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Monday, July 6, 2020
ACCRA, Jun 9 2009 (IPS) - When the news of the global financial crisis broke in Ghana last year, the then-President John Kufuor said the country’s economy was insulated against the effects of the credit crunch being reported in Europe and the United States. There now seems to be an admission now that ripples are being felt.
In March, the minister of finance and economic planning, Kwabena Duffuor said “the downturn in the advanced economies in 2009 is expected to have a negative effect on the country’s exports and thus our external balance. Weak demand for exports and weak commodity prices imply less export revenue.
“In addition, expected shortfalls in remittances, a slowdown in donor support and private capital inflows as a result of the global recession are all likely to have negative impact on the Ghanaian economy in general and on public finances in particular.”
And it came to pass
In May, the Central Bank governor, Paul Acquah, told journalists the bank’s research showed inward transfers – to non-governmental organisations, embassies, service providers, and to individuals through banks in the first quarter of 2009 totalled 1.98 billion dollars, a 7.3 percent decline compared to the same period in 2008.
Sampson Akligoh, economic analyst at Databank Asset Management Services in Accra told IPS that the global credit crisis has imposed some direct and indirect effects on the Ghanaian economy. “Contrary to earlier views, that the country was immune against the crunch, we have witnessed a tightening of inter-bank credit as most of the big banks are no longer offering credit,” he added.
Central Bank figures support this, showing average prices for exported cocoa beans rose by 17.8 per cent in the first quarter of 2009 to $2,794.92. In the same period, the average price of Ghana’s gold exports increased by 12.4 per cent to $912.37 per ounce in the first quarter of 2009, according to the governor.
Boakye is however quick to point out that any benefits from this have not gone far. The Ghana Stock Exchange (GSE) has seen a dismal performance over the first quarter of this year.
“The GSE All-Share Index has fallen and people are moving their investments from shares to short-term instruments like Treasury Bills. Consumer lending has also reduced because people now struggle to get loans – which is different from the period before the crisis.”
The credit crunch is not simply a domestic one. Efforts by UK-based Tullow Oil to raise international capital to finance its exploration work on newly-discovered oil fields in the west of the country have suffered some setbacks. In 2008, Ghana was able to raise over 750 million dollars from the bonds market. This is no longer possible.
Ordinary people affected
The most vulnerable in society could be the worst hit. “Those in the informal sector are complaining about poor sales in the streets. In addition, social programmes like the School Feeding Programme and Youth Employment Programme would be starved of public funding as the government attempts to cut down on spending,” said Boakye.
In the non-governmental sector, ActionAid Ghana is an example of an organisation that is experiencing the pinch. “Funding from our [international] supporters has dwindled over the past two years, [diverted] to support programmes in other parts in Africa. Therefore the effects of the credit crunch on our activities means a further reduction that would cause us to scale down,” said the organisation’s development officer, Joe Kpenge.
Kpenge said the group has already scaled back its AIDS programme throughout the country, as well as human security and emergency work.
Just this week, the government announced a 30 percent increase in the price of petroleum products because it could no longer sustain subsidies on the products. This was followed by a directive to public and civil servants to cut down their transportation use by 30 per cent. Leading civil campaign group Committee for Joint Action condemned the move; they claim that it could lead to a serious food crisis when transport operators hike their rates.
“Things look bad,” said Joseph Tawiah, freshly graduated from university. He claimed that “most of the companies l have applied to for work only send me the response that there is a freeze on employment.”
Seeking support urgently
Akligoh said even though the Ghanaian economy has been resilient so far, the key challenges would be how the economy is managed this year because a lower growth rate has been forecast. Last year the GDP grew by 7.3 percent; economists are predicting 5.7 percent growth for this year.
The government has started negotiations with the International Monetary Fund for a $400 million loan to help put the economy in order. However, Akligoh is of the view that the time has come for the country’s policy makers to diversify the export sector as well as strengthen domestic capacity to produce a national staple like rice.
He is hopeful that he economy will stabilise when the first drop of oil is pumped from the Jubilee oil fields off the country’s west coast, where production is scheduled to begin next year.
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