Posted: Wednesday 26th March 2014 at 19:31 pm

Ghana’s Economy Not In Crisis – Prof. Quartey

Head of the Economics Department at the University of Ghana, Prof. Peter Quartey, is calling for the institution of independent budget office to monitor government spending.

This, he indicated, is a sure way to instill fiscal discipline on the part of government, more than ever during election year.

Speaking on the Super Morning Show on Joy FM on Wednesday, Prof. Quartey said Parliament, which has oversight responsibility on the economy, has failed to live up to the task, hence the need for an office akin to the Congressional Budget Office of the US.

“If Parliament were to do its job then we wouldn’t need this body. But otherwise, if we can create an independent body that can be efficient in ensuring that we stay within our fiscal space [discipline], then that will be a great idea,” he recommended.

The Economist, however, said the situation will persist if the nation’s economy is left in the hands of politicians, who would always seek first, the interest of their political parties rather than the generality of the country.

“We have always left the country in the hands of politicians so everything is analysed from the political lens and that is not helping us. So let’s set up this body, very independent and ensure that government spends within its limit. Otherwise as a government, if you want to retain power, you will spend [in election year] and perhaps even go beyond…”

“But if there is a body that checks it then we will not go back to this political business that we are experiencing,” he stressed.

He was commenting on a public lecture delivered on Tuesday by the vice presidential candidate for the New Patriotic Party in the 2012 elections, Dr. Mahamudu Bawumia, at the Central University College at Miotso, Accra.

Addressing participants at the Public Lecture dubbed; “Restoring the Value of the Cedi”, Dr. Bawumia said government is largely responsible for the current economic “crisis” which has arisen from its huge spending outside its budget. He indicated: “This situation with regard to Ghana’s public finances has arisen because of a major increase in government expenditures relative to revenues in the 2012 and 2013″.

“While government tax revenue stayed constant at some 17.7% of GDP between 2011 and 2013, government expenditures increased by a whopping 6.6% of GDP from 20.1% of GDP in 2011 to 26.7% of GDP at the end of 2013,” the former deputy Governor of the central bank posited.

“The bulk of the increase in government expenditure (94%) was in the area of recurrent expenditure. This has resulted in double digit fiscal deficits (12.0% of GDP in 2012 and 10.9% of GDP in 2013) over the last two years,” he added.

Economy and crisis

Meanwhile Prof. Quartey disagrees with Dr. Bawumia’s claim that the current challenges have plunged the economy into crisis. According to him, “What we are facing now is an economy with significant challenges but we are not yet in crisis…”

“We would eventually get there if we don’t do anything about it. We shouldn’t send panic signals out that the economy is in crisis…If you tell me we are heading for a crisis situation I will agree [but] if you say we are in it; we are not in it. That is the basic difference”.

Selectivity and integrity

Commenting on the discussion, Dr. Nii Moi Thompson, Economic Advisor to President John Mahama, criticised Dr. Bawumia for being selective in dealing with the issue of the depreciating local currency, the cedi.

“I noticed some kind of selectivity which kind of undermines the integrity of an otherwise great analysis that he had done,” Dr. Thompson pointed.

“…he looked at the depreciation rate up to the year 2007 and then suddenly it jumped to 2010 [a year after the National Democratic Congress came to office]. But if you look at the range you’ll realise that the cedi after the redenomination in July 2007[by the John Kufuor administration]…lost its value by 24% as of July 2008″.

On the suggestion for the setting up of independent office to monitor government spending, Dr. Thompson indicated, that is long overdue. “The issue of the Fiscal Responsibility Act has been around [Parliament] for a while…and for a whole host of reasons, it hasn’t seen the light of day”.

He however shares in the view of Dr. Bawumia that urgent steps needed to be taken to reduce government expenditure in the public sector and save government some money to fund developmental projects in other sectors of the economy.

The public sector is reported to be drawing about 70% of government revenue annually, a situation the economist says cannot be sustained. He said the Unite Kingdom which has a larger economy, has just 420,000 people on its payroll as against a smaller Ghanaian economy which on the other hand, has over 600,000 workers on the public sector payroll.

He therefore suggests a public debate towards reducing the number of people engaged in the public sector.

“The issue of the size of the public sector…needs to form part of the public debate. Because it’s not so easy to begin to trim the size of the public sector. It has social implications; it has economic implications [and] at the same time, we need to confront the fact that this is not a sustainable task.

“If the UK has economy that’s sixty times bigger than ours and they have fewer people on their payroll, [then] there is something clearly wrong and we cannot resolve that simply by throwing blames and excuses here and there. It needs a coherent and national approach”.

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