IEA Cautions Against Over Reliance On Oil
5/4/2012 4:01:13 PM -
Dr. J. K Kwakye, Senior Economist at the Institute of Economic Affairs (IEA), has cautioned government against over reliance on the oil sector to the neglect of other key areas of the economy.
He stated that since the discovery of oil in commercial quantities, the growth of the manufacturing sector has severely declined, a development which he described as unfortunate.
He said 'in the past few years there has been a decline and in some cases stagnation in the non-oil sectors, especially in the manufacturing area, which is not very good.'
The economist emphasized that the local manufacturing sector creates a lot of employment and stressed the need for government to take a critical look at the sector.
He added that 'the local manufacturing sector faces numerous challenges like access to affordable credit, inadequate energy supply and capacity building. Government must therefore take a second look at this area if it intends to create more employment.'
Dr. Kwakye stated this at a media briefing on the Review of the Ghanaian Economy in the second half of 2011 organized by IEA in Accra.
He noted that 'Ghana is noted as having the highest rate of growth worldwide boosted by oil. While this is welcome news, it is important to ensure that economic growth spreads to other sectors, especially nonoil industries, in order to generate more jobs.'
Presenting the report, Dr. Kwakye noted that during the half year, government's budget recorded a deficit of 2.2 percent of Gross Domestic Product (GDP), which brought the deficit for the year as a whole of 4.4 percent of GDP, marginally higher than the budget estimate.
He stated that 'spending on the public sector wage bill and transfers, which include statutory payments and subsidies, continue to rise and put undue strain on the budget.
'As a consequence, capital expenditure, which is directly productive - and should therefore be given priority attention, is often sacrificed.'
According to Dr. Kwakye, during the half year, Ghana's domestic debt increased by 9.7 percent to GHC 11,841.1 million, the external debt by 7.2 percent to US$7,589.5 million, and the total debt by 10.0 percent to GHC23,608.5 million.
He said Ghana's debt rose as a result of borrowing, adding that 'while the GDP rebasing and oil production have increased Ghana's capacity to carry higher debt at sustainable levels, it is important that new debt is applied to high-return projects to boost economic growth and thereby ease the burden of future repayments.'
During the half year, Ghana's gross international reserves increased to US$5.4 billion, equivalent to 3.2 months of imports. The import cover is the conventional measure of reserve adequacy.
However, Dr. Kwakye was of the opinion that 'even here, there are no hard and fast rules because countries that are vulnerable to economic shocks, including commodity-producing countries, need to maintain higher levels of reserves as a cushion.'
By Esther Awuah