Vice President, Dr Mahamudu Bawumia, has admitted that Ghana’s economy is currently going through a lot of challenges which makes life very difficult for the ordinary Ghanaian.
He said even though Ghanaians are feeling the heat of the economy in their pockets, government has introduced some measures to ameliorate the hardship of the people because “from the man on the streets to the business mogul, the health of the economy is the foundational instrument”.
“The economy is what we feel in our pockets. I acknowledge that we are going through difficult times, this is the reality. Our economy is experiencing rising prices of fuel and virtually all commodities. Prices are on the rise”.
Dr Mahamudu Bawumia
Speaking at a the TESCON forum on Thursday April 7, 2022, Dr Mahamudu Bawumia attributed the current economic challenges to the impasse in parliament over the passage of the e-levy, the downgrade of the economy by some major rating agencies as well as the ongoing Russia-Ukraine crisis.
Commenting on the continues depreciation of the local currency, Dr. Bawumia indicated that there was so much stability in the exchange rate but in the first quarter of this year, 2022, “we have seen the sharpest depreciation of the cedi since 2015”. He said data from the Bank of Ghana show that at the end of March, the Cedi had depreciated by 15.5 percent. “So what explains this? Why did we see this?”, he quizzed. He said a number of factors can be adduced to explain what happened.
“The financial market assessment of the 2022 budget unfortunately, generally, concluded that our projected 40 percent increase in revenue which underpinned the 2022 budget, the Financial market assessed that it was not likely to materialized and therefore our deficit would increase. This was not helped by the chaotic battle in Parliament over the passage of the budget.
“This created uncertainties and signaled to the market that the government may not be able to get most of its program passed in a tightly balanced Parliament. This further reinforced the lack of confidence by investors in the budget”.
Dr Mahamudu Bawumia
Delay in implementing tax reforms
Furthermore, the Vice President said delays in implementing major tax reforms such as the benchmark policy reversal, tax exemptions, common platform property tax, appeared to support the assessment of the market that the government would have difficulty in getting its programmes through Parliament
“To add to this negative market sentiment, there was a sovereign credit rating downgrade by Fitch and Moody’s, as a result of the concerns about fiscal and debt sustainability. If you are unable to pass your budget with the revenue measures in there, then your fiscal situation and debt will not get better, this was their assessment. This resulted in unwillingness of foreign investors to rollover their holdings of our domestic debt and they demanded foreign exchange to repatriate their investments”.
Dr Mahamudu Bawumia
Dr Bawumia further indicated that the lack of access to the sovereign bond market by emerging markets globally and Ghana’s announcement that it would not issue sovereign bond in 2022, “also worried investors about the adequacy of our foreign exchange reserve”.
Impact of Russia-Ukraine War
The Head of the Economic Management team further attributed the current hardships in the Ghanaian economy to the ongoing geopolitical tension between Russia and Ukraine. He said that Russia accounts for some 30 percent of Ghana’s imported grains, 50 percent of flour and 39 percent of fertilizer. As such, he said “we are directly affected by the Russia-Ukraine war. Unfortunately, we do not know when it will be over. The global increase in fuel prices is causing hardship”.
“The increase in commodity prices has been exacerbated by the Russia-Ukraine conflict. Russia and Ukraine together account for 30 per cent of the global wheat export. The longer the conflict the greater will be the disruptions to global food supply. The country is also likely to slow global growth.
“According to the AfDB the price of wheat has shot up by 62 percent since the war begun. The price of fertilizer is up by 300 percent; the price of maize is up by 36 percent since the war begin. Here in Ghana, 60 percent of our total imports of iron ore and steel are from Ukraine”.
Dr Mahamudu Bawumia
Rising debt
Speaking on the country’s public debt, Dr Bawumia said that in addition to the COVID-19 expenditure, the banking sector clean up exercise and payment of excess power in the energy sector as a result of the contracts signed by the National Democratic Congress (NDC) administration, accounted for the rising pubic debt.
Dr Bawumia said the government needed to save the lives of the people hence the decision to prioritize spending in the health sector in order to restore the health of the people. He said government spent GH¢50.1billion on COVID-19, excess capacity charges, and the financial sector clean up between 2018 and 2021. But for these amount spent on the three expenditure items, he said the debt would have been around 68 percent instead of the 81 percent currently.
Dr Bawumia said between 2019 and 2021, Ghana’s debt to GDP increased by 17.6 percentage points of GDP. Because of COVID-19, GDP growth was virtually zero in 2020 and this is also bound to increase the debt to GDP ratio other things being equal with a lower base, he said.
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