Martin Ohene Anim (PhD (finance) candidate, CA, CH.FE, CEPA, CITG, MIIA, MBA, GSE, BSC writes ……………..
Without any party coloration and with an objective and expert opinion, I want to emphatically state that our beloved country has been grossly mismanaged by the current administration.
We have to accept the bitter pill associated with the IMF deal as the deal requires austerities and structural adjustment programs that seek to achieve three main objectives:
The objective is to ensure prudent management of revenue, expenditure and reducing fiscal deficit under the program. It also seeks to achieve the stabilization function of fiscal policies to ensure economic recovery through investment in productive sectors. It requires increasing revenue mobilization efforts by the government; hence, the introduction of additional VAT (2.5%), property rate, removal of benchmark values on import duties, etc.
Additionally, it requires expenditure cuts on both discretionary and nondiscretionary expenditures such as interest on amortization, compensation, etc. In effect, the government’s decision to engage on debt exchange program to achieve debt sustainability and reduce its interest payment burden/obligation.
In addition, they sought to freeze employment in the public sector within the short term to reduce expenditure on compensation. There has also been a reduction in the allocation to capital expenditure. The overall objective of this fiscal policy is to achieve fiscal consolidation.
As we rightly know, our Macro-economic environment is highly unstable, characterized with high inflation (40.4%), high interest rate (between 35% to 40%) and ever depreciating currency regime.
As a developing and import dependent economy, any short fall of supply of foreign exchange (from blacklisting on the international capital market) will have a dire repercussion on our balance of payment accounts, the performance of the local currency and it’s negative cascading effects on inflation and other macro-economic indicators such as interest rate as monetary policy will mostly be hiked to curtail inflation.
The IMF deal is estimated to bring in foreign exchange of about $3 billion dollars over three years. The objective of the $3 billion dollars is to help shore up our reserves and help bring some stability in the performance of our local currency.
This will help reduce inflation, interest rate and the general economic hardship on individuals, households and business communities.
As part of the condition precedent to the IMF deal, it is a necessity that our debts were sustainable. This means that, we have the capacity to settle our debts obligation (both external and internal) as and when they fall due. It is a test on our solvency and liquidity.
The Debt Sustainability Analysis (DSA) revealed that our debt were over 100% to GDP, interest payments to Total Revenue ratio was over 50% and interest payments to Tax Revenue ratio of over 70%. With this high debt levels, it is incumbent that a debt restructuring program is embarked on.
The debt restructuring program which involves varying interest payments and deferring maturity dates of government securities is to give some relief to government and achieve debt sustainability otherwise the government may default on its debts obligations on maturity dates with attendant dire consequences on liquidity and the financial stability of the financial sector, poor credibility on the international capital market and overall adverse impact on the economy in the future.
However, the unilateral decision by government without thoroughly engaging all stakeholders and explaining into details the pros and cons of the debt exchange program was not the best. The speed and the refusal to adhere to legal opinions on the program confirms the extent of damage that has been caused to the economy of Ghana.
Obviously our economy can only bounce back in 10 to 15 years and the youth of today will be responsible for paying the over GHC 500 Billion debt which has not been invested in any productive venture for economic transformation, growth and income but rather into consumption related expenditure.
Indeed, Ghana has been grossly mismanaged. It is very disheartening to know that a nation like ours which is blessed with numerous resources must have to go through this difficult times because of poor leadership.
Unfortunately, there is no other option than to go through this austerities.
Long live Ghana, our homeland.
Martin Ohene Anim – (PhD (finance) candidate, CA, CH.FE, CEPA, CITG, MIIA, MBA, GSE, BSC
Disclaimer: the views expressed in this article represent the author’s and do not necessarily reflect the position of EfoConnect. EfoConnect cannot be held responsible or liable for any inaccurate statements contained in this article.