The Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana, on Wednesday said the global economic crisis was fast taking a toll on Ghana's export earnings and remittances warning this posed “danger” to the economy and to households.
Dr Charles Ackah, a Research Fellow at ISSER, noted that even though the year-on-year records showed that export earnings and remittances in 2008 were higher than 2007, the monthly percentage increase reflected significant decreases due to the global economic crisis.
He was speaking at a day's workshop on the Global Financial Crisis and Developing Countries jointly organized by ISSER and the Overseas Development Institute (ODI).
The workshop, which was to discuss a report from a study on the social impact of the global financial crisis on developing countries, was attended by representatives from academia, policy analysts, think-tanks, the private sector, labour, the media and the public sector.
Dr Ackah in his presentation noted that most developing countries had underestimated the impact of the global economic crisis on their economies, but the evidence was to the contrary.
“It may be true that not many financial institutions in poor countries have links with mother companies and are not largely exposed to investment in financial instruments in Europe but to the extent that poor countries depend on the developed countries as export markets, for foreign direct investments (FDI), loans, remittances and for aid, the poor countries will be gravely affected in the long-term,” he said.
He made particular reference to the recent boom in the Eurobond market from where Ghana and other African countries got lot of their bonds purchased, saying that could also impact on the economies of those poor countries involved.
“But the crisis is not only for banks, stock exchanges and government to deal with – it is fast crippling in on households in poor countries too,” he said.
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Dr Ackah said with an average growth rate of 20 per cent, export earnings had been the backbone of the economies of developing countries over the past five years, adding that remittances had also been a major source of household income.
He said the two coupled with substantial external financial influences such as the HIPC fund among others, had sustained economic growth at about five per cent over the period.
“Export earnings from cocoa in particular have been a major source of income for women who used a greater portion of those earnings to pay for the education and health of their children more than men do and so if export earnings dwindle they will raise the poverty level from 28 per cent to at least 29.5 per cent in the short term,” he said.
He said the fall in export earning with its attendant fall in foreign exchange earnings, coupled with the falling tourist receipts and FDI would significantly reduce government revenue, increase national debts and worsen the budgetary positions of many poor countries.
“Ghana's economy is not well diversified and so the dependence on a few pillars like cocoa and gold puts Ghana in a dangerous situation in the face of the global economic crisis,” he said.
Dr Ackah said Ghana lacked the fiscal and institutional capacity to deal adequately with the crisis, and as a result the World Bank has placed her on the list of highly exposed economies, which meant that World Bank loans to Ghana would be highly limited.
“Some local banks with links abroad have also received instructions from their mother companies to cut down on lending, particularly mortgage lending, and that is going to affect credit to small scale industries and eventually households would suffer.”
He therefore called on the government to use monetary and fiscal policy to deal with the crisis and avoid its pro-cyclical effect on the economy and also look more to domestic sources of funding to boosts economic growth.
“We also need to expand social safety nets in order not to worsen the poverty situation, form alliances with emerging markets within the sub-region and have a unified approach to dealing with the crisis,” he said.
Professor Ernest Aryeetey, Director of ISSER, said it was high time Africans realized that the global economic crisis was no more a matter for just academia, stock exchanges, people in foreign exchange business and banks to discuss but for all.
Dr. Charles Jebuni, Core Fellow, Centre for Economic Policy Analysis (CEPA), who presided, said the global economic crisis had implications for public sector, export, FDI, financial sector, private sector, development strategy and for multilateral arrangements.
He said while individual countries were strategizing to cut themselves off the rest of the world as a way of avoiding the crisis, the IMF, World Bank and WTO would be expected to rethink their multilateral policies to ensure that those were meaningful to developing countries in particular.