An economist has urged the Ghanaian government to deepen robust fiscal consolidation measures to boost Ghana’s chances of sustained economic recovery under the three-year International Monetary Fund (IMF)-backed reforms.
Leslie Dwight Mensah, an economist at the Institute for Fiscal Studies (IFS), a Ghana-based economic think tank, made this call in an interview on Thursday.
Mensah said the government’s pursuit of improved public finances under the three-year program with the IMF must go beyond debt restructuring, a short-term measure, and implement fiscal consolidation measures to ensure long-term results.
Despite the expectation of a continuous decline in inflation and a picking up of growth in 2024, with the central bank likely to adopt a more stimulative policy stance in an improved macroeconomic environment, the economist said the outlook hinges on a more robust fiscal consolidation.
“Ghana’s recovery so far under the IMF program is fragile and remains volatile, so there is the need for a robust fiscal consolidation on the part of the managers of the economy to achieve real and sustained recovery,” Mensah said.
Currently, Mensah said Ghana’s debt service burden remained one of the highest in the world and historically high at the country level, exacerbated by a high cost of borrowing.
In this regard, the economist said he had expected more expenditure cuts with a narrower deficit target than the 5.9 percent target in the 2024 budget, which is necessary to ease the debt service burden on the country because wider deficits would still put fiscal consolidation plans at risk.
Moreover, he said 2024 is an election year with a high risk of spending pressures, which would jeopardize the government’s fiscal consolidation plans.
Mensah, therefore, believed that the prudent thing for the government to do would be to adopt more organic fiscal consolidation measures, which are sustainable with long-term benefits and create bigger room to absorb potential future shocks.
“The government should not rely too much on domestic and external debt relief to improve public finance. For improved public finances, you need traditional fiscal consolidation measures through improving revenue and taming expenditure to counter the vulnerabilities that persist in the fiscal position,” said the economist.
He said the cost of borrowing was also exerting continuous pressure on public finances. But as inflation continues to fall, Mensah urged the central bank to start reducing its benchmark lending rate to help interest rates fall and dilute the government’s cost of borrowing.
Mensah explained that the central bank’s action would be critical due to the government’s dependence on treasury bills to bridge financing gaps, as the domestic and foreign bond markets remain inaccessible to the country due to the downgrading by global credit rating agencies and debt restructuring negotiations.
In his Christmas message, Ghanaian President Nana Addo Dankwa Akufo-Addo assured the nation that the economy had turned the corner following three difficult years and economic growth was rebounding.
“Inflation is being reigned in, we are experiencing a relatively stable exchange rate, and economic growth is rebounding,” Akufo-Addo said.
He added, “The country is not completely out of the woods, but there is a growing confidence that with hard work and determination, Ghana will make it, and collectively, we will secure our future.”
Ghana’s economy has experienced a severe crisis over the past three years characterized by a high fiscal deficit, ballooning public debts, exchange rate volatility, high inflation, and the worsening cost of living.
In May, the government secured the approval of the IMF for its economic reform program backed by a 3-billion-dollar loan, with domestic and external debt restructuring as some of the conditionalities.
The negotiation between Ghana and the official credit committee for debt restructuring is in a stalemate, delaying the release of the second tranche of the 600 million-dollar IMF support package.