Trouble in Paradise: Ghana, the Land of Gold & Wahala

Ghana a land of Gold and honour (Gold Coast) is in a big financial & economic mess. Next year (i.e. 2022) starts in a few days, by all indications, it is going to be a very difficult and painful year for many (especially the poor and vulnerable). Why? Ghana is broke, and this is not a joke or the usual political rhetorics.

The truth is, the incompetent and reckless management of this Government has run the country to the ground to the extent that, external donors/creditors are not willing to give Ghana any money and raising revenue domestically has also been very difficult because of the very bad economic conditions citizens are going through. Ghana is at a very difficult crossroad.

Under normal circumstances, a rational Government will cut down on all discretionary and luxurious expenditure while fashioning out a way to provide some form of stimulus packages to businesses and households to kick start investments & consumption in the economy. Such stimulus packages should aim to reduce the anxiety and fears of both businesses and households in terms of spending.

The resultant effect of such well thought stimulus packages & incentives should increase confidence in the economy as money begins to flow freely within the economy (i.e. increasing supply & demand). However, previous experience has shown that this Government is very irrational in all its actions (excessive expenditure with nothing to show for it). Instead of finding ways to increase money flows in the economy, it is forcing it way to introduce e-levy and other hash taxes on the already burdened citizens. The actions of the Government is sending a very strong signal to both businesses and household to be careful with the way they spend (preparation for the hard times ahead). It also means money will not circulate easily/freely within the economy. Expect has warned that, the effect of such harsh draconian taxes will have a downward spiral effect on the economy as it has the tendency to shrink the economy due to collapsing businesses & consumption.

At this juncture, what is the way forward for both businesses and households? Well, for now, it is safe to predict, both will be cautious in spending, "the wait and see" mode is activated. At this difficult crossroad, whatever direction the Government turn will have a "do or die" effect on the economy.

If the Government embark on prudent (instead of populist) economic policies to help businesses survive these current harsh conditions while households are cushioned in a way to allow spending, the country will recover in a very short period. If however, the Government take the option of continuing milking the already frail cow (i.e. the citizens & business), a total collapse of the economy will be the likely result.

In the media, the government has used the fear factor of going to the IMF as one of the reasons justifying the introduction of the harsh e-levy and other taxes.

Question: Is going to IMF for a bailout a bad option? Answer: It depends.

It depends on whether this Government is ready to surrender its expenditure to the scrutiny & control of IMF (conditionalities). If it however decides to go for an IMF bailout, the strict expenditure control & scrutiny couple with harsh domestic revenue mobilisation conditions (mostly austerity measures) will reorient the nation back on the path of recovery and perhaps growth but this is going to be another painful exercise as experienced under the JM regime.

How we (i.e. the Government & Citizens of Ghana) navigate these difficult times ahead in 2022 and beyond will define our unique developmental path in the West African Subregion.

Merry Christmas and Happy New Year (Spend wisely)