'Global crisis will hit poor hardest'

A study by the Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana, Legon on the global financial crisis has revealed a noticeable effect on Ghana's economy since the last quarter of 2008.

The study states that poor households are likely to be the hardest hit by the financial crisis because they have fewer assets and limited risk coping mechanisms to help them to cope with the economic fluctuations.

It says the government's ability to cope with the impact of the crisis will depend on its fiscal capacity to incur deficit and its institutional capacity to implement programmes aimed at mitigating the poverty impact of the crisis.

The Director of ISSER, Prof. Ernest Aryeetey, said the report was the result of enquiries from people on the impact on the financial crisis on developing economies and subsequent international fora on the issue.

The British Department for International Development (DFID) then provided funding through the Overseas Development Institute (ODI) to ISSER to use local data to analyse the effects on the global economy.

The results will help governments in developing countries in policy planning to mitigate the effects on their economies, as other institutions are undertaking similar studies in counties such as Senegal and Nigeria.

The study, titled, The Global Financial Crisis and Developing Countries: Case of Ghana, was undertaken by Charles Ackah, Ernest Aryeetey and Ellen B.D. Aryeetey, all of ISSER.

Presenting the findings, Dr Ackah said an analysis of data from the third quarter of 2008 showed some impact on the banking sector, government budget and remittances.

Although no significant impact could be seen when data were analysed from year to year, analyzing figures on a month-to-month basis showed, for instance, that the Ghana Stock Exchange (GSE) recorded changes in the last quarter of 2008.

He said market activity was brisk throughout the year till the third quarter when it showed "signs of contraction and contagion from the global stock market developments.”

On remittance inflows, there was a strong performance throughout 2008 till the third quarter when flows dropped to $450 million from the $508 million realised for the same period in 2007.

Overall receipts for total exports recorded an increase of almost 22 per cent in 2008, which was an improvement on the 13 per cent growth in export receipts recorded between 2006 and 2007.

However, there were observable patterns in export receipts which peaked in the second quarter and then took a downward trend into the fourth quarter.

Dr Ackah said the capacity of governments to cope could depend on their ability to use monetary and fiscal policies in an innovative way to overcome the challenge of the financial crisis.

These challenges include limitations in government source mobilisation that will mean cutting down on government expenditure, which may also negatively affect the economy.

He said social protection policies such as the Livelihood Empowerment Against Poverty (LEAP) proramme would be affected as the government's capacity to expand it nation-wide would be constrained.

Dr Charles Jebuni, a Core Fellow of the Centre for Economic Policy Analysis (CEPA), who chaired the function, pointed out that the global financial crisis was now an economic crisis for most countries.