After castigating and calling the erstwhile Mahama Government incompetent, the Nana Addo government assumed power on the back of many lofty promises and economic policy alternatives captioned in slogans such as “Free SHS”, One district One factory, Planting for food and jobs, Moving from Taxation to Production” etc that made Ghanaians believe in a new dawn of hope and prosperity.
However, upon assumption of power the story became different.
The Nana Addo/Bawumia Government went on a journey of fiscal expansion and indiscipline; starting with an elephant sized government of about 120 Ministers, creating new governmental agencies, increasing the budget and the number of staff at the presidency, creating new regions, cleaning the financial sector with Ghc 25bn instead of Ghc 9bn as estimated by industry players and the big four auditing firms, spending hugely on wrong policy choices with no corresponding impact on Economic growth, and overall wastage and corruption that engulfed every facet of economy.
At a point in time, the Nana Addo government attempted to even pay salaries to its first and second ladies.
To support this reckless expenditures and also create a short term stability in the performance of our local currency, the Nana Addo Government went on a borrowing spree both from the external capital market and the domestic capital market to borrow over Ghc 500bn without any consideration of our ability to pay and the effects of default on the economy and our reputation.
Off course the excessive borrowings were also largely induced by the transaction fees and commissions earned by the Finance Minister anytime we went to borrow as a nation.
The borrowing ballooned our debts in nominal terms from Ghc 120bn to over Ghc 600bn just within 6 years causing our Debt to GDP to stand currently over 104%.
Following a period of reckless borrowings and expenditures, wastages, corruption, lack of fiscal prudence, huge fiscal deficits over the years, and poor economic policy choices, the government of Ghana knew the economy was on the verge of collapse as early as 2021 even before the emergence of the Russian Ukrainian war.
The government over the period have been hiding the true state of our economy through creative accounting.
However it was very evident that our debts levels were unsustainable, we were financially insolvent and bankrupt, and our macro economy environment was highly unstable characterized with high unemployment levels, low productivity, fall in aggregate demand, depreciation currency regime, inflation, balance of payment challenges and high interest rate regime.
The Goverment of Ghana in trying to remedy the self inflicted adverse economic conditions, adopted several suboptimal and harsh fiscal and monetary policy measures which rather exacerbated the difficulties in economy and worsened the living standards of its people and the performance of its industries.
Among many are the following measures that government of Ghana adopted
1. Introduction of the 1.5% COVID levy
2. The removal of the benchmark discount values on imports leading to increased import duties with its attendant effects on inflation and high cost of production.
3. Increase in taxes on petroleum products affecting fuel prices.
4. Introduction of Property Rate
5. Increase in VAT by 2.5% which is inflationary
6. Introduction of Sanitation Levy
7. Revision of fees, rates and other charges by public institutions by 15%.
8. Increase in the communication service taxes
9. Continuous Increase in Utility Charges ie Electricity and Water
10. Freeze on public sector employment
The effects of these policies increased cost of living and production and worsened the living standards and welfare of the Ghanaian people.
Having borrowed excessively, Ghana was blacklisted from the international capital market and with a corresponding failure of revenue measures the Nana Addo government were exposed and had no option than to resort to an IMF bailout.
To sustain the economy temporarily before the IMF deal, the Bank of Ghana have been financing the deficit of the central government of about Ghc 80bn within two years without which the economy would have totally collapsed in 2021. That is a period of dominance of fiscal policy over monetary policy.
The BOG financing created inflationary pressures as the excess liquidity was not supported with a corresponding increase in productivity. To respond to the self imposed galloping inflation, the Bank of Ghana continued to increase the policy rate which led to an increase in interest rate,high cost of doing business and a collapse of the private sector.
The IMF confirmed that indeed our debt levels were highly unsustainable and Ghana was at a risk of default.
The objectives of the IMF program is to achieve Debt Sustainability, fiscal consolidation and Macro Economic Stability.
The conditions precedent to the IMF deal required we conducted some fiscal adjustments (Debt restructuring) and increasing our revenue base to sustain the economy.
The domestic debt exchange program as embarked by the government have a very dire consequences on the performance of the financial sector, the welfare of the Ghanaian people, rate of capital accumulation and the overall real sector of the economy in the coming years. The Ghanaian Economy will be faced with high unemployment levels, low productivity, increase in poverty, fall in GDP and balance of payment challenges in the coming years.
The Nana Addo government have totally shut down the hope and fortunes of the Ghanaian people, worsening their economy conditions and the next Government will require critical alternative economic policies to revamp this devastating economy in the next coming years.
By Martin Ohene Anim
(PhD Finance Candidate, MBA Finance, MSc Econs, CA, CEPA, CH. fe, MIIA, GSE, Bsc