Economy in better shape now than 2001. Claims Minority in Parliament

Frontpage, Friday, Jan 16, 2009
Story: Emmanuel Adu-Gyamerah
THE Minority in Parliament yesterday stated that the country’s economy was in a far better shape as of the end of December 2008 than what the New Patriotic Party (NPP) inherited in January 2001.
They said the country’s Gross Domestic Product (GDP) was projected to be growing at 6.6 per cent at the end of December 2008, the highest in recent times, while inflation stood at 18.1 per cent, compared to the 40.5 per cent inflation the NPP inherited in 2001.
The Minority made the assertion at a press conference “to set the records straight, since it is our belief that the people of this country, including the new administration, need to be properly informed about the health status of the economy as of December 31, 2008”.
Addressing the conference, the Minority Leader, Mr Osei Kyei-Mensah-Bonsu, noted that over the past few days the nation had been inundated with misinformation about the state of the nation’s economy.
He stated that the situation had arisen as a result of “the seemingly purposeful twist of facts as stated by the Country Director of the World Bank” and their subsequent rectification which had left the average Ghanaian confused.
In its Wednesday, January 7, 2008 edition, the Daily Graphic reported that the World Bank had painted a gloomy picture of the Ghanaian economy which indicated that the macro-economic situation that the incoming government was inheriting was “extremely worrisome”.
In its January Report signed by its Country Director in Accra, Mr Ishac Diwan, and copied to the then Minister of State at the Ministry of Finance and Economic Planning, Dr Anthony Akoto Osei, and the Governor of the Bank of Ghana (BoG), Dr Paul Acquah, the bank warned that the incoming administration would inherit high fiscal and balance of payment deficits that were unsustainable, given the current state of international financial markets.
Quoting mid-December data provided by the BoG and the Ministry of Finance, the World Bank said in the coming years the country would have to spend 14 per cent of its total GDP to service its fiscal deficit, while the balance of payment deficit would be larger.
The paper quoted the report as predicting “a socially painful financial crisis” if urgent steps were not taken to reduce the twin deficit.
Reacting to that, the Minority Leader said the recent furore over the state of the economy had raised questions over the fiscal and current account deficits of the country, saying that the World Bank report suggested a high deficit of about 13.8 per cent of GDP.
He said the increase in deficit could be explained by certain developments which were not likely to be experienced in the immediate future.
He explained that 3.5 per cent GDP of the deficit resulted from capital expenditures financed by proceeds from sovereign bonds, which would not occur in 2009, while, as a result of the higher-than-anticipated increase in oil prices, the government’s direct spending on purchases of crude oil for the Volta River Authority (VRA) increased by an additional 1.9 per cent of GDP.
Mr Kyei-Mensah-Bonsu added that as a result of the oil and food shock, the government had to remove tariffs on some products and pay subsidies on electricity tariffs, which amounted to about 0.5 per cent of GDP.
He stated that the current account deficit was paid for mainly by drawing international reserves from $2,836.7 million in 2007 to $2,036.0 million at the end of December 2008, which was far more than the $233.4 million gross international reserves the Kufuor administration inherited in January 2001.
He noted that Ghana achieved an increasing pace of growth, micro-economic stability and poverty reduction in the past eight years, with the ultimate aim of attaining a middle-income status by 2015.
Mr Kyei-Mensah-Bonsu explained that despite the energy crisis and rising crude oil and food prices in 2008, the projected 6.6 per cent economic growth was far better than the 3.7 per cent growth the party inherited in 2001.
Throwing more light on the country’s exchange rate regime, the Minority Leader said the exchange rate of the dollar to the cedi in September 1998, which was ¢2,450 to a dollar, had climbed up to ¢7,000 by December 1999, representing a decline of about 285 per cent in 15 months.
He stated that while the cedi/dollar nominal exchange rate depreciation declined from 49.8 per cent in 2000 to 0.9 per cent in 2005, it started depreciating again from 1.1 per cent in 2006 to 4.8 per cent in 2007 and to 20.1 per cent at the end of December 2008.
On interest rates, Mr Kyei-Mensah-Bonsu said the 91-day treasury bill rate which stood at 38 per cent in 2000 fell to its lowest level of 9.6 per cent in 2006 and rose to 24.7 per cent in December 2008, while the lending rate, which had been in the region of 50 per cent, had reduced to 26.4 per cent by December 2008.