Former Finance Minister, Seth Terkper, is urging Ghanaians to embrace themselves for a tough time this year as the 2021 Budget and Economic Policy will be extremely conservative.
According to him, the fiscal economic numbers do not look good, requiring very drastic measures to save the economy from further troubles.
The school of thought is that a trouble or poor fiscal economy will impact negatively on the monetary and real sector economies that is exchange rate instability, increase inflation or pricing, increase cost of credit, relatively low income for businesses, amongst others.
Although the nation hasn’t gotten to the level of severe economic contraction, Mr. Tekper said the present economic situation will require pragmatism from government in this year’s budget.
“Is a tough budget, no question about it and the numbers [fiscal economic indicators] speak for itself, and some of the alternative numbers [from IMF, Moody’s and Fitch] shows that. You have institutions like IMF, Moody’s showing what we call parallel number; so to give you an example, debt is at 80% – we shouldn’t be comfortable with 80% – and I’ve said that we shouldn’t be comparing ourselves with developed country”, he said in a video ahead of the 2021 Budget presentation on 12th March, 2021.
“They [developed countries] are borrowing at almost negative rates – 1%, 2%, at most 4%. We do our borrowing not even at 6% but 8%, so the cost of borrowing is high and it takes a lot of money to service these debts as a developing country, so debt at that level is unsustainable”, he further said.
“Ghana has been described as being at risk of debt distress. It is also not a sufficient comfort that the deficit which the governemnt itself–if you take three of their documents– originally said 2020 deficit was going to be 4.5 or 4.7%. By the time the mid-year review was being read has risen to 8.5%, but if you add the energy costs which was taken out of the narrow basis, if you add it gives governemnt own deficit to 11% plus”, he emphasized.
He expressed worry that the higher fiscal deficit to Gross Domestic Product is being attributed to covid-19 pandemic, saying it is not true.
“Now there is some effort to attribute to most of them [higher fiscal deficit and rising debt] to covid-19. But we have had the occasion to go to the IMF to get money for covid, and we have told the IMF that the cost of borrowing [covid-19 deficit] is between 2.3 to 2.5 percent. So even if you added the cost of covid to 4.5%, you are having about 7%. So if your deficit is around 13% and Fitch and others have said it could be 15% or more, what is accounting for the gap”, he questioned.
The adjustment in cost made in the mid-year review budget were the energy arrears, bailout cost, additional money for interest payment and additional payment for wage arrears.
Mr. Tekper said “as we speak governemnt has not even finished negotiating with labour which means that whatever is in the advance of appropriation will be conservative. And so if you take the last indicator which is suggesting that governemnt could do 2021 deficit [fiscal] of 8.5% which is a comedown of 15% to 8.5% is not possible”.
“We have done IMF programmes under austere conditions and we have never reduce the deficit by that number, we have never done that. So it tells you that the projection government was presented in the advance of appropriation was very conservative”, he emphasized.
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