Ghana's Example

James Ogunleye
First published: January 1995

Ghana has every reason to be delighted at its economic turnaround. Twenty-seven months of the Hilla Liman civilian administration had wrecked the economy so much that by December 1981, the year Jerry Rawlings seized power, Ghana was already a basket case: Payment of public sector wages was intermittent and was effected via borrowing and printing of more Cedi. Inflation was a mighty 120 per cent. Kenkey, the staple food, became a luxury and the popular Makola market in central Accra turned into a no-go area. Even the Cocoa Marketing Board - the centre piece of the state's foreign exchange earnings - wasn't spared by the inflationary spiral: the corporation was crushed with a ?7 billion deficit. Ghanaians old and young, able and disabled fled the country and sought refuge abroad, particularly in Germany, Britain and Nigeria. The sun had set on Kwame Nkrumah's Black Stars. Something had to be done.

By early 1983, the newly created Provisional National Defence Council (PNDC) met with the IMF to draw up a recovery programme that was to ground the economy in the art of market enterprise. With Kwesi Botchwey, a distinguished economist in the saddle, Ghana began a tortuous and painful journey to economic liberalisation. Eleven years on, the result has been a mixed bag of successes: Real GDP growth, hitherto elusive, reached a record 8.6 per cent in 1984 (barely a year into the adjustment) and now hovers around 5 per cent. Inflation, which stood at 120 per cent in 1981, had been cut to 24.1 per cent by May 1994. The moderate deficit of ?118 billion in 1993 is being overturned to ?68 billion surplus this fiscal year.



Ghana's balance of payments crisis of the 1980s was nipped in the bud, as external payments arrears became a thing of the past. Indeed the overall payments account balance of $14 million in 1993, now hovers around $180 million. It is this impressive showing by the Ghanaian economy that won praises - and cash - from the Bretton Woods institutions and donors. To date, the country has received some $5 billion in aid, grant and budgetary support from the West - as high as 9.1 per cent of the GDP in 1988 (Compare this to Nigeria with a measly 0.05 per cent).

Investors kept faith with Ghana when, last April, the $1.5 billion state-controlled Ashanti Gold fields was floated concurrently on the London and Ghana Stock Exchanges. The shares were over subscribed and by the time trading closed, a cool $360 million had been grossed-up by the Government. "Ghana is still one of the cheapest markets in the world and that is what will continue to attract foreign investors," declared Miles Morland, of Blakeney Management (UK), shortly before the April floatation.

On the home front, the battle to broaden the revenue base is intensifying: Last month (October), the parliament continued a debate on a Bill designed to replace the existing sales tax with Value Added Tax (VAT). Modelled along the lines of the UK VAT, the tax is expected to be a money spinner for the Government when fully operational in the 1995/96 fiscal year.

But it is not yet champagne time for Ghana. The economy still needs some macroeconomic fine-tuning to achieve its full potential. Both fiscal and monetary policies still need adjustment within the context of the rejuvenated macroeconomic variables. Attention must be turned to state expenditure. Government overspending is still very high - ?118 billion in 1993. Broadmoney supply (M2) is getting out of control (Bank of Ghana mopped up 51 per cent excess funds in the first half of this year alone). Little wonder that the Cedi hasn't stopped sliding on the foreign exchange market, with telling impact on consumer price inflation. Moreso, the Accra authorities must cut back on external borrowing. The near 50 per cent increase in foreign debt between 1988 and 1993 has not been helpful to the economy (remember some 20 percent of the 1994 forex earnings was spent servicing the $4.2 billion debt).

As Dr Botchwey begins to put finishes touches to his January (1995) Budget, restoring macroeconomic order should be uppermost in his mind. This is the only way to put the economy on the path to high growth.