The government will have to go the extra mile to maintain the stability in the national economy by adhering to fiscal and monetary disciplines during this election period.
In 2011, the economy performed remarkable well with an overall economic growth rate of between 13.9 per cent to 14.4 per cent and inflation in single digits. Non-oil gross domestic product (GDP) growth rate was estimated to have been in the range of 8.2 per cent and 8.7 per cent in 2011, with the oil sector contributing the remainder of 5.7 percentage points.
However, 2012 has been a very difficult period as the economic managers could not build on the achievements of the 2011 economic performance.
New challenges emerged from the closing months of 2011 and this continued into the early part of 2012 which has posed serious risks to macroeconomic stability. These include rising inflation and inflationary expectations, continued depreciation pressure, including speculative activities of dealers and traders in the domestic foreign exchange markets.
The Centre for Policy Analysis (CEPA)’s assessment of the economy from 2011 to 2012, indicates that the economy is facing other identifiable challenges such as the deepening of the euro zone crisis which could seriously affect the country’s export earnings, intensification of trade with China which involve large cash transactions in the exchange markets and the fact that the country had not reached its oil production target, which has dire implications on revenue inflows.
Economic growth in 2012 is projected to be driven by strong domestic demand which includes household consumption expenditure expected to rise sharply and this is expected to be, fuelled by loans taken by individuals and enterprises from domestic banks to support political parties in their campaigns.
In the first quarter of 2012, credit to the private sector amounted to GH¢1.15 billion — an increase of 11.2 per cent from the outstanding balance at the end of 2011. Alternatively stated, credit to the private sector (excluding public sector enterprises) has been growing on a rising trend with the year-on-year growth of 29 per cent in December 2011, rising steadily to 45 per cent at the end of March 2012.
This is an echo of developments in other election years — end-December 2008 credit growth to the non-government sector was 42.2 per cent according to CEPA.
Again government consumption expenditure, particularly on the public sector wage bill and subsidies on fuel and energy, is also projected to rise sharply; non-statutory capital spending by government — also referred to as domestically financed capital expenditure — is again projected to increase as contractors are urged to speed up on infrastructural projects; private investment expenditures are not projected to be particularly buoyant; and the downside risk to economic growth in this election year is the global economic slowdown.
According to CEPA, various studies suggest that in all election years — 1992, 1996, 2000, 2004, 2008 the fiscal deficit (cash basis) to GDP ratio, on average, has been 1.5 percentage points higher than that realised in the year before.
The outcome of 2008, of 2.9 percentage points of GDP, was almost twice the average. In 1992, the fiscal balance ran into a large deficit from the surpluses of the preceding years, 1991 and 1992.
An examination of the international experience at the recent workshop organised by CEPA at Aburi noted that many countries suffer from politically motivated fiscal irresponsibility in the run-up to elections,.
The roundtable, therefore, noted that it was not a Ghanaian problem; indeed, not even an African problem.
“Politicians want to win elections and are tempted to relax fiscal discipline in order to attract votes; and fiscal indiscipline disrupts economic growth, encourages inflation and can increase pressures depreciating the cedi,” CEPA asserts.
Early estimates of the impact of the political business cycle (PBC) suggest that the cash deficit in this election year could rise above the observed average of 1.5 percentage points of GDP in spite of the proposed corrective measures.
This could result in the deficit rising from the adjusted outcome (taking account of payments carried over into 2012) of 5.8 per cent of non-oil GDP for 2011 to 7.3 per cent of non-oil GDP in 2012.
This is still in spite of a strong tax revenue mobilisation effort made, and it includes the increased debt service in cedis on account of interest rate adjustments and the rapid depreciation of the exchange rate.
Though the Bank of Ghana (BoG) has put in measures to tighten the monetary policy, the government has a bigger responsibility not to spend where it has no funds. For the BoG, it has a limit on how far it can go.
The rapid depreciation of the cedi in the first five months of this year has fed into domestic inflation, which has risen steadily from 8.6 per cent at end-December 2011 to 9.1 per cent in April 2012 — through higher cost of imports; while adding to the short-term balance of payments pressures. As of the end of May 2012, inflation stood at 9.3 per cent.
At the recent Consultative Group Meeting with development partners, the issue of fiscal discipline was once again underscored taking into consideration, the government’s intention to complete all on-going projects, the management of public sector wage bill under the Single Spine Salary Scheme (SSSS) which began in 2010 to strengthen equity and easier salary negotiations.
However, at a recent signing of a bilateral grant with the United States government, the Minister of Finance and Economic Planning, Dr Kwabena Duffuor, gave the assurance that the government would do all it could to check the weakening strength of the cedi against the dollar and other major international currencies.
He also stressed the resolve of the government not to over-spend as that could lead the economy to overheat and reverse the economic gains chalked in the past 24 months.
Since the seventh review of the economy by the International Monetary Fund (IMF), the government has not had the courage to review the subsidies on fuel. The fund called for the elimination of costly subsidies on fuel and energy consumption which currently is estimated at GH¢60 million per month.
According to the fund, there have been studies supporting the view that these subsidies benefit predominately the high income group. This is a rather tough political decision for government to do.
CEPA has, therefore, stressed the critical necessity of the a credible national commitment to fiscal discipline during this election year.
The government will have to go the extra mile to maintain the stability in the national economy by adhering to fiscal and monetary disciplines during this election period.
In 2011, the economy performed remarkable well with an overall economic growth rate of between 13.9 per cent to 14.4 per cent and inflation in single digits. Non-oil gross domestic product (GDP) growth rate was estimated to have been in the range of 8.2 per cent and 8.7 per cent in 2011, with the oil sector contributing the remainder of 5.7 percentage points.
However, 2012 has been a very difficult period as the economic managers could not build on the achievements of the 2011 economic performance.
New challenges emerged from the closing months of 2011 and this continued into the early part of 2012 which has posed serious risks to macroeconomic stability. These include rising inflation and inflationary expectations, continued depreciation pressure, including speculative activities of dealers and traders in the domestic foreign exchange markets.
The Centre for Policy Analysis (CEPA)’s assessment of the economy from 2011 to 2012, indicates that the economy is facing other identifiable challenges such as the deepening of the euro zone crisis which could seriously affect the country’s export earnings, intensification of trade with China which involve large cash transactions in the exchange markets and the fact that the country had not reached its oil production target, which has dire implications on revenue inflows.
Economic growth in 2012 is projected to be driven by strong domestic demand which includes household consumption expenditure expected to rise sharply and this is expected to be, fuelled by loans taken by individuals and enterprises from domestic banks to support political parties in their campaigns.
In the first quarter of 2012, credit to the private sector amounted to GH¢1.15 billion — an increase of 11.2 per cent from the outstanding balance at the end of 2011. Alternatively stated, credit to the private sector (excluding public sector enterprises) has been growing on a rising trend with the year-on-year growth of 29 per cent in December 2011, rising steadily to 45 per cent at the end of March 2012.
This is an echo of developments in other election years — end-December 2008 credit growth to the non-government sector was 42.2 per cent according to CEPA.
Again government consumption expenditure, particularly on the public sector wage bill and subsidies on fuel and energy, is also projected to rise sharply; non-statutory capital spending by government — also referred to as domestically financed capital expenditure — is again projected to increase as contractors are urged to speed up on infrastructural projects; private investment expenditures are not projected to be particularly buoyant; and the downside risk to economic growth in this election year is the global economic slowdown.
According to CEPA, various studies suggest that in all election years — 1992, 1996, 2000, 2004, 2008 the fiscal deficit (cash basis) to GDP ratio, on average, has been 1.5 percentage points higher than that realised in the year before.
The outcome of 2008, of 2.9 percentage points of GDP, was almost twice the average. In 1992, the fiscal balance ran into a large deficit from the surpluses of the preceding years, 1991 and 1992.
An examination of the international experience at the recent workshop organised by CEPA at Aburi noted that many countries suffer from politically motivated fiscal irresponsibility in the run-up to elections,.
The roundtable, therefore, noted that it was not a Ghanaian problem; indeed, not even an African problem.
“Politicians want to win elections and are tempted to relax fiscal discipline in order to attract votes; and fiscal indiscipline disrupts economic growth, encourages inflation and can increase pressures depreciating the cedi,” CEPA asserts.
Early estimates of the impact of the political business cycle (PBC) suggest that the cash deficit in this election year could rise above the observed average of 1.5 percentage points of GDP in spite of the proposed corrective measures.
This could result in the deficit rising from the adjusted outcome (taking account of payments carried over into 2012) of 5.8 per cent of non-oil GDP for 2011 to 7.3 per cent of non-oil GDP in 2012.
This is still in spite of a strong tax revenue mobilisation effort made, and it includes the increased debt service in cedis on account of interest rate adjustments and the rapid depreciation of the exchange rate.
Though the Bank of Ghana (BoG) has put in measures to tighten the monetary policy, the government has a bigger responsibility not to spend where it has no funds. For the BoG, it has a limit on how far it can go.
The rapid depreciation of the cedi in the first five months of this year has fed into domestic inflation, which has risen steadily from 8.6 per cent at end-December 2011 to 9.1 per cent in April 2012 — through higher cost of imports; while adding to the short-term balance of payments pressures. As of the end of May 2012, inflation stood at 9.3 per cent.
At the recent Consultative Group Meeting with development partners, the issue of fiscal discipline was once again underscored taking into consideration, the government’s intention to complete all on-going projects, the management of public sector wage bill under the Single Spine Salary Scheme (SSSS) which began in 2010 to strengthen equity and easier salary negotiations.
However, at a recent signing of a bilateral grant with the United States government, the Minister of Finance and Economic Planning, Dr Kwabena Duffuor, gave the assurance that the government would do all it could to check the weakening strength of the cedi against the dollar and other major international currencies.
He also stressed the resolve of the government not to over-spend as that could lead the economy to overheat and reverse the economic gains chalked in the past 24 months.
Since the seventh review of the economy by the International Monetary Fund (IMF), the government has not had the courage to review the subsidies on fuel. The fund called for the elimination of costly subsidies on fuel and energy consumption which currently is estimated at GH¢60 million per month.
According to the fund, there have been studies supporting the view that these subsidies benefit predominately the high income group. This is a rather tough political decision for government to do.
CEPA has, therefore, stressed the critical necessity of the a credible national commitment to fiscal discipline during this election year.
The government will have to go the extra mile to maintain the stability in the national economy by adhering to fiscal and monetary disciplines during this election period.
In 2011, the economy performed remarkable well with an overall economic growth rate of between 13.9 per cent to 14.4 per cent and inflation in single digits. Non-oil gross domestic product (GDP) growth rate was estimated to have been in the range of 8.2 per cent and 8.7 per cent in 2011, with the oil sector contributing the remainder of 5.7 percentage points.
However, 2012 has been a very difficult period as the economic managers could not build on the achievements of the 2011 economic performance.
New challenges emerged from the closing months of 2011 and this continued into the early part of 2012 which has posed serious risks to macroeconomic stability. These include rising inflation and inflationary expectations, continued depreciation pressure, including speculative activities of dealers and traders in the domestic foreign exchange markets.
The Centre for Policy Analysis (CEPA)’s assessment of the economy from 2011 to 2012, indicates that the economy is facing other identifiable challenges such as the deepening of the euro zone crisis which could seriously affect the country’s export earnings, intensification of trade with China which involve large cash transactions in the exchange markets and the fact that the country had not reached its oil production target, which has dire implications on revenue inflows.
Economic growth in 2012 is projected to be driven by strong domestic demand which includes household consumption expenditure expected to rise sharply and this is expected to be, fuelled by loans taken by individuals and enterprises from domestic banks to support political parties in their campaigns.
In the first quarter of 2012, credit to the private sector amounted to GH¢1.15 billion — an increase of 11.2 per cent from the outstanding balance at the end of 2011. Alternatively stated, credit to the private sector (excluding public sector enterprises) has been growing on a rising trend with the year-on-year growth of 29 per cent in December 2011, rising steadily to 45 per cent at the end of March 2012.
This is an echo of developments in other election years — end-December 2008 credit growth to the non-government sector was 42.2 per cent according to CEPA.
Again government consumption expenditure, particularly on the public sector wage bill and subsidies on fuel and energy, is also projected to rise sharply; non-statutory capital spending by government — also referred to as domestically financed capital expenditure — is again projected to increase as contractors are urged to speed up on infrastructural projects; private investment expenditures are not projected to be particularly buoyant; and the downside risk to economic growth in this election year is the global economic slowdown.
According to CEPA, various studies suggest that in all election years — 1992, 1996, 2000, 2004, 2008 the fiscal deficit (cash basis) to GDP ratio, on average, has been 1.5 percentage points higher than that realised in the year before.
The outcome of 2008, of 2.9 percentage points of GDP, was almost twice the average. In 1992, the fiscal balance ran into a large deficit from the surpluses of the preceding years, 1991 and 1992.
An examination of the international experience at the recent workshop organised by CEPA at Aburi noted that many countries suffer from politically motivated fiscal irresponsibility in the run-up to elections,.
The roundtable, therefore, noted that it was not a Ghanaian problem; indeed, not even an African problem.
“Politicians want to win elections and are tempted to relax fiscal discipline in order to attract votes; and fiscal indiscipline disrupts economic growth, encourages inflation and can increase pressures depreciating the cedi,” CEPA asserts.
Early estimates of the impact of the political business cycle (PBC) suggest that the cash deficit in this election year could rise above the observed average of 1.5 percentage points of GDP in spite of the proposed corrective measures.
This could result in the deficit rising from the adjusted outcome (taking account of payments carried over into 2012) of 5.8 per cent of non-oil GDP for 2011 to 7.3 per cent of non-oil GDP in 2012.
This is still in spite of a strong tax revenue mobilisation effort made, and it includes the increased debt service in cedis on account of interest rate adjustments and the rapid depreciation of the exchange rate.
Though the Bank of Ghana (BoG) has put in measures to tighten the monetary policy, the government has a bigger responsibility not to spend where it has no funds. For the BoG, it has a limit on how far it can go.
The rapid depreciation of the cedi in the first five months of this year has fed into domestic inflation, which has risen steadily from 8.6 per cent at end-December 2011 to 9.1 per cent in April 2012 — through higher cost of imports; while adding to the short-term balance of payments pressures. As of the end of May 2012, inflation stood at 9.3 per cent.
At the recent Consultative Group Meeting with development partners, the issue of fiscal discipline was once again underscored taking into consideration, the government’s intention to complete all on-going projects, the management of public sector wage bill under the Single Spine Salary Scheme (SSSS) which began in 2010 to strengthen equity and easier salary negotiations.
However, at a recent signing of a bilateral grant with the United States government, the Minister of Finance and Economic Planning, Dr Kwabena Duffuor, gave the assurance that the government would do all it could to check the weakening strength of the cedi against the dollar and other major international currencies.
He also stressed the resolve of the government not to over-spend as that could lead the economy to overheat and reverse the economic gains chalked in the past 24 months.
Since the seventh review of the economy by the International Monetary Fund (IMF), the government has not had the courage to review the subsidies on fuel. The fund called for the elimination of costly subsidies on fuel and energy consumption which currently is estimated at GH¢60 million per month.
According to the fund, there have been studies supporting the view that these subsidies benefit predominately the high income group. This is a rather tough political decision for government to do.
CEPA has, therefore, stressed the critical necessity of the a credible national commitment to fiscal discipline during this election year.
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