Ghana: The mighty fallen
- The Economist
- Jun 23, 2015
- 2 min read
HOW do you spot an economic crisis from afar? Abandoned building projects are one red flag. So are relentless power cuts. Ghana has plenty of both. Its problems grew more dramatic this month when torrential rain flooded the capital, causing an explosion at a fuel station that claimed up to 200 lives.
This was a disaster that Ghana could ill afford. Until a few years ago, the West African country was an economic success story. Yet things have gone wrong under a government that ratcheted up spending on salaries and fuel subsidies just as commodity prices began to fall. The IMF came to the rescue in February, agreeing to lend Ghana almost $1 billion. But its problems are far from over.
Public debt could reach 70% of GDP this year, up from 43% in 2011. Annual growth, which topped 14% that year after oil began flowing, may dip to 3.5%; a budget-deficit target of 6.5% of GDP will be breached; and the cedi’s fall shows no sign of ending.
Ghana’s currency has fallen by over a quarter so far this year, in part because investors continue to shun its bonds. It has lost over 99% of its value against the dollar since 1992, calculates African Alliance, a bank. Inflation, at 16.9%, continues to make life a misery, especially for the quarter of Ghanaians who are poor. In marketplaces, locals complain that business has dried up. President John Mahama will have to rein in spending, notably on salaries, which gobble up most tax receipts. Yet Ghana’s leaders have a history of splurging in election years; and he seeks re-election in 2016.
More worrying are the structural problems which were ignored when the economy was rising. Ghana relies on gold and cocoa for foreign earnings, leaving it skint when prices fall or crops fail. Successive leaders have failed to save during boom years, leading to an unhealthy addiction to the IMF, to which it has turned no fewer than 16 times since 1966. A crippling power crisis and seasonal floods have exposed infrastructural shortages which are costing lives as well as dollars.
Meanwhile corruption is a growing concern. A draft oil bill has been panned for handing too much power to the oil minister, a major problem in corruption-prone Nigeria. As Ghana’s oil production increases, so too will scope for mismanagement. “The worry,” says one Accra-based diplomat, “is that they are moving in the direction of Nigeria, not Norway.”
Source: Economist.com
