Ghana's economy is not expected to stabilise during the second half of the year and targets in the 2000 budget would not be met, an economic researcher suggested in Accra Tuesday.

Prof. Cletus Dordonoo, director of Policy Analysis and Strategic Studies Division of the Ghana Institute of Management and Public Administration also said that Ghana would be unable to meet convergence criteria for joining the ECOWAS Second Monetary Zone.

Dordonoo made the observation in the mid-year review of Ghana's economy at a seminar on "Real Growth, Inflation and Exchange Rate Depreciation in Sub-Saharan Africa with Focus on Ghana."

Dordunoo described the overall performance of the economy from 1999 through to the first half of June 2000 as precarious and extremely disturbing.

He said the external shocks from the Asian crisis, declining prices of gold and cocoa and steep rise in petroleum prices have all taken their toll on the performance of the real Gross Domestic Product.

He pinpointed increasing inflation, exchange rate depreciation, fiscal deficit, rising monetary growth and external trade payment difficulties as well as rise in domestic crime rate and failure of some policy measures as other causes.

Dordunoo said the performance of the economy in 1999 showed a real GDP rate provisionally estimated at 4.4 percent as against a target of 5.5 percent.

The sectoral contributions underlying the real growth in 1999 were 3.9per cent for agriculture, 4.9 percent for industry and 5.0 percent services.

He said the agriculture and services sectors continue to exert the strongest influence on real GDP performance.

Dordunoo also described the response of the industrial sector as been low due to the myriad of difficulties constraining the sector, including high cost of credit and production, plus the crowding out by government's use of treasury bills and bonds.

He noted that fair rainfall pattern in the first half of 1999 contributed significantly to the good performance of the agriculture sector. Similarly, the same pattern characterised the first half of this year.

"Despite this, the price of food continues to rise. This may continue until this month when food supply increases upon harvesting," he predicted.

Dordunoo said gross capital formation rose by 3.8 percent in 1988 but decelerated to 1.3 percent in 1999 reflecting the impact of the shocks and high cost of investment.

The high cost of credit, including high interest, has prevented capital formation from rising in the first half of this year, he noted.

On fiscal developments, he said the Value Added Tax performed well at 10 percent resulting in an overall increase in total revenue by 6.7 percent in 1999.

However, revenue excluding VAT fell but the VAT receipts in 1999 of more than 824 billion cedis compensated for the abolition of the sales tax.

Dordunoo argued that even though the VAT was increased to 12.5 per cent, it is doubtful whether total deficit will be lower than seven percent of GDP by the end of December as earnings from external receipts have been on the decline.

He noted, owing to excessive expenditure in the growth of money supply as well as inflationary expectations, the rate of inflation accelerated to 15.6 percent by March 2000, reaching 19.8 percent by June 2000.

This is after point-to-point inflation rate fell from 20.5 percent in 1997 to 15.2 percent in 1998 and further to 13.8 percent at the end of December 1999.

Dordunoo, therefore, stressed the need for polices that will address the fundamental constraints of the economy with emphasis on productivity enhancement and creation of an enabling environment.

The fight against crime, particularly corruption and fraud, armed robbery, murder and other white-collar crimes, should be intensified, he urged.

"Government should resort to realistic and more 'investment-friendly' interest rate policy, strong handle on fiscal discipline that will reduce fiscal deficits from almost seven percent of GDP as well as the attendant expansionary monetary policies with the spillover effects on inflationary pressures."

Dordunoo urged the govefrnment to pay attention to the woes of investors by way of direct and indirect support to reduce their cost of doing business