In the past, to the ordinary Ghanaian, the reading of the national budget statement and economic policy state meant only one thing: Price Increases! Economic panick grabbed the country during January of every year as the Minister of Finance and Economic Planning (and his team of experts) descended on Parliament House to read the budget statement. “…In response to enormous fiscal deficit that we inherited from the previous government, it is important for citizens to tighten their belts for the long term betterment of our economy….”: Statements like this came a dime a dozen as the annual ‘prophet of doom’ spelled out how depleted the national coffers were and went on to ask citizens to brace themselves for a tough year.
In January of 2009, a new government was elected in Ghana and, as is the case everywhere else in the world, its main priority was to ‘fix the economy.’ The budget for 2009 focused on stability over growth; ‘fiscal discipline’ was the economic mantra, as the government reduced spending to the very bare essentials: contractors did not get paid and development projects did not receive funding. At the same time, economic growth became stifled due to high costs of borrowing, with some banks charging interests of more than 30%. Some economists cried foul, arguing that reducing expenditure was no way to deal with a ‘recession,’ citing how the Federal Reserve of the United States had reduced interest rate to almost zero percent to stimulate growth. They even argued that while even wealthier countries were giving stimulus packages to their top companies, the government of Ghana was doing the exact opposite, choking local businesses in the process.
So when the Ghana Minister of Finance and Economic Planning entered Parliament House again last week to deliver the 2010 national budget statement, the whole country waited to hear whether the period of austerity that they had been forced to endure was over. The Minister acknowledged that the government had had to tighten the economic for the first nine months to rope in the runaway fiscal deficit, but he reassured the nation that 2010 fiscal year was going to be a better year than current one. He said that the government was going to shift its focus from stability (reduction of inflation and deficits) to stimulating economic growth. Just last Friday, the Governor of the Bank of Ghana, announced a reduction in the prime rate from 18.5% to 18.0%. (The prime rate is the rate at which the Central Bank lends to its most preferred customers). This was welcome news for many businesses and individuals, as they had been clamoring for a reduction to help them fund their businesses more easily. Thus the reduction was an early testament of the Government’s growth-favoring outlook for 2010.
But not everyone is convinced about the Government bullish view of 2010. Some analysts believe the budget lacks the boldness required to steer the nation out of the economic doldrums. They argue that lending rates are still very high and not very affordable to the vast majority of the private sector. Some people also blamed the government’s inability to raise the needed tax revenue to fund developmental growth. This resulted in the Government’s heavy dependence on borrowing from the domestic market, crowding out the private sector in the process.
In the middle of all this economic talk sits the ordinary Ghanaian, wondering how he is going to pay his children’s school fees, take care of his parents, and put food on the table in 2010. Hopefully, the economic wizards in charge of budgets and economic planning can provide some tangible solutions that will make life in the bottom rungs of the economic ladder a bit more bearable in the coming year.