...Transition Team comments on macro-economic situation
Accra, Jan. 16, GNA--The Economic Sub-Committee of the Government Transition Team, after having studied the nation's current macro economic situation have noted the remarks made by the Minority in Parliament and will respond to the issues raised in detail in the course of next week.
A release issued by Hanna S. Tetteh, Spokesperson, President John Atta Mills Transition Team in Accra on Friday said, the Team's statement will provide the context for the detailed response and the public will be more enlightened on the prevailing state of affairs.
The main points in respect of the nation's current macro-economic situation are as follows:HIGHLIGHTS
- In a word, the government of Ghana is "broke".
- In 2008, government projected that it would spend GH¢168,127,900.00 (approximately GH¢168.1 million) more than it would take in as revenue. That was the projected deficit for the year. Instead, it spent GH¢1,340,196,800.00 (or GH¢1.34 billion) in excess of its revenue. In other words, the governments overshot its projected budget deficit by 697.1% in 2008.
- This translates into a deficit-GDP ratio of 13.42% - the highest in over 10 years. It also puts a severe strain on government's finances in 2009, including its ability to provide essential developmental projects and social services. Whereas when the NDC left office in January 2001 the GDP deficit ration was 9%.
- The dire financial situation means that it would be very difficult to implement the salary increases announced by President Kufuor on the eve of his departure as this would create severe challenges for the economy.
- On the external front, the merchandise trade deficit has ballooned as imports continued to outstrip exports, thanks to increased donor inflows to pay for imports without corresponding increase in export earnings.
- In 2008, merchandise imports were estimated at US$8.63 billion, compared to merchandise exports of US$4.97 billion.
THE CAUSES OF THE PROBLEM SHORT-TERM CAUSES
- Reckless election-year expenditures: For example, by the end of the first 9 months of 2008, several ministries had over-spent their annual budgetary allocations for salaries and benefits by between 76.0% and nearly 270.0%.
- Increase in Petroleum prices on the World Market: The rapid rise in petroleum prices on the world market increased the nation's oil import bill, particularly for VRA, leading to unplanned government expenditures to the energy sector.
- Residual Effects of the Energy Crises: The failure of the government to fully resolve the 2006-2007 energy crisis only aggravated the situation.
- Shortfall in the Expected Returns on Investment from hosting CAN 2008: The flaws in the procurement process for the construction of Stadia and hosting the games which have resulted in cost overruns have created difficulties. This has been exacerbated because the "large number of visitors" that the government expected for the tournament did not materialize and the expectations in respect of revenue generation for the stadia have not been met.
LONG-TERM CAUSES
- There were weaknesses in key sectors of the economy.
- There was a decline in investment in the manufacturing sector of 2.3% and a decline of 15.0% in the electricity and water sectors.
- Most of the "macro-economic stability" trumpeted by the NPP was due more to increased donor inflows, which gave us the dollars to support the cedi, rather than being the result of vigorous growth in the economy and in exports.
- Merchandise Exports as a share of total economic output between 1993 and 2000 under the previous NDC administration rose from 17.8% to 38.9%. After the NPP took over, this figure declined steadily, to 28.7% in 2000. As a result, once donor inflows and foreign remittances slowed down, the economy was incapable of sustaining itself (because of low levels of foreign exchange earnings). Consequently, between December 2007 and December 2008 alone, the cedi lost about 20.0% of its value against the dollar.
