Counting the cost

By Korsi DZOKOTO

In the realm of economic management, Ghana stands as a stark example of the profound impacts of mismanagement and corruption on a nation’s fiscal health. The story of Ghana’s economic trajectory is one of promise overshadowed by poor governance, inflated project costs, and unchecked borrowing. As we delve into the intricate web of economic mismanagement, we uncover a narrative of missed opportunities, burgeoning debt, and rising poverty levels. This article seeks to illuminate the multifaceted costs of Ghana’s economic mismanagement, drawing parallels with other nations’ experiences and offering crucial insights into the path forward for a nation grappling with the repercussions of its past fiscal decisions.

The mismanagement of Ghana’s economy has resulted in significant economic and financial costs, akin to the experiences of countries like Greece, Argentina, and Ukraine. These costs encompass various aspects, including debt restructuring, loss of credibility, higher interest rates, legal and administrative expenses, and social and economic impacts.

Greece, for instance, faced a debt crisis that cost around €260 billion, equivalent to 146% of its GDP. This crisis led to severe economic contraction, high unemployment, and social unrest. Similarly, Argentina and Ukraine incurred substantial economic and financial costs due to debt restructuring, default, and other financial challenges.

Impact of external interventions:

In Ghana, the mismanagement of the economy has precipitated a dire need for external interventions, compelling the government to seek bailouts from international financial institutions such as the IMF and World Bank. These bailouts have been substantial, totalling $3 billion from the IMF and $1.5 billion from the World Bank. These funds were sought to stabilize the economy and alleviate the financial strain caused by poor economic management practices.

Furthermore, the government’s decision to implement a Domestic Debt Exchange has exacerbated the economic challenges facing the country. This initiative, while aimed at restructuring the country’s debt obligations, has come at a significant cost to investors, pensioners, financial institutions and the public. The Domestic Debt Exchange has resulted in a staggering 60 billion cedis being diverted from these stakeholders, further deepening the economic woes of the nation.

The combined impact of seeking external bailouts and implementing the Domestic Debt Exchange underscores the severity of the economic mismanagement.

Consequences of borrowing strategies

Moreover, Ghana’s economic challenges have been compounded by its reliance on various forms of borrowing to finance government expenditures. The issuance of Eurobonds, seeking assistance from multilateral partners, and borrowing from international commercial creditors have all contributed to Ghana’s growing debt burden, which now stands at a substantial 13.5 billion dollars.

In addition to external borrowing, the government has resorted to printing money to finance its expenditures, a strategy that has further exacerbated the economic challenges facing the country. The Bank of Ghana’s decision to print over 70 billion cedis has had a significant impact on inflation rates, which soared to over 54% by December 2022. Food inflation, in particular, has been severely affected, reaching almost 70% during the same period.

This dual approach of heavy borrowing and printing money to finance government expenditures has contributed to Ghana’s economic instability. The high levels of inflation have eroded the purchasing power of the Ghanaian cedi, making it more difficult for businesses and individuals to afford essential goods and services. Additionally, the country’s growing debt burden has raised concerns about its ability to meet its financial obligations in the long term.

Social and Economic Fallout

The economic mismanagement in Ghana has had severe repercussions for the population, leading to a significant increase in poverty levels. Reports indicate that over 850,000 people have been pushed below the poverty line as a direct result of the mismanagement. This has had a profound impact on the lives of these individuals, many of whom now struggle to afford basic necessities and face an uncertain future. This also implies that those who were already below the poverty line have been further impoverished.

Additionally, the government’s decision to introduce additional taxes, totalling over 33 billion cedis, has further exacerbated the economic challenges faced by businesses and individuals. These taxes have increased the cost of doing business, making it more difficult for companies to operate profitably. As a result, many businesses have been forced to reduce their operations or close down altogether, leading to job losses and further economic hardship.

Rising unemployment and economic instability

The economic mismanagement in Ghana has led to a concerning rise in unemployment, with the current rate standing at 14.7 percent, the highest in recent times in the sub-region. This surge in unemployment has had a devastating impact on many Ghanaians, as they struggle to secure stable employment and provide for their families.

Moreover, the mismanagement has resulted in a significant portion of the employed population, specifically two-thirds, being engaged in vulnerable employment. This precarious situation further exacerbates the challenges faced by Ghanaians, as they grapple with economic instability and uncertainty about their future prospects.

Other cost

The mismanagement of Ghana’s economy has far-reaching consequences, including significant costs that the country will have to bear. These costs encompass various aspects, each with its own set of challenges:

Loss of credibility: The mismanagement can damage Ghana’s credibility among lenders and investors. This loss of credibility can make it more difficult and expensive for the country to access financing in the future. It can also lead to increased political instability, particularly if austerity measures are implemented as part of restructuring programs.

Higher INTEREST RATES: Lenders may demand higher interest rates or impose stricter conditions on future loans due to the increased risk associated with the mismanagement. This can increase the cost of borrowing for the government and other borrowers, leading to a slowdown in economic activity.

Legal and administrative costs: Debt restructuring agreements require significant legal and financial expertise, leading to high legal and administrative costs. These costs can be substantial and add to the overall cost of the debt restructuring process.

Social and economic costs: The mismanagement can result in job losses as companies downsize or close down due to financial difficulties. Reduced government services, such as healthcare and education, can negatively impact citizens who rely on these services. Debt restructuring can also reduce investor confidence, leading to decreased foreign investment, capital flight, and a weakened currency, further exacerbating economic problems.

 

Conclusion

The mismanagement, corruption, inflated project costs, and theft in Ghana’s economy have squandered the potential benefits that could have been derived from the substantial resources available to the government. Instead of prudent investment to foster economic growth, create jobs, and improve the standard of living for Ghanaians, these resources have been misappropriated, leading to a state of economic shambles.

With the substantial financial support received from international institutions like the World Bank, as well as through domestic and international borrowing, Ghana had the potential to invest in critical infrastructure, education, healthcare, and other sectors that could have propelled the economy forward. However, mismanagement and corruption have undermined these efforts, resulting in the misallocation of funds and the failure to achieve meaningful development outcomes. The Ghanaian economy is currently projected to grow at a rate of 2.8%, which is significantly lower than the average growth rate of our neighbouring countries, standing at 5.5% for the year 2024.

Top of Form

The government’s Domestic Debt Exchange, while intended to restructure debt obligations, ended up costing investors, pensioners, and the public a staggering 60 billion cedis. This misstep further depleted resources that could have been invested in productive sectors of the economy in the private sector which is the most effective.

Overall, the economic mismanagement has had far-reaching consequences, pushing many people into poverty, negatively impacting businesses, and leading to a sharp increase in unemployment. Addressing these challenges will require effective policies and measures to promote sustainable economic growth and create opportunities for decent and stable employment.

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