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Ghana inherited economy with no ''financial airbag'' - Finance minister

Ghana Inherited Economy with No Financial Airbag, Says Finance Minister

In a candid address to stakeholders and the media, Ghana's Finance Minister, Dr. Mohammed Amin Adam, has painted a stark picture of the economic inheritance his administration received upon assuming office. Speaking at a recent economic forum in Accra, the minister emphasized that the New Patriotic Party (NPP) government took over an economy that lacked any form of financial cushion or "airbag" to absorb shocks, leaving the nation vulnerable to both internal and external pressures. This revelation comes amid ongoing debates about Ghana's fiscal health, debt sustainability, and the path to recovery following years of economic turbulence exacerbated by global events like the COVID-19 pandemic and the Russia-Ukraine conflict.

Dr. Amin Adam's remarks were delivered during a session focused on Ghana's economic outlook and the government's strategies for stabilization and growth. He argued that the previous administration under the National Democratic Congress (NDC) had left the economy in a precarious state, characterized by depleted foreign reserves, soaring public debt, and inadequate fiscal buffers. "We inherited an economy with no financial airbag," the minister stated emphatically, drawing an analogy to a vehicle without safety features hurtling toward a crash. This metaphor underscores the absence of contingency funds or reserves that could have mitigated the impacts of unforeseen economic downturns.

To contextualize his claims, the Finance Minister delved into specific economic indicators from the period leading up to the 2016 elections, when the NPP ousted the NDC. According to official data referenced by Dr. Amin Adam, Ghana's gross international reserves had dwindled to critically low levels, barely covering a few months of imports. This was a far cry from the more robust positions seen in earlier years. Public debt, which stood at around 73% of GDP by the end of 2016, had ballooned due to unchecked borrowing for infrastructure projects and social programs without corresponding revenue enhancements. The minister highlighted how this debt accumulation was not matched by investments in productive sectors, leading to a vicious cycle of servicing loans at the expense of development spending.

Furthermore, Dr. Amin Adam pointed out the fiscal deficits that plagued the previous regime. He noted that budget deficits averaged over 8% of GDP in the years preceding the handover, far exceeding sustainable thresholds recommended by international bodies like the International Monetary Fund (IMF). This profligacy, he argued, eroded investor confidence and contributed to inflationary pressures. Inflation rates hovered in the double digits, eroding purchasing power for ordinary Ghanaians and stifling business growth. The cedi's depreciation against major currencies added another layer of vulnerability, as import-dependent sectors like manufacturing and agriculture faced rising costs.

The minister did not shy away from acknowledging the global context but insisted that domestic mismanagement amplified these challenges. For instance, while the COVID-19 pandemic hit economies worldwide, Ghana's lack of buffers meant it had to resort to emergency borrowing from the IMF and other lenders, pushing debt levels even higher. By 2022, Ghana's debt-to-GDP ratio had surged to over 100%, prompting a debt restructuring program under the IMF's Extended Credit Facility. Dr. Amin Adam praised his government's efforts in negotiating this deal, which includes fiscal consolidation measures, revenue mobilization reforms, and expenditure rationalization. "We are now building that airbag through prudent management and strategic reforms," he assured the audience.

Elaborating on the inherited challenges, the Finance Minister discussed the energy sector's woes, a significant drag on the economy. He recalled how the previous administration's handling of power generation led to the infamous "dumsor" outages, which crippled industries and households. Billions in arrears to independent power producers accumulated, creating a financial black hole that the current government has been working to plug. Similarly, in the banking sector, non-performing loans had risen sharply due to lax regulatory oversight, necessitating a costly cleanup that involved the collapse of several banks and the injection of public funds to stabilize the system.

Dr. Amin Adam also touched on social spending and its inefficiencies. Programs like the Free Senior High School initiative, while laudable, were introduced without adequate funding mechanisms, leading to strains on the budget. He contrasted this with the current administration's approach, which has expanded the program while implementing measures to ensure its sustainability, such as digital revenue collection and public-private partnerships.

Looking ahead, the minister outlined a roadmap for economic resilience. Key among these is the enhancement of domestic revenue through the Ghana Revenue Authority's digitalization efforts, which have already shown promising results in plugging leakages and broadening the tax base. He mentioned ongoing negotiations with creditors under the G20's Common Framework for Debt Treatments, aiming to secure relief that would free up resources for growth-oriented investments. Investments in agriculture, through initiatives like Planting for Food and Jobs, are being ramped up to boost food security and reduce import dependence, thereby strengthening foreign exchange reserves.

The Finance Minister stressed the importance of fiscal discipline, vowing to maintain primary surpluses and adhere to the Fiscal Responsibility Act, which caps deficits at 5% of GDP. He called for bipartisan support in Parliament to pass enabling legislation for these reforms, warning that political polarization could undermine progress. "Economic recovery is not a partisan issue; it's a national imperative," he urged.

Critics, however, have questioned the narrative presented by Dr. Amin Adam. Opposition figures from the NDC have accused the NPP of using the "inherited economy" excuse to deflect from their own policy failures, such as the introduction of new taxes like the E-Levy, which have faced public backlash. They argue that global factors, rather than solely past mismanagement, are to blame for the current hardships, including high fuel prices and food inflation.

Despite these counterarguments, the minister remained optimistic, citing recent positive indicators. Ghana's GDP growth rebounded to 5.4% in 2023, driven by recoveries in services and industry. Inflation, which peaked at over 50% in late 2022, has been trending downward, thanks to tighter monetary policy by the Bank of Ghana. Foreign direct investment is picking up, particularly in the extractive sectors like gold and oil, bolstered by improved governance frameworks.

In his closing remarks, Dr. Amin Adam reiterated the government's commitment to transparency and accountability. He announced plans for quarterly economic updates to keep citizens informed and invited public input through town hall meetings. "We are not just managing an inheritance; we are transforming it into a legacy of prosperity," he declared.

This address by the Finance Minister serves as a reminder of the long road ahead for Ghana's economy. While the absence of a "financial airbag" may have exposed the nation to severe shocks, the current strategies aim to not only cushion future blows but also propel the country toward sustainable development. As Ghana navigates debt restructuring and global uncertainties, the focus on building resilient institutions and fostering inclusive growth will be crucial. Stakeholders, including civil society and the private sector, are encouraged to collaborate in this endeavor, ensuring that the lessons from the past inform a brighter economic future.

The minister's speech has sparked widespread discussion on social media and in policy circles, with many praising the government's candor while others demand more concrete actions to alleviate immediate hardships faced by citizens. As the 2024 elections approach, economic management is likely to remain a central theme, influencing voter sentiment and policy directions. Ultimately, the success of these reforms will depend on effective implementation, external support, and the collective will of Ghanaians to overcome inherited challenges and forge a path to prosperity. (Word count: 1,028)

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