Donor funding declines steadily

Business News of Saturday, 5 December 2015

Source: The Finder

Dr Godfred Bokpin LecturerDr. Godfred Bokpin

Disbursement of grants from Ghana’s donor community has been declining significantly in the last five years, a phenomenon experts say has worrying implications for the country’s progress.

From GH¢1.2 billion in 2009, grants declined to GH¢787.3 million in 2014, and only GH¢325.1 million was released during the first five months of 2015.

Indeed, Ghana’s 2016 budget statement reports that grant disbursement from development partners for the first three-quarters of 2015 was GH¢1,507.9 million, 16.4 percent lower than the budget target of GH¢1,694.1 million.

This is in contrast to claims that government’s management of the economy is restoring confidence among the country’s development partners.

“Ghana continues to win the confidence of the business community, Development Partners and of the international financial markets with our efficient management of the economy,” Minister for Finance Mr Seth Terpker said in his presentation of the 2016 budget to parliament last month.

The dwindling donor inflows has come at a time when Ghana’s public debt (GH¢94 billion), the highest ever recorded coupled with rising interest rates, budget deficit at 7.3 per cent, inflation at 17.4 per cent and a wobbling local currency.

Research Policy Think-Tank, Institute for Fiscal Studies (IFS) has recently drawn government’s attention to the waning donor confidence in Ghana’s economy, stating that “managers of the economy must wake up to their responsibilities to restore confidence.”

As Ghana signed onto the IMF programme, experts argued that the credibility associated with the Fund would among other prospects revive donor support which had stalled for almost two years.

But Dr Raziel Obeng-Okoh of the Ghana Institute of Management and Public Administration (GIMPA) points out that an IMF Programme gives credibility to the implementing country but investors have several indicators they look out for.

“The stability of the currency, inflation, political stability, real interest rate, and the credit ratings of the country are crucial indicators the donor community looks at in extending support,” he explained.

According to him, praises from the IMF review team may not change the focus of most sophisticated investors.

Economist and Senior Lecturer at the University of Ghana Business School UGBS), Legon Dr Godfred Bokpin notes that the trend is a reflection of the level of donor confidence in Ghana’s economy, the main reason Ghana had to resort to the IMF for credibility.

He points out that the decline in funding could also be a result of the changes in US and Europe.

“They are themselves going through some challenges so that could also be influencing allocations made to developing countries like Ghana,” he says.

Dr Bokpin is however of the view that the decline in donor inflows has occurred largely because of the lack of prudent management of state resources.

According to him, the consistent negative reports on corruption do not only affect private capital flows into the economy but also affect donor inflows.

He calls on government to prudently manage resources generated internally and not to overly depend on inflows from donors.

“If we are able to put the little that we have to very good use, then we have enough room to make a case that if have more we could do more,” Dr Bokpin states.

Finance and Investment Lecturer at the UGBS, Dr Lord Mensah in his comments says “ the dwindling inflows was to be expected because first and foremost, Ghana is within the lower middle-income bracket and as such the donors will not extend funds as they used to some time before.”

Donors, he explained are expecting that managers of Ghana’s economy will commit the nation’s scarce resources including other inflows to infrastructural development which will benefit its citizens for a lifetime.

The expectation of the international community, according to Dr Mensah is for Ghana to be self-sufficient in terms of financing its own projects.

“They expect us to be business oriented, where we borrow and put the funds into projects that will be self-financing so that the borrowed funds can be re-payed while the completed projects are maintained to benefit citizens in the long term,” he explained.

Even though the European Union (EU), one of Ghana’s key donors has recently expressed its confidence in government’s efforts to restore macro-economic stability, the Union has been quick to add that despite its confidence in Ghana’s economy they would be watching key macroeconomic indicators like inflation and budget deficits.