Expenditure cuts must not compromise growth - Aryeetey

Professor Ernest Aryeetey, Director of Institute of Statistical Social Economics Research (ISSER) on Tuesday lauded government's efforts to reduce the overall budget deficit but advised that the proposed expenditure cuts should be done in a manner that would not compromise growth.

In its first budget to Parliament last week, the government pledged to reduce the overall deficit from 14.9 percent to 9.4 percent of GDP in the first year through various cost cutting measures.

Professor Aryeetey said this must not be done at the expense of developing infrastructure and providing social protection.

He was speaking at the first 'Kwadwo Baah-Wiredu' Memorial Lecture series on the topic: “Budget 2009 and the Challenges of the Global Economy,” organised by the Institute of Financial and Economic Journalists.

Prof Aryeetey said protection for households facing the current global food and financial crisis, as well as social other vulnerable persons must not be abandoned.

He said enhancing the quality of public expenditures was crucial now than before as a result of the crisis and that it was important to stay focused on long-term issues while being mindful of immediate needs.

He said the current global recession would affect the country in several ways and projected declines in export earnings, remittances and aid flows as well as Foreign Direct Investment flows.

Besides, it will be more difficult to access the international capital markets.

Prof Aryeetey said in the past, countries could easily deal with such crisis through a draw down on their reserves if they thought it was a short-term event or borrow and maintain expenditures at the same level or simply wait for aid.

“This is the time to think about how to position Ghana for a future leadership role in global markets.”

Dr Fritz Gockel, Lecturer, Department of Economics at the University of Ghana, said although overall GDP growth rates in recent years were commendable they did not lead to high employment creation.

He noted that the economy witnessed the overlapping of production for domestic consumption and export in spite of impressive GDP growth rate in recent years.

He said the growth areas in the economy were largely capital intensive in character translating in less income earning opportunities with the emergent growth.

Dr Gockel said the weak inter-sectoral linkage with domestic structure had meant that Ghana's economy is still fragile and vulnerable to external shocks even with the economic reforms.

GNA