The development think tank explained that until such weaknesses were addressed, the economy would continue to have increased vulnerability to external shocks.

At a press conference in Accra last Wednesday, the Director of Research at the IEA, Dr John Kwakye, pointed out that until those weaknesses were addressed, the country risked fiscal relapse, even after the International Monetary Fund (IMF) programme.

The IEA addressed the media on its assessment of the State of the Nation Address (SONA) delivered by President Nana Addo Dankwa Akufo-Addo on Wednesday, March 8, this year.

It focused on the economy before the COVID-19 era and Russia’s invasion of Ukraine, the current state of the economy and the future.

Dr Kwakye said underlying the structural weaknesses were a narrow industrial base, low economic diversification, high dependency on imports and the lack of sustainable food security measures.

Other lapses in terms of economic management, he noted, were inadequate capacity for domestic resource mobilisation, rigid and costly public expenditure, weak fiscal and monetary management systems and the lack of adequate economic and financial buffers, such as fiscal space, debt payment funds and international reserves.

IMF not panacea

Dr Kwakye further explained that although the President had expressed optimism about securing the IMF deal by the end of this month to deliver macroeconomic stability and debt sustainability, while protecting the vulnerable, the programme would only “buy us temporary relief in terms of the financing that it will provide directly and also catalyse the flow of funds from other donors”.

To make a difference, he said, it was important that the country took its economic destiny into its own hands and “not mortgage it to Washington; we need to develop a culture of fiscal and financial discipline".

Before COVID-19

The IEA Research Director indicated that President Akufo-Addo had cited some positive key economic indicators prior to the onset of the COVID-19 in his message to Parliament on the state of the nation, such as a strong economic growth, low inflation, trade surpluses, low fiscal deficit, strong foreign direct investment inflows and high credit ratings.

He argued that much as the indicators were true, it was important to place them in the context in which they occurred to better understand them.

He explained that the strong growth was largely driven by the extractive sector, and that non-oil growth, in particular, was relatively modest.

Dr Kwakye further stated that the low inflation occurred in the context of relatively low food inflation, for which the government deserved credit.

There were also stable international oil prices and a relatively stable exchange rate, which should also be credited to the government.

Trade surpluses, the economist noted, largely resulted from favourable commodity prices and low imports, ostensibly due to high duty rates.

The reported low fiscal deficits were helped by efforts to close the budget gap following the passage of the Fiscal Responsibility Act in 2018 that set a deficit ceiling of five per cent of Gross Domestic Product (GDP).

However, he pointed out that the reported deficits excluded items such as energy sector legacy debt payments and financial bailout costs.

He said had those debt items been included, as the IMF had insisted, the deficits would have been higher.

The same argument could also be made of officially reported debt figures, which excluded the energy and financial sector costs, the Sinohydro loan and debts of some parastatals.

He also posited that had those items been fully captured in the fiscal accounts, the deficit and debt levels would have been much higher than officially reported and would have clearly exhibited unsustainable trends.

IMF debt assessment

Dr Kwakye recalled the IMF debt sustainability assessments (DSAs), going as far back as 2015 when the country sought an extended credit facility (ECF) from the fund, which repeatedly pointed to Ghana facing “a high risk of external debt distress”.

The assessment, he pointed out, had continued till today.

Comparison before COVID-19

Providing figures from the IMF’s October 2022 Regional Economic Outlook (REO) for Sub-Saharan Africa (SSA), which compared Ghana's economic performance with Cote d'Ivoire for 2019, Dr Kwakye said Ghana's growth was slightly higher than Cote d'Ivoire’s and much higher than SSA's average.

However, Ghana's inflation was much higher than Cote d'Ivoire’s and slightly less than SSA's average.

When it came to the fiscal deficit and debt-to-GDP ratio, Ghana's figures were much higher than both Cote d'Ivoire’s and the SSA average.

The figures were as follows:

Economic growth: Ghana (6.5 per cent), Cote d'Ivoire (6.2 per cent), SSA (3.2 per cent).

Inflation: Ghana (7.1 per cent), Cote d'Ivoire (0.8 per cent), SSA (8.2 per cent).

Fiscal deficit: Ghana (-7.3 per cent), Cote d'Ivoire (-2.3 per cent), SSA (-3.9 per cent).

Debt/GDP: Ghana (62.7 per cent), Cote d'Ivoire (38.4 per cent), SSA (50.1 per cent).

Dr Kwakye noted that “all put together, it can be deduced that Ghana's macroeconomic situation in 2019 was less favourable than that of Cote d'Ivoire’s and the SSA average with respect to the fiscal and debt situation”.

“While admitting that our macroeconomic indicators in 2019 prior to the onset of the COVID-19 were reasonably good, they fell generally below those of our peers," he said.

More importantly, he said, Ghana's fiscal and debt situations were much worse than officially reported and were already unsustainable.

That, he added, haunted the country into the COVID-19 and the Ukraine war eras, as the true situation became apparent.
 
Current economy

On the state of the economy in the past two years, the research director explained that there were arguably some indicators that represented deep crisis, including contraction in growth, severe cost of living, sharp cedi depreciation, sky-rocketing interest rates, sharp increases in fiscal deficits, crippling debts, among others.

“In general, it will be difficult to blame our current crisis wholly or even largely on COVID-19 and the Ukraine war," he stressed.

He said comparing the economic situation of Ghana to that of Cote d'Ivoire that had almost the same structural economic characteristics for 2022, it was clear that Ghana’s economy was hit harder by the external shocks than they hit “our peers”.