Budget Discipline Should Be Entrenched in Ghana as a Policy Priority
Dr. J.K. Kwakye
Nov 2014
Perennial fiscal deficit overruns in Ghana and their adverse effects on the economy have attracted widespread concern. Motivated by this concern, IEA carried out research to assess the processes, arrangements and the legal framework for budget preparation, implementation and oversight. The study included a survey of selected MDAs and relevant Parliamentary Committees. The study found that budget preparation is largely in conformity with international practice. However, there are severe implementation and monitoring deficiencies, including laxities in spending overruns with no sanctions. The paper makes wide-ranging recommendations for entrenching budget discipline in Ghana. ...
Urgent Policy Interventions are needed to foster financial intermediation and reduce the high cost of credit in Ghana
Dr. J. K. Kwakye
Apr 2014
The Ghanaian financial sector has been growing rapidly in terms of the number of institutions and products offered. Financial institutions contribute to economic growth by channeling surplus resources from savers to borrowers/investors. With the rapid growth of the financial sector, an important question to ask is how “financial intermediation” and “financial deepening” in terms of access to financial services and the use of financial resources in the economy have been evolving. The higher the level of financial intermediation/financial deepening, the greater is the contribution of the financial sector to economic growth. This is because high financial intermediation and financial deepening increase the scope and pace of turning financial resources into real resources. There is not enough empirical evidence on this evolution. Meanwhile, it is known that the cost of credit has been persistently high. In fact, the cost of credit is placed high in the World Competitive Index Reports and Survey by the Ghana Association of Industries among the obstacles to doing business in Ghana and it is considered to be a major impediment to investment and economic growth. This problem has also not been fully investigated. ...
Improving fiscal management in Ghana: The role of fiscal policy rules
Dr. Charles Amo-Yartey
Feb 2014
This paper discusses the role of fiscal policy rules in promoting fiscal discipline and transparency in Ghana. It investigates whether the adoption of fiscal policy rules and independent fiscal policy councils can help improve fiscal performance in Ghana based on international evidence. The results show that fiscal rules, particularly budget balance and debt rules are strongly associated with a higher probability of reducing the public debt to GDP ratio. The paper then calibrates an illustrative simple fiscal rule for Ghana based on the debt sustainability approach with a debt to GDP target of 50 percent of GDP by 2020. Achieving this target requires an average fiscal deficit of about 4 percent of GDP. The paper argues that fiscal rules do not operate in isolation and require supporting institutions and reforms to deliver the anticipated outcome. Key reforms to make fiscal rules effective in Ghana include strengthening budget preparation, appointment and execution; establishing an independent fiscal policy council to provide independent assessment of macroeconomic and revenue forecasts; monitoring and enforcement procedures, and legislative changes to make the fiscal rule legally binding. ...
THE ANSWER TO THE CEDI’S WEAKNESS IS TO ADDRESS THE ECONOMY’S FUNDAMENTALS
Dr. J. K. Kwakye
Dec 2013
The Ghanaian Cedi has been on the decline for the better part of its history, apparently with no end in sight. An IEA study has determined that the long-run decline of the Cedi is influenced by economic fundamentals that drive the real rate towards its equilibrium level. Further, despite the recent sharp depreciation of the currency, there is no clear evidence of misalignment. In particular, contrary to expectation, the study did not find any significant "overshooting" of the equilibrium value or "real undervaluation." The results of the study suggest that to stem the tide of depreciation, policy strategy must focus on strengthening the economy's fundamentals, with sustained macroeconomic stability and growth being at the center. ...
FIVE YEARS OF INFLATION-TARGETING IN GHANA: WHAT HAS CHANGED AND WHAT NEEDS TO CHANGE FURTHER TO ENHANCE THE PROCESS?
Dr. J. K. Kwakye
Feb 2013
After achieving political independence in 1957, Ghana set up its own central bank to conduct independent monetary policy among other functions. Since then, various frameworks have been adopted to deliver price stability as the principal goal of monetary policy. Evidence shows that Ghana has had higher rates of inflation compared to most of its African peers during its history. This unenviable record can be attributed to both the causes and management of inflation. The causes have received considerable attention in the literature. High domestic demand fuelled by expansionary fiscal policies and accommodating monetary policies and the high proclivity of the economy to supply shocks particularly with respect to food, which commands a large weight in the consumption basket have been identified as the principal causes of the high rates of inflation. The effectiveness of monetary management, has, however, not been sufficiently investigated. The effectiveness of monetary policy depends to a large extent on the framework chosen to conduct it. A critical analysis of the monetary policy frameworks used in Ghana has been undertaken from which important lessons for the future have been drawn. ...
GHANA’S MIDDLE-INCOME STATUS HAS SEVERAL GAPS THAT NEED TO BE FILLED
Dr. J. K. Kwakye
Sep 2012
After rebasing in 2010, Ghana's per capita GDP rose to Middle-Income Country (MIC) level as defined by the World Bank. The per capita income measure is, however, seen to be too narrow as it does not even include key economic indicators let alone important social and development indicators. The IEA has assessed Ghana's MI status in comparison with Malaysia and South Africa based on wide-ranging economic and social indicators, including: the domestic macroeconomy, real economy, financial sector, external sector, infrastructure, competitiveness, education, health, and poverty. It is found that Ghana trails these two major MICs on almost all the economic and social indicators investigated. The paper recommends some of the policy interventions that would be needed to improve Ghana's economic performance and social indicators to the levels commensurate with its new MIC status. ...
THE RECENT SLIDE IN THE CEDI SHOULD BE A WAKE-UP CALL
Dr. J. K. Kwakye
Jul 2012
The paper examines the reasons for the recent sharp depreciation in the cedi, while placing the problem in a long-term context. The paper offers both short-term and long-term solutions to safeguard the cedi's value. As a bottom line, the paper argues that the only way to stem the cedi's continual weakness is to strengthen the fundamentals of the Ghanaian economy, particularly by fortifying the export and industrial base, and the fiscal position. ...
SINGLE-DIGIT INFLATION AND THE COST OF LIVING DICHOTOMY IN GHANA
Dr. J. K. Kwakye
Jul 2012
Ghana has a long history of high inflation rates, popularly attributed to supply not keeping up with demand. However, Ghana's current single digit inflation can be attributed to a number of factors including the reduction in global inflation rate and a stable exchange rate for a period of time. This single-digit inflation has spurred the discussion as to whether it is a true reflection of the situation on the ground. This article throws some light on the measurement of inflation and explains why there should be a dichotomy between the statistical measurement of inflation and the cost of living. ...
GHANA STILL HAS TO OVERCOME DESPITE THE RISE TO MIDDLE INCOME STATUS SEVERAL CHALLENGES
Dr. J. K. Kwakye
Jul 2012
The IEA has assessed Ghana's middle income status in comparison with Malaysia and South Africa, and found that Ghana trails these two major MICs on almost all the economic and social indicators investigated. The paper recommends some policy interventions that would be needed to improve Ghana's economic performance and social indicators to the levels commensurate with its new MIC status. ...
THE PERILS OF “A GUGGISBERG ECONOMY”
Dr. J. K. Kwakye
Jun 2012
More than half a century after independence, the Ghanaian economy remains dependent on cocoa and gold for its survival. The country has failed to diversify the economy's production base all these years. In essence, the economy has retained its colonial “Guggisberg structure.” The endurance of the Guggisberg economy has come with considerable costs. These include direct costs such as near-stagnation of export receipts, import dependency, aid dependency and external debt burden as well as indirect costs, including high unemployment, high cost of living, and weak currency. Unless a serious effort is made to break away from the Guggisberg economic structure, Ghana will continue to suffer its perils and fail to achieve true middle-income status. This article suggests ways of making this break and placing the economy on a path of growth and development. ...