Ghana needs further fiscal adjustment – Economist

Further fiscal adjustment is necessary to stop Ghana’s debt rising and interest expenses taking a larger proportion of total spending, an Economist has said.

Ayomide Mejabi an Economist for Global Markets at Stanbic Bank told the Ghana News Agency that while the government had made considerable strides in lowering the fiscal deficit since 2013, increasing debt levels in recent years did not augur well for the country.

At nearly 73 per cent of Gross Domestic Product, the debt/GDP ratio for Ghana in 2015 was at its highest since the early 2000s.

Employee compensation and interest costs account for 65 per cent of total spending.

In 2016, as much as 24 per cent of total spending was budgeted for interest expenditure up from 14.5 per cent in 2010 and just 8.5 per cent in 2008

“Clearly this trend is not sustainable. The growth in remuneration also placed fiscal strains on the economy,” Mr Mejabi said at the sidelines of Stanbic Ghana Corporate Investment Banking unit’s capacity building programme for businesses on foreign exchange risk management.

The primary aim of the training is to equip businesses and forex dealers of financial institutions to consider hedging of their foreign exchange demands.

Mr Mejabi said spending pressures would not ease unless the government came to rely mostly, if not only, on concessional debt.

He said Ghana must also return to a path of fiscal consolidation in order to reap the benefits of a growing middle class.

Commenting on the incentives announced in the budget to boost the economy, Mr Mejabi said the increase in the interest bill was twice the total quantum of eliminated subsidies.

He said reasonable progress on fiscal consolidation over the next five years should see sentiment improve while the solving of electricity supply shortages, especially via investing in gas processing plants could prove to provide an impetus for growth over the medium term.

He said oil production from TEN fields should prove to be a boost to the economy to spur growth this year to six per cent.

“In our view we are broadly aligned with government when it comes to the growth projections. The main difference is that we suspect that growth this year will be more driven by the new oil in TEN fields rather than by increased business and consumer sentiments from the non- oil sector,” he explained.

Source: GNA