The Major problem facing the Ghana's Economy now is the high rate of inflation and the increasing "DOLLARIZATION", an economic research group said in Accra on Thursday. Launching it version of the "State Of The Ghanaian Economy", the institute of statistical, social and economic research (ISSER) of the University of Ghana said the problem could be solved through prudent fiscal measures.

ISSER said the excessive increases in money supply because of financing of fiscal deficits by the central Bank and high food prices are primarily responsible for the inflationary pressures in the economy. "Therefore, if recent statements by the Governor of the Bank of Ghana that the Bank would no longer finance government deficits and take effective measures to stop the 'DOLLARIZATION' of the economy......are put into effect then positive results will be seen in the crusade to stabilise the economy, "said the ISSER report which was presented by one of its top members Kwadwo Asenso-Okyere.

To be able to carry these intentions though, the independence of the central Bank has to be assured, ISSER cautioned. ISSER noted that if inflation was properly managed the attendant problems like high interest rates, which were stifling domestic production, and the rapid depreciation of the cedi could be controlled. Setting its outlook against the 1996 performance of the economy, ISSER was also particular about the "continued negative trade balance which in 1996 contributed to the negative overall balance of payments."

ISSER noted that balance of payments is a factor in the determination of the exchange rate in a floating exchange rate regime which Ghana adopted under its reform programmes. Though on some of the targets set in the 1997 budget statement, ISSER was doubtful the government would be able to hold its expenditure to achieve a budget surplus of 191.2 Billion Cedis.

Looking at the immediate past fiscal position, government will find it difficult to hold its spending projections. "Moreover, about six per cent of the total receipts for 1997 are to come from divestiture receipts which are dwindling and may be unreliable."

ISSER said with a more stringent and transparent government spending, which gives room to genuine unforeseen contingencies, strict adherence to budget projections and the consistent implementation of regulations governing spending, "we might witness the reversal of unplanned budget deficits". ISSER predicted that the average inflation will be between 25 and 30 per cent in 1997 and stay within this range until a rationalisation of public expenditures takes place and begins to yield results.

A senior official of the Ministry of Finance who declined identity, told reuters by telephone current rate of inflation was running at 25 per cent, down from 29 per cent at the start of the year. "We are projecting to bring this down to 20 per cent by the end of the year and then take further steps to stabilise this to between 12 and 15 per cent over 1998" he said.

Kwame Pianim, an economic consultant, responding to ISSER's overview and outlook, said the problem with government finances are structural and not just a matter of inadequate management. According to him "It is the non-sustainability of the non-tax component of government that raises the need to rationalise government expenditures and improve tax administration".

"The tax effort should not be at the expense of undermining the growth of the economy which, in the final analysis, provides sustainable sources of improved revenues." On what he described as the fragility of the economy, Pianim said the short term nature of government's domestic debt may provide additional pressures on treasury bill rates, if the fiscal imbalance problem is not resolved.

Pianim said the need for government to finance its debt, which resulted in some 78 per cent of available credit going to the public sector in 1996, may not be compatible with a strategy of private sector-led development. ".....The crowding out of the private sector from the credit market may continue to act as a constraint on growth." He added.