It is now official that the government of Ghana will soon commence engagement with the International Monetary Fund (IMF) for an economic bailout. According to the government, the engagement seeks to provide a Balance Payment Support (BOP) as part of broader support for a build-back of the economy in the face of challenges induced by Covid-19 and the Russia-Ukraine crisis.
At the moment, data from the Bank of Ghana indicate that Ghana’s foreign reserves have dropped to 8.3 billion dollars from 9.7 billion dollars at the end of 2021. At the same time, Ghana’s debt also rose to 78 percent of GDP at the end of March 2022. Inflation is quoted at 27.6%, an 18-year high largely behind food prices and transport fares surge.
This official announcement will be the second bailout from the same institution since 2015 and comes three years after the completion of the earlier package. Several questions curiously come to mind with this development. While abstaining from the usual partisan political debate provoked by the development, it is important to ask; what were the priorities of the earlier bailout, and how successful were they implemented in respect of sustainable economic impact? Which sectors for investment will drive real sustainable build-back and growth going into the next engagement?
Central government should prioritize investment in the agricultural sector
I will answer the latter question by advocating strongly for the central government to prioritize investment in the agricultural sector to drive real sustainable build-back and growth going into our next engagement. Historically, and drawing from the success stories of many developed countries, there is verifiable evidence of the relationship between agriculture and sustainable economic growth. The Green Revolution in Asia emphasized agriculture’s potential to contribute to economic growth. In Many developing countries such as Ghana, where the agricultural sector, according to the Food and Agricultural Organization (FAO), accounts for about 52% of the workforce and roughly 25% of the value-added in the economy – growth in agricultural productivity can cause significant aggregate effects and therefore influence the general economic growth within a country.
Prioritizing and investing in the agriculture sector as a prerequisite for economic build-back and growth is justified based on three essential tasks agriculture performs in economic development: the product, the factor, and the market.
The product role refers to the goods provided by the agricultural sector and is two-fold: it feeds the population, and exports of agricultural products provide foreign currency. The product role is central in food problem theory. Low-income countries cannot develop since most people have to spend much of their income and labor to procure food. Simply stated, it is only after the productivity in the agricultural sector has increased and agricultural output has grown that a country can further develop itself and start a process of modern economic growth. This profoundly states an idea of causality: increases in agricultural productivity must precede economic growth.
The factor role in agriculture refers to the supply of workforce and capital to other sectors, such as the industry and the service sector. It needs to be noted that, based on the dual-sector approach, there is a labor productivity differential between the agricultural (subsistence) sector and the non-agricultural sector. With this, economic growth in developing countries cannot take off as long as labor is allocated in industries with a low marginal product of labor, such as agriculture. Therefore higher agricultural productivity also increases the income of the rural population, rising demand for (domestic) industrial output.
Lastly, the market role refers to agriculture as an outlet for products from the manufacturing sector. Via this market function, increases in agricultural productivity contribute to economic development. Agricultural demand-led industrialization builds upon the market role. A development strategy based upon such agricultural demand-led industrialization is more favorable for developing economies than a development strategy focusing on export-led industrialization.
In conclusion, having an elaborate strategy, the President needs to prioritize and invest in the agricultural sector as a prerequisite for economic build-back and growth. Therefore, I propose that the engagement be precisely guided by the following:
- Greater part of any financial package resulting from the engagement should be channeled into the agricultural sector for farm-level interventions, improvement in farm roads, dedicated agricultural commodities transport services, and standard storage facilities.
- Any conditionality from the engagement should not be focused on the agricultural sector but rather target fiscal consolidation efforts in other sectors either than agriculture.
Good luck to the Economic Management Team as they commence yet another engagement with Fund with the hope that they will be guided by the above to avoid what brought us to the current bitter decision when the nation completes this in the coming years.
Zuobog Philip Neri. Agriculture Economist and Food Security Consultant
PhD Candidate in Agricultural Economics-UDS, Tamale