Economy To Face More Challenges
The country is likely to face serious environmental and economic challenges at the end of the 2012 elections as the winner attempts to manage the revenue and high expectations stemming from the start of production at the Jubilee oilfield.
Between now and the general elections in December, government will have to fulfil its electioneering promises it made to Ghananians.
Nothwithstanding these promises, the major economic policy that will equally need attention during the first half of 2013 is how to reduce the fiscal deficit and repay domestic debts that have built up, improve the business environment, reduce poverty and extend support to the private sector especially the non-oil sector.
The stock of domestic debt had gone up by 6.7 per cent in the first two months of 2012 to GH¢12.6 billion. However, the external debt stock declined marginally by 3.3 per cent, from US$7.8 billion at the end of December 2011 to US$7.6 billion at the end of February 2012. Cumulatively, total public debt stock is estimated at GH¢25.3 billion at the end of February 2012, up from GH¢25 billion recorded at the end of December 2011. These are serious challenges that the next government will have to deal with.
According to the Economist Intelligence Unit (EIU) another major challenge to the government between 2012 and 2016 is how to regain control of the public purse to ensure that public expenditure is within the limit of the budget.
The report stated that while the onset of oil production will provide a boost to tax revenue, the impact would not represent a panacea for government finances. Production of oil has been around 87,000 barrels per day instead of the targeted figure of 120, 000 barrels per day and this has subsequently affected the expected revenue.
Furthermore, much of the revenue that is generated by the oil industry during the early years of production had gone into reducing the domestic debt that grew heavily in 2008 and remained large in 2009-10, reaching the equivalent of round seven per cent of Gross Domestic Product.
The government has repeatedly said it was committed not to over spend during this election year and has gone further to remove subsidy on energy.
However, at the same time the 2012 Budget Statement has an election in mind with large increases planned for spending on infrastructure development.
Ghana’s economy has registered some modest growth over the past few years as all the major macro-economic indicators have recorded some level of improvements to the extent that the International Monetary Fund (IMF) commended the government for making strong progress on fiscal consolidation but was quick to draw a number of challenges that are likely to face the economy including higher public wages.
The growth rate among other things was the result of the of oil boom as well as the confidence in the Ghanaian economy.
The country recorded a growth rate of 14.40 per cent last year according to the Ghana Statistical Service and that the economy is likely to expand by 7.60 per cent with an average growth rate of 9.40 per cent in 2012.
The African Development Bank on the other hand, has projected a growth rate between eight per cent and nine per cent while the World Bank pegged its growth at 10.00 per cent; a drop from 13.40 per cent projected the previous year.
If the current upsurge of commodity prices such as gold, cocoa and other soft commodities continue to rise, the country is likely to rake in more foreign revenue.
However, for some time now the Ghana cedi has taken a nose dive vis a vis the international currency. This has been largely due to the high demand for foreign currency to meet imports demand.
Since January this year, the Ghana Cedi has come under renewed pressure against the United States dollars.
The situation got worse in March forcing the Bank of Ghana to pump in close to US$1 billion to help stablise the currency. The Ghana Cedi is currently being traded at GH¢1.85 to the United States dollars.
For the EIU, the Ghana cedi is expected to depreciate further as some investors are switching their investment to safe-haven assets.
Again, election-related uncertainty may well hit the exchange rate later in the year. Nevertheless, persistent inflation and strong import demand are expected to see the cedi depreciate to GH¢2.73 to the United States dollars by 2016 or earlier than that period.
Inflation over the past years has taken a downward trend. The rate which stood at 20.50 per cent in March 2009 eased to 13.32 per cent in March 2010 and further went down to 9.13 per cent as at the end of March 2011.
The rate currently stands at 8.8 per cent at the end of March 2012. This figures have however been challenged by members of the opposition saying that the figures have been cooked by the Ghana Statistical Service. But the EIU predicts that inflation is unlikely to change much for 2012 as a whole , at an annual average of 8.6 per cent.
But whether this trend of falling inflation figures will translate into increased lending during the forecast period in 2012 to to 2016 is unclear, as lending rates at the commercial bank have been slow to follow the BoG’s lead, according to the EIU.
The report said as the economy grew and more business opportunities arise, commercial banks should begin to undertake greater lending to the private sector.