As President John Dramani Mahama delivers the State of the Nation Address tomorrow, the whole nation is anxiously waiting to hear definite pronouncements on the rolling power cuts, popularly known as dumsor, as well as how to restore investor confidence and fiscal discipline.
The President must provide clear deadlines on when the rolling power cuts will end as well as practical measures to enforce fiscal discipline.
Ghana is currently reeling under a worsening power crisis due to a shortage of more than 500 megawatts in electricity production.
In addition, President Mahama must provide measures to address the numerous concerns confronting businesses to restore investor confidence.
Faced with wide fiscal and current account deficits, and a 67.1% debt to GDP ratio, Ghana’s short- to medium-term economic prospects have significantly dimmed as crude oil and commodity prices collapse, double-digit inflation remains persistent, and the currency depreciates.
Investor Confidence
Last year recorded the worst-ever business confidence index, according to the Association of Ghana Industries (AGI) Business Barometer.
Investors say the present economic conditions are not conducive enough to attract local and foreign investments, which could generate the much-needed employment.
The restoration of macro-economic stability is central to Ghana’s economic recovery.
Further increases in the tax burden on the formal private sector risks killing the hen that lays the golden eggs.
Stakeholder dialogue sessions and policy measures intended to restore macro-economic stability do not seem to have made any significant impact.
About 350 members of the Industrial and Commercial Workers Union (ICU) have been laid off since January 2015 as a result of various industrial and commercial concerns arising out of the energy crisis, a senior official of the ICU has said.
According to the General Secretary of the union, Mr Solomon Kotei, production at many industries had been affected by the inconsistencies in power supply.
Ghana’s hopes of regaining the confidence of investors in the economy through an International Monetary Fund (IMF) bailout programme suffered a jolt when credit rating agency Standard & Poor's (S&P) last year downgraded the country’s sovereign rating by one notch on concerns about the cost of financing the country's high fiscal deficit and doubts about whether the government can reduce it quickly enough.
The lowering of the ratings from "B" with a negative outlook to "B-" with a stable outlook sends Ghana deeper into "junk" territory.
The B- rating is six levels below investment grade today.
Fiscal discipline
The impact of government’s excessive borrowing, especially domestically, is that the private sector’s ability to access money is seriously curtailed.
This makes it expensive for businesses to go for loans from banks and, therefore, increases the cost of doing business in Ghana.
The government increased the total public debt by GH₵24.2 billion in 2014 alone, increasing the total national debt to GH¢76.1 billion.
The total public debt as at the end of 2013 is GH¢51.9 billion.
The country’s total public debt stock as a percentage of GDP increased from 36.3% in 2009 to 48.03% in 2012 and further to 55.53% in 2013.
Recently, BoG announced plans to borrow more than GH¢25 billion from the domestic market within the first six months of 2015 as against the GH¢14.3 billion the government borrowed through the issuance of securities in the same period last year.
The projected GH₵25.42 billion to be raised represents an increase of 60.77% over government’s domestic borrowing through securities over the same period in 2014.
The Average Rate covering securities of maturities from 91-Day to 1-Year issued over the seven auctions this year is 24.91%. Some analysts project average rates to reach mid-30% by close of the year.
This year, government has budgeted about GH¢9.58 billion as interest payment on debt, which is more than the GH¢8.3 billion it could possibly raise from external loans and grants.
It also represents an increase of 226.27% over the same period in 2012 and 115.08% in 2013.
Some economists believe borrowing is not the problem but that fiscal discipline and macro-economic stability were needed
IEA, govt banter
The Ministry of Finance has refuted the Institute of Economic Affairs’ (IEA) assessment of Ghana’s public debt situation.
The IEA warned last week that Ghana’s public debt could grow to about 70% of gross domestic product (GDP) by next year.
Mr Seth Terkper, the Minister of Finance, said the IEA’s claims have “positive aspects” but also contain “several general and sweeping assertions” that do not factor the new debt management policy and the potential for growth in gross domestic product (GDP).
According to the ministry, all nations borrow for development, and putting the total cost of infrastructure projects on our budget had often been detrimental.
He said Ghana’s achievement of a middle-income status is also limiting access to grants and concessional financing.
He stated that since Ghana would have to borrow, government’s current policy on borrowing is to borrow smartly to sustain growth, without unduly worsening debt, and to that effect, strategies were approved by Cabinet and Parliament in the 2013, 2014 and 2015 budgets.
The objective of those strategies was to ensure that state-owned enterprises that render services and benefit from commercial loans would sign agreements with the ministry and establish Debt Service Accounts to repay the loans from the revenue that they generate from their customers.
The ministry said that there was a projection for GDP to grow from 2015 to 2017/2018 since it grew significantly between 2010 and 2012 and cocoa, crude and gas production as well as import substitution in rice, poultry and pharmaceuticals remain promising.
The Ministry of Finance also noted that the IEA had also ignored certain interventions such as the establishment of the Stabilisation Fund under the Petroleum Revenue Management Act, the slash in crude imports and the National Petroleum Authority’s use of a price stabilisation margin in the petroleum price build up.
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