Ghana’s Economic Fundamentals too Strong to collapse

Last week I heard a lecturer in one of the public Universities in Ghana commenting that the country’s economy could collapse due to reasons best known to himself, and I told myself this man has been in the classroom for a long time and has been enjoying the tax payers money which is used to pay his salaries and other allowances, as such he needs to come on the field and try his hands on some of the practical sectors of the economy, like industry then he would realise that economies don’t collapse.

How can an economy with all the natural resources found in it be described as “on the verge of collapse”?  An economy that has the capacity to pay its debts and is currently servicing its debt efficiently cannot collapse. With debts to GDP of 78.4 percent   and attempt to reduce it means that the economy is in a sustained form.  All the critics are trying to do is to push the government to go to IMF which is impossible. I cannot say it is one of the strategies of the IMF to lobby some of these so called public speakers to force government to run for cover.

The point is that government has no business going to IMF and the economy is not in a stage of collapse. What government needs to sustain the economy is to improve domestic revenue mobilisation mobilization to maximise revenue and reduce expenditure. Government expenditure is too much, it has to be reduced and. Besides, some government funded projects should be slowed for some time until the economy fully recovers.

All the economic indicators are showing positive signs of growth so there is no need to panic. The current 78.4% debt-to-GDP ratio as at the end of November 2021 indicates rather a reduction in the rate of debt accumulation (i.e. declined by a half to 18% as at November 2021 from 34% in 2020). This attests to an improvement in our debt and liability management with the positive Primary balance target for 2022 – one of the key fiscal anchors in 2022 – Ghana should see improved stability and reduction in the debt to GDP ratio in 2022 and through the medium term. Ghana’s economy is in a good state and better than other economies on the African continent

Government is on track to meet its non-oil Tax Revenue target for 2021 of GHS 57.05bn (13.16% of GDP). The 2022 non-oil Tax Revenue target of GHS 80.3bn moves us to tax revenue to GDP of approximately 16%, which is still below our medium revenue target of 18-20% of GDP.  Ghana is confident that it can meet the 2022 revenue target and that the E-Levy will help to accomplish this.
Ghana does not face any imminent external imbalances or reserves shortfall. The reserves, at over 5x import cover, are well above our internal target of 4 months and better than the average over the previous two decades. Foreign Financing of the 2022 Budget, of US$1.5 billion is also bolstered by the balance of SDR’s of approximately US$700 million.

The balance can be financed through the use of alternate instruments including term loans, bilateral and multilateral loan facilities and a tap-in of our domestic dollar bonds, amongst others.

Ghana has healthy reserves of over 5 months of import cover amidst reduced levels of foreign investor participation in its domestic market. As at November 2021, data indicates that only 16.55% of Ghana’s domestic debt is held by non-residents investors as compared to 38.44% and 30.01% in 2017 and 2018, respectively.

Ghana’s fundamentals remain strong as attested to by its growth in Q3-2021; the Ghana Revenue Authority exceeding its target in 2021; and its strong reserves position

By Kwabena Adu Koranteng