The Politics of Poverty

Ideas and analysis from Oxfam America's policy experts

Ghana’s Fiscal Trilogy

Posted by
Communities relocated to make way for gold mines in Ghana struggle with loss of agricultural land, unemployment, and environmental damage. Photo: Neil Brander / Oxfam America

How will Ghana get out of a fiscal deficit, while seizing public revenue potential from oil and ensuring spending fights poverty?

Omar Ortez is the Senior Policy Advisor on Active Citizenship at Oxfam America.

“We are so rich! How come we are so poor?”

This question has stayed inside my head since I visited Ghana last fall and sat down with Albert Kan-Dapaah, a former cabinet minister and former chair of the Public Accounts Committee of the Parliament of Ghana.

These expressed words by Kan-Dappah, now the co-founder of the think tank, Fiscal Transparency and Accountability Africa (FAT-Africa), represent well the country’s conundrum of being “a high achiever… of a peaceful, democratic and open society, with now the real possibility of turning into a middle income country through its extractives sector boom.” And yet at the same time, Kan-Dappah points out that Ghana is an underperformer in terms of equitable and sustainable socio-economic gains.

Ghana is currently facing a trilogy of fiscal challenges. Put simply, the country has to: (1) deal with its fiscal deficit problem in the short-term, so that (2) it can seize the medium-term public revenue potential of its booming extractives sector –particularly oil and gas– while, (3) it strategically spends current and upcoming revenues to tackle, long-term, inclusive, development needs.

For three consecutive years, Ghana’s budget gap has exceeded 10 percent of gross domestic product (GDP). To fill that deficit, the country has indebted itself (e.g. it signed a US$ 13 billion deal with China in 2012[1] and has also done  Eurobond sales) to a point where it currently pays 50% of its revenues (about 16% of GDP) to service the interests of that debt. Making matters worse, investors are concerned that the government is failing to rein in spending, and this has fueled a 21% slump in the Cedi (the national currency) against the dollar this year. Just last February Ghana’s net international reserves had declined to a point where they could cover less than one month of imports of goods and services.

The Government of Ghana has justified the debt, assuming it is a bridge for short-term liquidity needs until new oil revenues kick-in over the medium term. Ghana Finance Minister Seth Terkper recently said that, “For those who are close to Ghana and who are looking at the data in terms of investment opportunities and the rest, they know that the medium-term story is good and we are doing our best to correct the short term.”

Ghana’s bridge has turned out to be an expensive bet and a tricky one if extractive revenues projections are off. Ghana is currently finding itself forced to reduce public spending and Minister Tekper has also admitted that Ghana hasn’t excluded the option of eventually seeking a bailout from the International Monetary Fund to help finance its budget and current-account deficits; although the government’s official position so far has been to rely on homegrown policy to fix the economy.

Ghana is in a tricky position. The country needs to rein over its short-term fiscal crisis so that the medium-term revenue opportunity doesn’t get lost in a black whole of deficits, currency depreciations, and inflation. At the same time, it also has to set a more disciplined budget and public spending agenda for the medium- and long-term that continues to tackle poverty reduction and development. Whether the policy measures to tackle the deficit are run by the government directly or with support from an international bailout plan, difficult fiscal decisions are in Ghana’s near horizon.

The challenge the Ghanaian government faces makes it all the more necessary to equip Ghanaian citizens with enhanced access to information about expenditures of public revenues. The approval of an improved – and years delayed – Right to Information (RTI) law would be critical for this. The IMF’s recent Article IV Consultation published at the end of May made a similar case when it stated that, in addition to identifying a set of measures to allow a larger deficit reduction, the mission “stressed that increased transparency of revenue and expenditure allocations at all levels of the public sector will be important for a successful prioritization of scarce resources to support the government’s transformation agenda.”

But for Ghana to successfully perform throughout this trilogy it is even more crucial to strengthen those national dialogue platforms where citizens can engage their representatives on fiscal policy issues; both to ensure that strategic investments will create shared economic prosperity beyond Accra into local district assemblies, and also to ensure that pro-poor public spending in sectors such as agriculture, education and health is protected from cuts. Ghana’s own Open Government Partnership (OGP) Action Plan already contemplates a series of measures that if complied with could begin to tackle this problem. Just to name three, the Action Plan contemplates: consulting citizens on a budget presentation format that facilitates effective tracking of expenditures; producing a simplified version of the budget for popular usage; and working on guidelines for deepening CSO participation in local government planning and budgetary processes–These plans need to be followed through.

The citizens of Ghana deserve an answer to, “We are so rich! How come we are so poor?”

 


[1] The US$ 13 billion agreement with China represented 33% of Ghana’s gross domestic product (GDP) in 2012. It included a US$ 3 billion China Development Bank facility for the Western Corridor gas commercialisation project, a US$ 9 billion deal with the China ExIm Bank for road, railway and dam projects, and a US$ 250 million deal for the rehabilitation of the Kpong water works.

Share this story:

Leave a Reply

Your email address will not be published. Required fields are marked *