Reeling under continuous deterioration in the macro-economic fundamentals with fast-depreciating currency, the Finance Minister, Mr Seth Terkper has remained obdurate with string of nail-biting fiscal and monetary measures to the failing Ghanaian economy.
Faced with 2012 election-related twin deficits of fiscal and current account early last year when he assumed office as the finance minister, Seth Terkper quickly and with advice from Washington, pushed for upward tariff adjustments and increases in the prices of petrol.
These biting decisions were to bridge the fiscal gap and correct the slippages that resulted from election-related overspending of 2012.
Terkper, an accountant with a bias in taxation and fiscal issues went off tangent and imposed several punitive taxes and astronomical increases in the government fees and charges in an attempt to correct the deteriorating fundamentals.
As part of the so-called fiscal adjustments, the minister also cut spending in several sectors of the national economy with many Ministries, Departments and Agencies (MDA) denied their allocations for infrastructural and other purposes.
However, one year after these draconian measures, the economy has failed to respond, with the situation even worse than before.
First, the current account deficit, which was about 12.1 per cent of GDP in 2012, has deteriorated to 12.3 per cent of GDP in 2013.
The stock of public debt stood at USD19bn as at December, 2012 (49.3 percent of GDP) compared with USD23.4bn (53.5 per cent of GDP) as at September 2013.
An expert who spoke to The Al-Hajj on condition of anonymity said “the burden of this ballooned public debt put pressure on interest payment by government and further pushed the cost of borrowing high, exacerbating the plight of private business owners.”
Fiscal Deficit which was at 11.8 per cent of GDP as at the end of 2012 is now at 10.2 per cent of GDP, missing target of 9 per cent of GDP.
Inflation rate, which was below 10 percent at the end of 2012 has now moved to almost 14 per cent and is forecast to go higher despite government’s 9.5 per cent end year target.
While expenditure was high in 2013, revenue performed poorly putting more pressure on the fiscal environment.
All the international rating agencies namely Standard and Poor (S&P), Fitch and Moody downgraded the nation’s credit worthiness, further reducing international and national confidence in the national economy.
Fitch in its decision in the last quarter of 2013 to downgrade Ghana said “the nation continued to overrun on wages, interest costs and arrears, leading Fitch to expect that the government will fail to meet the 9% of GDP fiscal deficit target for this year (2013)”.
“The agency does not expect capital inflows to keep pace with the widening current account deficit, keeping foreign reserves under pressure. Import cover is forecast to remain at 2.9 months, leaving Ghana exposed to exogenous shocks.
“Medium: Policy credibility has been significantly weakened, following two years of larger-than-expected budget deficits. This has exerted pressure on the exchange rate through the large current account deficit.
“Monetary policy adjustment has not been successful in curbing inflation, with inflation rising above the upper limit of the Bank of Ghana’s inflation target. Domestic financing pressures are highlighted by elevated domestic bond yields of 20%, undermining the sustainability of government finances.”
Cedi, the local currency has seen its worst performance since the middle of 1994. The local currency has depreciated by 17 per cent last year and less than two months into this year the currency has gone down by about 5 per cent.
The BoG has responded with a raft of measures to bring sanity to the monetary sector specifically the exchange rate market.
The main aim is to end or even minimize to the lowest level, the problem of dollarization of the national economy, which government’s economic management team believe is the cause of the current slide in the value of the currency.
However, many analysts who spoke to The Al-Hajj have described the measures as panicky and counterproductive.
They said, the measures are anti-private business and punitive.
However, a press release by the Ministry of Finance attributed the fiscal slippage in 2013 to the “significant shortfall in non-oil tax revenue.”
“As indicated in the Budget the revenue shortfall is attributed to the decline in the volume of imports and the slowdown in economic activity during the first half of the year as a result of the year-long energy crises that affected industry, and some services. This also affected growth.
“In addition, falling gold and cocoa prices on the world market affected the profits of companies, particularly the mining companies resulting in significant shortfalls in corporate income taxes. We do not anticipate such constraints in 2014, at least not in the magnitudes of what occurred in 2013,” the statement said.
Many in the ruling National Democratic Congress (NDC) have expressed anxiety over the management style of the Finance Minister, Mr Terkper, but with these fiscal and monetary measures, The Al-Hajj is keen to see how the minister would fare in the future as another election year beckons.
Parrying criticism of recent measures by BoG, Seth Terkper said government has no interest in imposing hardships on business with the “temporary fiscal measures that the Central bank has been implementing,”
Addressing a roundtable discussion just after the measures were announced, the Finance Minister told participants government wants to end the deterioration of the cedi and the current economic challenges facing the country.
He said government’s commitment to be “firm and continue to persist in effecting the necessary measures and strategies to manage volatilities…” since Ghana is a country of primary commodity exporters.