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The World Bank Group has cautioned the government against overly depending on the country’s natural resources for economic development.
The bank noted that Ghana’s natural resources contributed about 13 per cent to Gross Domestic Product (GDP), which was too high, compared to other lower-middle-income countries in sub-Saharan Africa, whose natural resource contribution was around 3.7 per cent.
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In a presentation at the Kick-Off Meeting for Ghana Partnership Framework, the Senior Economist at the World Bank, Ms. Tomomi Tanaka, said the issue had led to high fiscal volatilities in the economy and the risk of catching the dreaded ‘Dutch disease’.
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She, therefore, called for quick measures to diversify the economy.
“In 2015, natural resource rents reached 20 per cent of GDP, the highest share in West Africa, and three products — gold, cocoa and petroleum — account for over 80 per cent of exports,” she said.
Risk to exchange rate
Ms Tanaka also noted that the country’s significant oil revenue inflows posed a risk to exchange rate management and the competitiveness of other sectors of the economy.
“A large inflow of oil revenues could lead to exchange rate appreciation, which could in turn have detrimental effects on the competitiveness of non-oil sectors.
“At the start of oil production in 2011, agriculture saw its lowest growth rate of 0.8 per cent and industry grew by over 41 per cent,” she pointed out.
The chief economist said although there was also an impact of low crop yields in 2011, amplifying the shift, 2011 marked the time of increased natural resource revenues.
Fiscal situation
The senior economist also indicated that Ghana’s fiscal situation had not been sustainable for several years, with comparatively low revenue mobilisation and high public wage expenditures.
She said tax revenues were below potential by an estimated five per cent of GDP and far below regional peers.
She said the country’s tax expenditure regime was too expensive, noting that in 2013, exemptions and preferential treatments cost the country 5.2 per cent of GDP in foregone revenue.
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“Meanwhile public sector employment costs 9.5 per cent of GDP and is crowding out other non-wage items that are critical for improving public service delivery,” she noted.
In 2014, she said, Ghana’s wage bill was 62.1 per cent of tax revenue, which was far above the sub-Saharan Africa average of 28 per cent and the West African Monetary Zone convergence criterion of 35 per cent.
Country diagnosis
The Country Director of the World Bank, Mr Pierre Laporte, in his welcome address, said the way that the bank prepared its strategies for countries was a two-step process.
He said the first process was the systemic country diagnosis that made an assessment of the constraints that the country faced.
“These constraints are identified through broad-based consultations and then later these priorities are discussed with the government and we wil focus on the more critical ones.
“From that diagnosis, we go to the framework and develop the strategy. This strategy will be the reference document that will guide our interventions in Ghana for the next six years,” he explained.
Six-year strategy
Mr Laporte said the bank had now made a decision to have strategies that would span longer years.
“We have decided to have a six-year strategy, beginning July 2020. After the third year, we will do a review of how things have gone and re-adjust”
“One of the critical things is to have broad-based participation. This is the first step of the consultative process. Based on the constraints that have been identified, we will now have some areas of focus,” he said.
He said the strategy would be one that would fit into the government’s strategy.
Source: Graphic
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