General News of Monday, 9 June 2014
The opposition New Patriotic Party (NPP) has accused government of being in a state of denial and downplayed the effectiveness of the Senchi Consensus.
At a press conference in Accra on Monday, the party said “the Senchi Consensus failed to address the issue of corruption as a bane of the country’’.
The NPP, therefore, outlined alternatives which they say will turn the economic fortunes of Ghana around.
Addressing the press conference, dubbed “The true state of the economy and a government in a state of denial: The NPP’s response to the Senchi Consensus, and connected matters’’ Minority Leader of the NPP, Osei Kyei-Mensah-Bonsu said, “assessment of the Ghanaian economy so far point to an economy with weak and deteriorating fundamentals.”
He noted that the economy is saddled with increasing inflation, high interest rates, declining real GDP growth, massive increase in the public debt stock, huge and increasing central bank financing of government, etc.
The NPP further offered policy proposals which they advised the government to implement as soon as possible to deal with the current crisis facing the economy.
“The government has to admit that the economy is in crisis so that it can carry the country along and get public support for the tough remedial measures it may have to take. The treatment of an ailment is as good as its diagnosis. The denial must stop. The problem will not go away by refusing to acknowledge it,’’ the NPP noted.
Below is the full list of the NPP’s proposals
The government has to admit that the economy is in crisis so that it can carry the country along and get public support for the tough remedial measures it may have to take. The treatment of an ailment is as good as its diagnosis. The denial must stop. The problem will not go away by refusing to acknowledge it.
There must be policy credibility to assure markets and investors that Ghana is a safe bet. In this regard, the President and government should refrain from making new promises and commitments of expenditure for new programs when it is unable to even meet statutory expenditures. Such promises do signal a lack of appreciation of the current situation and reinforce the loss of confidence in the economy.
Government should restore fiscal discipline by ensuring that we cut our coat according to our size. Measures such as:Ensuring value for money in the award of government contracts, especially by conducting scrupulous due diligence before the award of contracts as well as allowing parliament space and resources to better delve into government contracts before approval is given.
Reducing revenue leakages
Expansion of the tax net through the formalization of the economy. The issue of biometric National ID cards and the implementation of a working street address system are critical to the formalization of the economy.
Dealing effectively with corruption in the management of public finances, especially by bringing to a halt the unbridled resort to restricted tendering and sole sourcing.
Undertaking a proper biometric-based payroll audit to eliminate ghost workers as well as implement biometric based payment system for all public sector workers to deal with fraud in government payroll.
While the government must restore fiscal discipline as a matter of urgency, that alone will not be enough going forward. Restoring the confidence of investors and financial markets requires a policy framework that would provide assurance that the fiscal excesses would not happen in the future.
Successive governments have acquired the skill for restoring fiscal discipline for short periods only to engage in the fiscal indiscipline again, especially in election years. Ghana must therefore put in place an EFFECTIVE legal framework to make sure that politicians on all sides are discouraged from wreaking havoc on the poor people of Ghana for their own selfish interests. There must be a price to pay for such fiscal indiscipline. We need a legal framework to anchor fiscal discipline.
The existing laws such as the Financial Administration Act are obviously not effective because they were unable to prevent the fiscal excesses of 2008 and 2012. The passage and enforcement of a strong and aggressive Fiscal Responsibility Act that has teeth will be important in this regard if it is supported by political will. A Fiscal Responsibility law will require government to declare and commit to a fiscal policy that can be monitored. It will include fiscal rules (including rules governing election year spending), provisions for transparency and sanctions (including sanctions on the Executive when it breaches the Appropriation Act as was done brazenly in 2012). An announcement to this effect along with actual follow through will boost the confidence of the markets and investors.
In response to the economic difficulties, government has resorted to increasing taxes on virtually every good or service. These higher taxes have served to increase the cost of doing business in Ghana compared with neighboring countries and would reduce economic growth. The plain truth is that import duties in Ghana are too high and discourage production and investment. In the globally competitive world that we find ourselves today, most countries that manufacture goods for export also import a significant proportion of its raw materials.
These countries have come to understand that high import tariffs can increase their cost of production and make them uncompetitive globally and therefore to support higher production and exports, import tariffs are kept relatively low. The philosophy of taxing everything to raise revenue must be re-examined. It is possible for one to actually raise more revenue by reducing taxes to stimulate production.
Government should as a matter of policy and urgency, significantly cut down on borrowing for now. The announced intention to borrow an additional $1billion from the capital market this year should be shelved because it would only be achieved at very high cost which would worsen the fiscal and current account situation and make Ghana’s debt unsustainable. With low net international reserves, a double digit fiscal deficit, double digit current account deficit, and double digit inflation, Ghana may have to pay a very high interest rate, possibly, a double digit interest rate, for any sovereign bond issued this year.
To restore confidence in the banking system and a degree of certainty in the foreign exchange regime, the Bank of Ghana should reverse the new directives relating to the forced conversion into cedis of repatriated export earnings and forced conversion into cedis of withdrawals from Foreign Currency account (FCA) and Foreign Exchange Accounts (FEA). There is no problem with repatriation of export proceeds but there must not be forced conversion of those proceeds into cedis. During the years 2002-2007 and 2010-2011 the cedi was relatively stable even though exporters were allowed to retain their repatriated earnings in dollars and foreign account holders were allowed to withdraw their savings in dollars.
These actions, therefore, were not the commissions that were responsible for the depreciation of the cedi.
However, the new directives are based on the rather wrong view that dollarization is responsible for depreciation of the cedi. International experience shows that regulations such as those issued by the Bank of Ghana tend to be short-lived in effect as market participants find ways to circumvent them.