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Ghana’s president has blamed the country’s economic malaise on government overspending just as the bottom fell out of the market for its main commodity exports.
In a reversal of fortunes that provides a cautionary tale for other natural resource-dependent emerging nations, John Mahama said “wage overruns” — a reference to public sector salaries that accounted for 72 per cent of government expenditure in 2012 — and huge energy subsidy bills fuelled the fiscal deficits that crippled Ghana’s economy. The country was Africa’s fastest-growing economy as recently as 2011.High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/d8feedca-2590-11e5-9c4e-a775d2b173ca.html#ixzz3fPanNCUM
“It [the fiscal crisis] was created by a series of factors and it is taking some time to resolve. It comes with a lot of pain and sacrifice,” Mr Mahama said in an interview with the Financial Times. “But there is [now a] commitment to ensure we level out the economy and stabilise it — and keep it stable. It is something all Ghanaians are focused on and willing to do.”
Ghana’s economic prospects were bright at the start of the decade, helped by the start of oil production in 2010 and high prices for gold and cocoa, its traditional main exports. The economy, which also benefited from a stable political system, with two constitutional transfers of power in 15 years.
However, what followed shows the dangers of overextended borrowing during a commodity boom, not least the overspend on salaries following the introduction of a new public sector pay structure.
“As the economy grows you want to remunerate the public sector better to motivate them . . . you want to put in infrastructure, you want to do a lot of things . . . You can pile on debt quite quickly.”
Mr Mahama, who became president following the death of John Atta Mills in 2012 and won an election later that year, said Ghana’s debt to gross domestic product ratio surged from less than 50 per cent in 2009 to about 70 per cent now.High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/d8feedca-2590-11e5-9c4e-a775d2b173ca.html#ixzz3fPapoWtb
Any shocks in the international [commodities] market affect you. And that’s exactly what happened to Ghana,” Mr Mahama said. “After 2010, we suffered a severe drop in cocoa prices . . . then the gold price collapsed . . . then oil, too.”
Shortfalls in support from foreign donors after Ghana began oil production also played a significant role in creating the imbalances that led Accra to seek a $1bn rescue last year from the International Monetary Fund, the president added. From a high of 14.4 per cent growth in 2011, the government said the economy is now expected to grow at just 3.9 per cent this year.
While Ghana was among the first African countries to benefit from a writedown of its external debt under the IMF and World Bank’s Highly Indebted Poor Countries initiative, critics say Accra should not have needed to turn to the IMF given its resource wealth. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/d8feedca-2590-11e5-9c4e-a775d2b173ca.html#ixzz3fPatoKiH
Mr Mahama said the international view was that, as a petroleum economy, Ghana did not need support. This happened, he added, at a critical moment when support was still needed to address widening income disparities.
“Because Ghana had transited into middle-income, most donors might have felt, ‘Ghana doesn’t need money, it’s got an oil economy beginning and so [it’s] better to help other less developed countries’. So you find donor funding starts tapering off at a time when you need it even more critically.”High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/d8feedca-2590-11e5-9c4e-a775d2b173ca.html#ixzz3fPax7osB
The EU last month resumed budget support suspended in 2013 with an aid offer worth more than €160m. The president stressed his commitment to a programme of fiscal tightening measures agreed with the IMF. The Washington-based group said last week that Ghana was on track after its first three-month review.
Despite this, Mr Mahama faces a tough road to re-election in 2016. Public frustration over electricity shortages and a perception that oil revenues are being misused are likely to tighten the race against Nana Akufo-Addo, the opposition contender from the New Patriotic party who he narrowly defeated in 2012.
Yet the president said he would not raid state coffers ahead of the poll. “We have a commitment . . . even in an election year. We must keep expenditures under control, we must make sure we increase revenues and keep wages under control,” he said.
Mr Mahama also insisted the mid and longer-term prospects for Ghana, and Sub-Saharan Africa in general, were strong.
“The opportunities are there, the raw materials and commodities are there,” he said, adding that his government was also working to diversify away from natural resources. “Most of us are still very heavily dependent on commodities . . . we need to see how we can attract manufacturing, processing, value addition. That’s the advice I would give to other African countries.”
Source: FT.com
