At the beginning of this month it was reported that Ghana
was seeking help from the International Monetary Fund (IMF) because of its
worsening economic situation triggered by its plummeting currency.
The Ghanaian unit, the Cedi had fallen as much as 40 percent
against international currencies because of a large current account deficit –
it’s spending more foreign exchange than its making and ballooning budget
deficit – the government is spending
more than it collects in revenues.
"It is not a crime to ask for IMF help but it often suggests that your accounts aren’t quite what they are supposed to be....
Ghana and Uganda are not unlike each other in several ways.
When Uganda was being feted as East Africa’s shining economy
a few years ago, Ghana was receiving the same accolades on the west coast.
Ghana – rich in Gold and Cocoa recently started producing oil. The theory was
that Ghana, which had established a level of fiscal discipline would get more
value for money when the oil came out of the ground. So was the thinking about
Uganda.
But with oil around the corner, with the prospects being
hyped by the oil companies, the government in Accra went haywire, raised public
servants’ salaries, borrowed against future oil revenues and indulged in huge
public works investments.
"Not only are the oil revenues not flowing as fast as first anticipated but these huge government expenditures are gobbling them up as soon as they gash out of the ground....
As if that is not enough last year Ghana issued a $750m bond
on the international market whose interest payment in foreign currency, is
putting added pressure on the Ghanaian treasury.
The parallels between Ghana and Uganda cannot be ignored.
Uganda too is about to start production in the next five
years or so.
There is much need for the money to shore up our education
and health services, build transport and energy infrastructure, not forgetting
any number of vanity projects that are bound to start popping into people’s
heads.
The government insists that when the oil money starts
flowing the first call on the cash will be to finance infrastructure projects
rather than go towards beefing up recurrent expenditures. Salaries constitute a
huge portion of recurrent expenditures in the budget and are an easy target for
politicians – you boost salaries and votes come in.
"Ghana’s politicians fell for this quick fix and now salaries account for two in every three cedis of revenue collected....
Insisting on infrastructure development can still lead to
higher salaries but not instantly. By lowering the cost of doing business more
taxes can be collected and these will find their way to the payroll.
Even in our everyday lives it is amazing how people lose
their heads when they happen upon a windfall. They indulge in frivolous
purchases, unplanned expenditures and value-for-money judgements go out the
window.
It is no different for governments.
But in addition look forward to huge projects with little to
no economic justification, padded with huge “commissions” and hidden costs.
Ruling elites, despite what they sell to the public are
looking first and foremost to retaining power, more resources either via higher
revenues, foreign aid or windfalls beyond enriching themselves are employed to this
end.
"The details of the Ghanaian situation are bound to show that political expediency rather than official incompetence is at the back of why the country’s economy does not look so rosy any more....
A fate we should not think we are immune to.
The Norwegians are the benchmark of how oil revenues can be
employed for the benefit of the people without jeopardising the economic
environment.
Norwegian oil revenues are stored away in an investment
fund. Government has only access to four percent of the almost one trillion in
fund assets annually to support the budget. This ensures that that the
Norwegian kronor does not fluctuate unnecessarily with oil prices and also that
the nation will benefit from its oil fields well after they have dried up.
Of course Norway had
the advantage of already being a rich country by the time the oil came around,
but we and Ghana, of course can derive
some useful lessons from how they have employed their oil industry’s earnings.
For Ghana it will get worse before it gets better. Under an
IMF program they will be forced to cut down on government spending, which could
entail restructuring of the civil service, removal of subsidies and the cut
back crucial social services, in effect making life harder for the common
people.
My father told me there are two kinds of people in the world
those who learn the easy way, from the experience of others and those who learn
the hard way through their own experience. Let’s fall in the former category
and take important lessons from Ghana’s apparent false dawn.
