By Jerome Kuseh
You simply cannot avoid hearing about the Greek crisis – Grisis or their potential exit from the EU – Grexit. The global recession resulting from the USA’s housing market bust of 2008 affected Greece more than other EU countries. The revelation that they had been understating their budget deficit and debt-to-GDP ratio figures so that they could meet the EU criteria worsened their plight. A bailout from the IMF in 2010 came with severe austerity measures which have not worked. And just today the leadership of the country has announced that they will not be paying the debt to the IMF which was due. They have instituted capital controls – banning money transfers by businesses, placing a maximum limit of €60 on funds each Greek can withdraw from the ATM daily and have closed the banks. The country’s left-wing ruling party, Syriza, had walked away from a new round of austerity measures for another bail out and have put the conditions of the proposed bailout to a referendum slated for July 5.
Ghana has seen its fortunes fall due to a high public wage bill, falling commodity prices and fiscal indiscipline in the election year of 2012. Fearing the total collapse of investor confidence the country sought relief from the IMF. Ghana received its first tranche of US$114m in April from the IMF after securing an extended credit facility of over $900m. The result of a review being carried out on the conditions placed on the country is set to be announced today but the authorisation has been given for a second tranche. A crippling power crisis said to cost the country about $2.2m daily, debt of about 70% of GDP, inflation of about 17%, currency depreciation of about 22% since January 2015 and the fear of fiscal indiscipline next year (an election year) has investors and business people uneasy about the short and medium term outlook of the economy. The Association of Ghanaian Industries (AGI) has announced a drop in business confidence from 98 points in Q4 2014 to 85 in Q1 2015.
But Ghana is not yet Greece. And as the world watches the Greek people and the EU grapple over their future, there are a few lessons Ghana can learn.
- Public Sector Reform Now
Tax evasion is one of the things which has got Greece where it is. Ghana has to improve its domestic tax revenue not just from the introduction of new taxes but a more effective revenue collection system which reduces the incidence of tax evasion. Public sector and government corruption also has to be checked not only to save money but also to anticipate tougher reform conditions that may come with loans.
- Do Not Sacrifice Growth
The Greek economy has shrunk by 25% since the imposition of the austerity programme. This has been terrible for Greece. Had they been able to grow they could have been in a position to repay the debt and reduce the suffering of their people that the austerity has caused. But the austerity has stifled Greece’s growth and kept them going for more funds which means even harsher austerity.
- Keep Control of Monetary Policy at all Cost
Ghana does not have Greece’s chains of not controlling its own monetary policy. This freedom means that Ghana has the option to print more currency notes or to devalue the currency. The talk of a common West African currency has largely died down but Greece’s struggles should spark second thoughts about the whole idea.
- Our Goals may Differ from Our Creditors’ Goals
Ghana, like Greece, wants a fast growing economy that can improve the livelihood of its people. The creditors want their money back when it is due. The Greek crisis has shown that creditors are not always willing to agree to a debt restructuring to give an economy the fiscal space it needs to grow. The government may be confident about the medium term but creditors may not be. It is therefore important that the government does not lock itself into repayment plans that it can reasonably anticipate would be hard to meet.
- People Will Change their Politics in Hard Times
The rise of Syriza, a left-wing party formed in 2004, into power in Greece with the help of the Independent Greeks (a right-wing party formed in 2012) shows how economic hardship can radically change the fortunes of political parties during an economic crisis. The established Greek parties – New Democracy and Panhellic Socialist Movement (Pasok) have lost the support of the Greek people as they have turned to new parties offering an end to austerity. While the only probable electoral change in the 2016 election would be a victory for the NPP, Greece shows that when it gets really bad, establishment parties can be swept away by new political forces.