Vice President Dr Mahamudu Bawumia has listed the unforseen external factors which has completely thrown the Ghanaian economy out of whack and made economic recovery difficult for the ruling NPP government.
Dr Bawumia listed the factors as three major crises – the government’s banking sector reform, the COVID-19 global pandemic, and the recent Russia/Ukraine crisis.
The Vice President laid out the facts during a speech Wednesday, August 17th 2022.
The Banking Sector Crisis
Dr Muhammadu Bawumia revealed that the NPP government was faced with a hard choice when taking over power.
The banking sector was in crisis and many banks were at risk of insolvency.
According to him, the government had to take the difficult decision to invest a whopping $7bn to save the sector – a difficult and financially detrimental decision that was necessary to save the deposits of over 4 million Ghanaians.
“We had to undertake a major banking crisis reform that we consolidated a number of banks. At that time, 2018/2019, this cost almost $7 billion to the country in order to save the banking system. Now the choice that was available was that either you let the banking system collapse or you save it, there was really no middle way.
“Whose deposits were you going to let go? So we had to save the banking system and the deposits of 4.6 million people [were safe]” he said.
The Vice President continued that just after the government took a major hit to save the banking sector, the COVID-19 pandemic hit hard at the end of 2019.
A new, unforeseen crisis also threw the country further out of whack as government had to do even more spending to save lives during the pandemic.
“We also had COVID coming the end of 2019 and we had the worst economic depression since the 1930s and COVID had its major impact.
“We had the worst economic depression since the 1930s in the global economy. Of course from the President’s point of view at the time of Covid-19, the emphasis was on saving lives and not on fiscal discipline. So yes, we focused on saving lives at great fiscal cost,” he said.
Whilst still dealing with the COVID-19 pandemic, the war in Russia/Ukraine also exploded with its attendant effects on the world economy.
This threw another spanner into the works of government’s efforts, making things even more difficult and precipitating the difficult economic climate of the day.
“Before we could know it, Russia and Ukraine also came to add to our troubles and we are dealing with those issues,” Bawumia continued.
Solutions – Fiscal discipline and enhanced revenue generation
The Vice President noted that despite all these challenges, government is pushing measures to get things back on track including more fiscal discipline.
“So fiscal discipline is the ability of government to balance revenue and expenditures and when discipline is not maintained, expenditures inevitably exceed revenues and that creates a deficit. Following where we are, government has focused in the 2022 budget on fiscal consolidation to enhance debt and fiscal sustainability as we implement our economic revitalization and transformation program,” he said.
Bawumia added that this has led to a 4.7% annual downward adjustment of the deficit, a clear sign the measures are working and there is hope on the horizon.
“Measures that have been implemented in the 2022 budget include validation and revenue enhanced measures to reposition our economy. Indeed the implementation of the measures highlighted in the 2022 budget should be to a significant fiscal adjustment from a projected deficit of 12.1% of GDP in 2021 to 7.4% of GDP in 2022. This represents a 4.7% downward adjustment in the deficit in one year.
“In January 2022, government announced and began implementing a 20% expenditure cut as part of the fiscal stabilisation and debt sustainability measure through the minister for finance and this was followed by an additional 10% cut in discretionary expenditure all in an attempt to balance the fiscal position and restore fiscal discipline following the banking crisis, covid and the Ukraine/Russia war,” Bawumia concluded.