Ghana’s Economy Is In Dire Straits
Don't be fooled by the President's state of the nation address. Ghana's economy is in dire straits. The President's men, including his speech writers may not have seen it. But the ordinary people have. And so have the rating agencies and the World Bank.
That is why they have downgraded our economic outlook from stable to negative and continue to call prudence and fiscal responsibility. What Ghana needs now is bold and decisive action, not words and platitudes. For without action, our credit rating may go into junk status. If this happens, the cost of borrowing will become prohibitive and our loan-dependent country may have to go back to its HIPC status or mortgage further its natural resources to the Chinese as we have already done with our oil and manganese.
So what is the reason for such pessimism?
Currently, Ghana is living beyond its means and yet there are no plans to cut our cloth according to our size. Our debt to GDP ratio now stands at 46%. We are nowhere near Greece, which is in near-bankruptcy, but we are inching closer. Like in Greece, teachers and contractors have not been paid. The national currency, the cedi is in free fall.
There is no electricity for domestic or industrial use. And there is no water to drink. Where there used to be light, there is now total darkness. The swanky laptops that were distributed to real and phantom students prior to elections are now being powered by empty sockets and wishful thinking. “ide be keke” is sounding more and more like “ahokyere keke”.
LPG, a key weapon against deforestation and environmental degradation, has become a scarce commodity. The nation's only oil refinery has gone kaput. Kerosene is now an expensive luxury. It looks like even rural dwellers cannot escape this mess. In the cities, the queues are getting longer, as gas station after gas station runs out of petrol. Lorry fares have gone up. Single digit inflation, the pivot of government's monetary policy may soon go up in flames.
That Ghana's economy will be underperforming at a time when it is supposed to be firing on all cylinders, is perplexing and worrying. After all, we are pumping oil. Our three main export commodities, gold, cocoa and oil are also doing well on the international market. Even the weather has been favourable. The Akosombo dam hasn't dried up.
Drought has not decimated the agricultural system. And as the President acknowledged in his State of the Union address, the country has enjoyed robust economic growth over the last two decades. This begs the question, if we cannot bring prosperity to our people or provide them with the basic necessities of life at a time when our economy is doing well, then when? What will happen to our economy if the price for our export commodities tumble or fluctuate?
In times like these what is needed are bold, decisive and practical actions and not words. Unfortunately, that appears to be the approach of our current leaders. The measures announced by the political leadership are not only selective but they are also half-hearted and do not inspire confidence. Instead of specific, measurable and time-bound measures, it looks like the country's political leaders have hit the panic button. They are grabbing the low hanging fruits. They are going after the easy pickings, the weak and the vulnerable.
After taking subsidies off non-existent fuel, they plan to expand the tax net to cover the informal sector. This means people who sell dog chains, chewing gum and mobile phone chargers and make less than a dollar a day will soon have a date with the taxman. These are the same people who pay daily market tolls and still have no access to the basic services that every responsible government is expected to provide.
If the government is serious about improving the nation's finances then it should look at the President's office, the size of his Cabinet, and the fact that they pay no taxes. Every year, the president makes not less than $120,000 in salary. Members of his Cabinet, which now stands at more than 40 and includes ministers, wise ministers, deputy ministers, deputies of deputy ministers, and advisors, make close to a $100,000 each. This is on top of the housing allowances and per diem they receive for meetings and travels. As a writer, the president also receives money from book sales. But he does not pay any taxes.
Neither does he pay utility bills or hospital fees. He as well as members of his Cabinet draw fuel for free and have a host of garden boys and chefs at their disposal. If the President and his Ministers were to pay taxes on their salary and all the freebies they get, the country will get revenue enough to pay down its debt.
In 2011, President Obama, who our current president seems to idolize, paid about $162,702 in taxes or 20.5% of his earnings. President Mahama pays nothing and yet has the audacity to tell others to pay taxes or reduce their pay demands. This is hypocrisy.
In a recent interview, Dr. Sulley Gariba, one of the President's numerous advisors indicated that there are more than 51 institutions in the Office of the President without any ministerial oversight.
Add the numerous advisors, spokespersons, communications experts and Ministers of State at the Presidency that have been appointed under this administration and you get an idea of what I am talking about. If the President is really serious about improving the nation's finances, he should get rid of all the Ministers without portfolio residing at his office. He will also disband the 51 institutions at the Castle, leaving only those that deliver essential services.
It is not just the President's office that needs an overhaul. The entire public sector needs to be reformed. As it stand now, Ghana's public sector is bloated. It is also very expensive. In 2012 for instance, Ghana's wage bill was estimated at about $9 billion or 61% of total revenue from taxes, grants and aid during this period.
Much of the increase in the wage bill has been attributed to the single-spine wage reform instituted by the Kufuor regime. But that may not tell the whole story. Currently a large number of teachers, contractors, youth employment officers and other civil servants have not been paid, indicating that corruption may also be a key factor.
To address the escalating wage bill, the government must reduce the size of the public service and institute a pay for performance policy that ties remuneration to productivity. In this context, the government should be able to punish non-performing staff and managers and reward hardworking ones. Non-performing ministers should also be sacked.
All over Ghana, people go to work without the government providing them with a vehicle. I don't see why government officials should be treated differently. In many developed countries, government officials and even Ministers pay for their own transportation. Debt-ridden Ghana should start doing the same. In addition, the government should convert most of the allowances and perks of officialdom into taxable benefits.
Given Ghana's history with coups, successive governments have shied away from tackling the military. Even the auditor general cannot audit the accounts of the Ghana military.
The result is an opaque military establishment whose spending keeps on rising. As all Ghanaians are being asked to live austere lives, I see no reason why military spending should not addressed. The first step towards keeping our military spending in check is to put a freeze on hiring.
This may not go down well with some powerful politicians who have come to see the military and the National Security services in general as the main employment avenue for party apparatchiks. But we cannot run a nation with this approach.
With the creation of 45 new constituencies, Ghana now has 275 MPs. Each MP earns about $8000 a month and is accommodated free of charge by the state. MP salaries alone cost the national treasury $2.2M a month. This is on top of the $20,000 to $50,000 free money that is given every term to MPs under the guise of “car loans”.
The EC has often justified the creation of new constituencies as a constitutional requirement to reflect population increases. This means that the EC will continue to create more constituencies so long as the population increases.
If this continues, Ghana will have more MPs in the next 10 years than the US, which has a population hundred times our own. This is irresponsible. Instead of creating new constituencies, why shouldn't we alter constituency boundaries using a higher population threshold?
Another cost cutting opportunity for the government is to dissolve the council of state. Though mandated by the constitution, the council of state is nothing more than an anachronistic and undemocratic institution used by the President of the day to reward party faithful and cronies. It is a tool of patronage in the hands of the party in power.
It milks the state for virtually no work done. In fact, when was the last time you heard from any of the members of the council? But they are receiving perks from the state while others are tightening their belts. Members of the council claim they give their advice behind closed doors but as Jesus asked his disciples, how lights a candle and puts it under a bushel?
The president and his men want you and I to believe that all is well with the Ghanaian economy, but that is not true. There is no light. There is no water. There is no petrol. There is no LPG. Prices are on the rise.
Things are “hard”. In fact, for most people “enko yie koraa”. But all is not lost. This is because with boldness and decisiveness, I believe this mess can be cleared up in no time. Mobilizing additional revenue is important but we should also cut our coat according to our size, beginning with the President, his office and his Cabinet.