Has the economy really turned around?

Finance Minister, Seth Terkper, in a press release on Tuesday, presented what he called a “Turn Around Story” for the economy. You can find a summary of his address on the economy here.

Take a look at the indicators he presented to show that the economy has indeed turned around.

fiscal indicators
Source: MoFEP

First of let us ignore the 2016 figures, they are projections. The fiscal balance means the amount by which total government spending exceeds revenue. Primary balance is government revenue less government spending on everything else except paying interests on debt. Current account balance is the difference between exports and imports and between monies received from abroad and monies sent abroad. As can be seen, these figures are reducing and for the sake of simplicity, let’s say it’s good.

The portion of tax revenue used to pay wages is also reducing. Good. A falling interest rate on a 91-day treasury bill means demand for it is high. This could signal that there is a lack of alternative investments in the economy, but it means the government is able to borrow cheaper in the market so in some way, it’s good. Observe the inflation and growth rate. I will get to that later.

debt growth
Source: MoFEP

Look at the blue dashed line in the chart above, it shows that the rate at which our debt is growing has really dipped – from 46% in 2014 to 2% by November 2015. Good. However, our debt to GDP ratio is 72.6%. With external debt being 43% of GDP. Bad. Now to the cedi.

cedi chart
Source: MoFEP

The above chart shows that the cedi has stabilised against the US dollar since September 2015. Good.

Now to the reason why you clicked the headline. Has the economy turned around? No. What has turned around is economic management. The government is doing better than before in its goal of fiscal discipline but it does not mean the economy is doing better. Let me explain.

In order to determine if an economy is healthy or not, we have to look at employment, growth and inflation (among others). I have stopped using the unemployment figures from the Labour Module of the Ghana Living Standards Survey 6 since the president said in a media address that the nation does not have employment figures. I presume the figures are not fit for purpose. But the absence of this important statistic has taken out one of the most important standards by which an economy can be judged. So let me painfully skip.

Now to inflation. See the chart below.

inflation chart
Source: MoFEP

On the face of it, 17% inflation in 2014 and 17.7% inflation in 2015 shows some consistency. But look at the policy rate, the rate at which the central bank lends to banks. Keep in mind that theoretically the policy rate is supposed to make borrowing expensive and therefore lead to less money in the system which will then reduce inflation by reducing the money chasing goods and services. This rate was at 21% in November 2014, it’s currently at 26% and yet the inflation rate has stabilised, not reduced. This can barely be called a turnaround.

Finally, let’s look at growth. The tentative growth rate for 2015 was 4.1%. Considering the IMF predicted a Sub-Saharan average growth rate of 3.75%, 4.1% isn’t hopeless especially since 2014 was 4%. But we have witnessed a fall from the 8% of 2012 and 7.3% of 2013. 4.1% is simply not the rate at which a developing country with a population growth rate of 2.1% and an unemployment problem should be growing. So let’s go back to growing at 7-8% and I’ll call it a turnaround.

In summary, the government is doing better on the fiscal management side compared to 2012-2014 but the economy has not turned around based on growth and inflation figures.

Update: Since I wrote this, it has been reported that inflation for January is 19%. Perhaps this is the increase in utility bills and transport fares taking effect but it shows that the government’s inflation target is going to be harder to achieve than they plan.


Jerome Kuseh

Accountant | Economist-in-Training | Finance Blogger

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