Dr Mahamudu Bawumia, a former Deputy Governor of the Bank of Ghana (BOG), has warned that the country could be on its feet by the end of 2014 if the government did not reverse course in its management of the economy.
In a lecture Tuesday at the Central University College in Accra, Dr Bawumia painted a very gloomy picture of the economy, stressing that a bailout by the International Monetary Fund (IMF) is inevitable if the government’s management of the economy does not improve.
“I’ll like to repeat without exaggeration that the Ghanaian economy is a crisis”, he stated, pointing to the high inflation, double digit budget deficit, depreciation of the cedi and the general lack of growth in the economy. GDP growth, according to him, declined from an unprecedented 14 per cent in 2011, to 0 per cent in 2013. “This is the first time in the history of Ghana that we have had double digits physical deficit for two years in a row,” he added.
Dr Bawumia bemoaned what he said was the weak economic fundamentals of the country – a development he said had severely hampered the government’s ability to make statutory payments and pay contractors.
He said Ghana had been inundated with huge debts as a result of reckless borrowing on the part of the government, adding that interest payment on these debts had taken away “critical fiscal space” that was available for Ghana.
Explaining further, Dr Bawumia said whereas only about GH₵ 2 billion was allocated to six key ministries – including the works and agric ministries- in the 2014 budget, about GH₵6.6 billion is going to be spent on paying interest on Ghana’s debt, which he said had risen from GH₵9.5 billion in 2008 to GH₵49.9 billion in 2013.
This, the former Head of Monetary Policy at BOG noted, represents an increase in Ghana’s stock of debt by GH₵40 billion.
“This is equivalent to the government borrowing over $20 billion in the last five years”, he noted, saying: “It’s not clear what the money has been used for.”
“At this rate of debt accumulation, Ghana is heading back towards HIPC,” he added.
Dr Bawumia expressed worry at the what he said was a “dramatic increase” in the BOG’s financing of the government.
He said whereas the law stipulated that BOG’s total financing of the government should not exceed 10 per cent, net domestic financing reached 45 per cent in 2012.
He said it had increased by 700 per cent – from GH₵1.4 billion in 2008 to GH₵ 11.3 billion in 2013.
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