The Ghanaian Economy

Given the geopolitics of the Cold War era, the critical issue of good governance and effective economic management was not given much importance. This has led some critics of the aid era to describe the debts incurred by the recipient developing countries as “odious” debt contracted by authoritarian political leaders without the concernt of their people and at best accountable to the donors and therefore not payable.

  • These arguments brought home the contention that aid could be effective on its own terms without necessarily having the desired development impact.
  • The question to ask is how could such large resources be made available in the name of development assistance and yet leave recipient countries describable Highly Indebted Poor Countries (HIPCs)?

Perhaps, in response to the odious debt charge came a HIPC initiative and the Multi-Lateral Debt Relief Initiative (MDRI).

  • The HIPC syndrome has persisted in Ghana. As we graduated from the aid era, substitute resources have been found to replace aid. These have included oil resources as from 2011 – entry by Ghana into the oil era - and ominously non-concessional loans.
  • Ghana now faces a high level of public debt and financing constraints signaled by rising borrowing cost on both domestic and external markets.
  • No country can borrow indefinitely. Sooner or later surpluses will be needed to pay back the debt. This reality suggests a country will have to develop the discipline of knowing when debt becomes unsustainable – and therefore the need for restraint. Else the lenders will impose the needed discipline when finance cannot be mobilized or else available at prohibitive as is currently the case.

The year 2016 is burdened with the following spending needs:
–one-off costs related to next year’s elections.
–a nominal wage bill increase now projected to be higher than envisaged under the program.
–additional interest payments of about US$ 120 million estimated by CEPA.

  • Recognizing these challenges a package of revenue and spending measures for the 2016 budget to bring the fiscal deficit down to 5.3 per cent of GDP instead of 5.8 per cent envisaged in the program – indicating sharp austerity has been developed by the government (see November 5, 2015 Press Release (No. 15/496) of the Fund Staff).