial management becomes untenable.
Reflecting on Ghana's fiscal history, Mr. Arkhurst posed a hypothetical question about the country's deficits from independence to date, highlighting the need for comprehensive understanding and strategic planning.
Mr. Arkhurst stressed the importance of learning from these fiscal patterns and adapting strategies accordingly.
He acknowledged that managing debt requires not only strength but also strategic foresight and continuous effort. Debt management, he noted, is a full-time responsibility that necessitates diligent oversight and adaptability.
He called for a focus on maintaining manageable levels of debt and ensuring that financial strategies align with long-term economic goals.
By doing so, he stated that Ghana could better navigate its financial challenges and sustain economic growth.
Prof. Ebo Turkson, an External Member of the Monetary Policy Committee said "If someone wants to lend to you, he/she will look at the rate of inflation and make sure that his/her returns will be positive. If inflation is high, the interest rate will have its own effects likewise if the inflation goes down. That is why inflation is key"
"If we don't tackle inflation, our aim to bring down interest rates and stabilise the currencies is not going to be possible, so that is why the primary mandate of the Central Bank is monetary policies"
"We don't only look at inflation. I have already told you that exchange rates could have a pass through to inflation"
"We also look at underlining factors that causes inflation"
On gold for oil, Prof. Turkson said "We have gold for oil and have gold reserves that the Central Bank has been doing with for the past two years or so. We are still doing the gold for oil"
He hinted that the move was to cure the demand pressure which comes from the BDCs.
"We are importing oil through that exchanges using cedis. If we use the cedis to buy the gold, we will build the reserves and we will use the gold to bring the oil. We are actually bringing the oil in cedis, that was why the cedi was stable"
Touching on the sharp depreciation of the cedi in the first quarter of the year, Prof Turkson said "Ghana, at the moment is making payments of the IPP debts, that we owe and these payments are in forex"
Joe Jackson, Chief Executive Officer of Dalex Finance voiced both praise and criticism concerning the Central Bank’s and the government’s handling of economic policies.
He highlighted key issues affecting the financial sector and pointed out past mistakes that continue to impact the economy.
“One of the most important things in the financial sector is ensuring that lending occurs,” Jackson stated.
Mr. Jackson highlighted the high interest rates as a necessary consequence of past financial mismanagement.
“We are now paying for the assistance committed in previous years,” he noted.
“High interest rates are something we may have to accept as a result of these past decisions.”
Reflecting on the missed opportunities for fiscal discipline, Mr. Jackson criticized the government for not making tough decisions when they were necessary.
“There was a time when we should have taken painful fiscal decisions, but we didn’t,” he remarked.
Prof. Agyapomaa Gyeke-Dako, an Economist at the University of Ghana Business School praised the Central Bank’s inflation-targeting strategy, attributing it to the recent relative decline in inflation.
Speaking on the effectiveness of the Central Bank’s approach, Prof. Gyeke-Dako noted that inflation rates were higher before the implementation of the inflation-targeted imaging system, particularly before the flooding incident that exacerbated inflation figures.
She added that since the introduction of this strategy, data indicates a notable decrease in inflation.
“The inflation-targeted imaging is indeed working when we examine the data,” Prof. Gyeke-Dako stated.
She emphasized that the primary mandate of the Central Bank under this strategy is to ensure price stability, with other concerns, such as ballooning assets and import considerations, being secondary yet not overlooked.
Prof. Gyeke-Dako likened the Central Bank to "fire-fighters," explaining that they are often summoned to resolve economic crises rather than being the root cause of them.
She urged the public to give the Central Bank the benefit of the doubt, recognizing the complexity of their role in stabilizing the economy.
Her insights underline the ongoing efforts and challenges faced by the Central Bank in maintaining economic stability through targeted inflation measures.
Story by: Joshua Kwabena Smith
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