Improving Fiscal Management in Ghana: The Role of Fiscal Policy Rules
Dr. Charles Amo-Yartey
Aug 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 econometric analysis draws on a large dataset of about 160 countries to examine the impact of fiscal rules on fiscal performance, measured by the debt to GDP ratio and using the conditional logit regression approach. 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 Framework with a debt to GDP target of 50 percent of GDP by 2020. Achieving this target requires 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 ...
GHANA’S DEBT PROFILE AND SUSTAINABILITY
Dr. J. K. Kwakye
Aug 2014
Relying on both external loans and domestic borrowing to support its development saw Ghana's debt rise over the years, reaching over 100% of GDP in 2000. When the IMF and World Bank introduced the Heavily-Indebted Poor Countries (HIPC) initiative in 1999, Ghana was judged to be a HIPC with unsustainable debt. The country benefited from debt relief under the initiative in 2004 when it met the full policy conditions. Subsequently, in 2006, the country also benefitted from the Multilateral Debt Relief Initiative (MDRI), which offered total relief from debts owed to the IMF, the International Development Association (IDA) of the World, and the African Development Bank (AfDB). The HIPC and MDRI reliefs resulted in a sharp decline of Ghana's debt to about 26% of GDP, which was regarded as a sustainable level. ...
FINANCIAL INTERMEDIATION AND THE COST OF CREDIT IN GHANA
Dr. J. K. Kwakye
Aug 2014
The Ghanaian financial sector has been growing rapidly. It is, however, not clear how “financial intermediation” and “financial deepening” have been evolving. Further, the cost of credit has been persistently high, which stifles investment and economic growth. The reasons have not been fully investigated and documented. The paper seeks answers to these questions by applying a combination of analytical and survey investigative methods. The paper finds that financial intermediation and financial deepening are low and depict Ghana’s financial sector as still “shallow.” The paper also finds that, from the point of view of surveyed banks—which is also reflective of widely-perceived views—the persistent high cost of credit is primarily the result of competitive government borrowing, high cost of bank funds and high lending risks. The paper proposes interventions to address these deficiencies in the financial sector. ...
STRENGTHENING GHANA’S ELECTORAL SYSTEM: A PRECONDITION FOR STABILITY AND DEVELOPMENT
Prof. Mike Oquaye
Dec 2013
The democratization process in Africa is inextricably interwoven with elections. We elect representatives to govern us because we cannot all rule at the same time. Political party engagement stems from the aggregation of political ideas through political parties so that a meaningful political competition can take place. Hence, to rig an election is to unlawfully appropriate the will of the people. A study of conflict in African States reveals two main causative factors ethnicity and elections. Indeed, the latter often propels the former. The regional elections in Western Nigeria in 1964, for example, triggered political conflict, then ethnic violence and degenerated into the Biafran war. Despite the various political and ethnic issues underscoring conflict in Liberia, electoral rigging catapulted the nation into the civil war carnage. Elections have plunged Cote d'Ivoire, Togo, Benin, Kenya, Zimbabwe etc into war. Africa can only stabilize and deepen democracy through an electoral system which will put results beyond dispute. ...
GHANA’S MIDDLE-INCOME REALITY CHECK PART I: THE ECONOMIC DIMENSION
Dr. J. K. Kwakye
Jul 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. As the first of a two-part paper, this paper assesses Ghana’s Middle-Income status in comparison with Malaysia and South Africa based on economic indicators and paper finds that on macroeconomic performance, Ghana lags behind. The paper concludes that Ghana may need to undertake major policy interventions to improve its economic performance to a level commensurate with its new MIC status. ...
GHANA’S MIDDLE-INCOME REALITY CHECK PART II: SOCIAL AND INFRASTRUCTURE DIMENSIONS
Dr. J. K. Kwakye
Jul 2012
After re-basing in 2010, Ghana's per capita GDP rose to Middle-Income Country (MIC)Â 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. As the second of a two-part paper, this paper assesses Ghana's Middle-Income status in comparison with Malaysia and South Africa based on social and infrastructure indicators. The paper finds that Ghana trails these two major MICs in terms of almost all the social and the infrastructure indicators investigated. The paper concludes that Ghana may need to undertake major policy interventions, including reallocating resources to these sectors and improving efficiency of spending, to improve its social and infrastructure indicators commensurate with its new MIC status. ...
Determination Of Real Exchange Rate Misalignment For Ghana
Dr. J.K. Kwakye
Jul 2012
The paper determines real exchange rate misalignment for Ghana for the period 1980 - 2010. It finds that the equilibrium real exchange rate is influenced to a significant extent by "fundamental" or "real" factors - represented in the study by productivity, trade openness, real relative interest rate, government expenditure, terms-of-trade and foreign reserves. Nominal macroeconomic variables - represented by domestic credit and the budget deficit - however, do not have a significant effect on the ERER. The actual real exchange rate is misaligned relative to the equilibrium value either way - i.e. overvaluation or undervaluation - throughout the study period. The results indicate strong real overvaluation during 1981-83, and moderate overvaluation or undervaluation for other sub-periods. The real exchange rate adjusts rapidly to the equilibrium level, with about 97% of any misalignment being corrected within a year. Tentative inference from exchange rate data available from the Bank of Ghana suggests that during January 29011 - June 2012, contrary to expectation of possible real undervaluation following the nominal depreciation of about 20%, the real exchange rate was only restored to its equilibrium level and by end-June 2012 there was no significant misalignment either way. ...
KEY ISSUES IN THE CHOICE OF AN APPROPRIATE MONETARY POLICY FRAMEWORK FOR GHANA
Dr. J. K. Kwakye
Jul 2012
The paper reviews the frameworks used for monetary policy and inflation management in Ghana. The paper finds that inflation has generally been high and this is partly due to the fact that its management has been challenged by a supply-constrained economy, fiscal dominance, and an underdeveloped financial sector, among other factors. The paper argues that while monetary aggregates and the exchange rate remain important determinants of inflation, the strict forms of monetary targeting and exchange rate targeting do not appear to be viable options for monetary policy currently. The paper concludes that despite the teething problems of the inflation-targeting (IT) framework that has been in place since 2007, its effectiveness can be enhanced by overcoming the initial challenges. Important requirements for effective IT include: fiscal discipline, sufficient flexibility in the exchange rate, improved financial inter-mediation, increased transparency of the process, improvement in the forecasting framework, and an institutional commitment to and accountability for achieving inflation targets. ...
MITIGATING THE COSTS OF “WASHINGTON CON SENSUS” POLICIES: TITBITS FOR GHA NA AND OTHER AFRICAN COUNTRIES
Dr. J. K. Kwakye
Jun 2011
The author examines the impact of the Washington Consensus, the neo-liberal policies of the Bretton-Wood Institutions, on African countries and, in particular, Ghana. Whilst accepting that the theoretical foundations of these policies have some merit, the author argues that their application in Africa has resulted in a number of adverse outcomes. The promotion of specialization in production and trade, the promotion of private enterprise generally, the elimination of state subsidies, external trade liberalization and the liberalization of financial and product markets have not delivered the benefits promised by theory when applied in a market that is far from perfect. The author advocates for a number of policies that run contrary to the Washington-Consenus. He argues, amongst other things, that the State needs to play a greater role in the economy“ in maintaining control over certain strategically important industries, in assisting infant industries to grow and develop, in ensuring that more people and businesses can access credit and in subsidizing certain products to assist the poor. ...
GHANA’S MIDDLE-INCOME REALITY CHECK PART I: THE ECONOMIC DIMENSION
Dr. J. K. Kwakye
Jun 2010
The author examines the impact of the Washington Consensus, the neo-liberal policies of the Bretton-Wood Institutions, on African countries and, in particular, Ghana. Whilst accepting that the theoretical foundations of these policies have some merit, the author argues that their application in Africa has resulted in a number of adverse outcomes. The promotion of specialization in production and trade, the promotion of private enterprise generally, the elimination of state subsidies, external trade liberalization and the liberalization of financial and product markets have not delivered the benefits promised by theory when applied in a market that is far from perfect. The author advocates for a number of policies that run contrary to the Washington-Consenus. He argues, amongst other things, that the State needs to play a greater role in the economy“ in maintaining control over certain strategically important industries, in assisting infant industries to grow and develop, in ensuring that more people and businesses can access credit and in subsidizing certain products to assist the poor. ...