MPC’s Midyear Economic And Financial Report -Terkper’s Take

The former Finance Minister Hon. Seth E. Terkper in his evaluation of the recent midyear economic and financial report released by the Monetary Policy Committee(MPC) a couple of weeks ago has indicated that given the current trajectory vis-à-vis the key performance indicators, the economy is more likely to fall short of its fiscal goals, with likely higher fiscal deficit and debt by close of year 2021.

In an exclusive interview with the Former Finance Minister to elicit his views on the MPCs midyear summary and the state of the economy, Mr. Terkper recounted saying; “we pointed out at the beginning of the year that we did not see any plan or path to fiscal consolidation based on the medium term scenario that was given in the 2021 budget, in the absence of a home grown policy.”

He said “so far the second quarter data or information coming out from the midyear review of 2021 as compared to that of 2020 last year has not seen much change by way of fiscal consolidation. Therefore it is clear that the deficit following the current trajectory could be the same or worse than end of 2020.”

Mr. Terkper noted however that there are positives going to the end of year 2021 especially in the area of the expected cocoa revenue and also with the oil revenue rebounding at a current high of about $80 per barrel from a low of $40 per barrel, this may likely changed the dynamics a bit.
“Furthermore the inflow of $1 billion from the IMF will also improve BoG’s reserve and budget performance.
He however questioned whether the Nana Addo led government will be consistent enough to treat the ‘exceptional’ $1billion revenue inflow as footnote in the budget as it had insisted treating the ‘exceptional’ expenditure of the bailout cost as footnote.

Again, he mentioned that “the increase in crude oil prices has corresponding effect. This means government expenditure will also go high especially with the MDAs and the MMDAs unless there’s a cut or a cap on their budget but we did not see any such adjustments in the midyear review.

The former Finance Minister stated that given the restricted budget space caused by high wages and interest payments, there’s no room for subsidy to alleviate the plight of the low income persons as that will worsen the budget deficits and public debt.

He said, once you don’t see any fiscal consolidation, it means the deficit will remain the same or increase and that means more borrowing and if the borrowing is higher than the amortization (i.e., repayment of old loans) then you are going to see debt also going up”.

Quizzed as to whether or not the country’s economy is in a hopeless state given the rising debt stock, high cost of debt servicing and staggering revenue mobilization, Mr. Terkper stated that “I won’t use the word hopeless but I will say that the fiscal situation is such that we will likely be debt dependent if the trajectory continues like that with more borrowing.

“More borrowing means that the fiscal situation will not improve. Hence, there will be no consolidation.

He noted further that “if you take debt for example; figures reported by the Central Bank is 76.4% to GDP at the end of July 2021, which likely excludes bailout costs. Already, this is higher than the 76% at the end of the whole of 2020.”

“It may interest you to note that the multilateral and rating agencies had added 4% to say that our debt at the end of 2020 was around 80% and their prediction for 2021 debt stock is even higher,” Mr. Terkper pointed out.
Asked again about the way forward in terms of solution or advise to government, Mr. Terkper opined saying “ some initiatives should be put in place, a better form of financing commercial projects for example. During our tenure,
we came up with Ghana Infrastructure Investment Fund(GIIF) so that commercial projects do not become a burden to government, we also came up Sinking Fund to take care of amortization of government loans, you cannot be borrowing and not paying and rolling them over. The point am trying to make is at this point we need a total and a comprehensive programme.
Note that this government received about $4billion for Covid-19 from the Stabilization Fund,IMF, World Bank Development partners and BoG, the largest ever received by any government to manage a single crisis.

By Julian Owusu Abedi

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