Discipline in Economic Management: The Key to Sustainable Growth and Prosperity - The Economy: 1972-1983

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Parent Category: Our Country

Category: Business & Finance

Created on Friday, 22 November 2013 00:00

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1972-1983

Mr. Chairman, For Ghana’s economy, the period between 1972 and 1983 under the NRC, SMC, AFRC and PNP governments was characterized by a dramatic economic decline underpinned by indiscipline in economic management. This entailed a decline in GDP per capita by more than 3 percent a year. The main foundation of the economy, cocoa, was on the decline. Central government revenues which amounted to 21 percent of GDP in 1970 fell to only 5 percent of a smaller GDP in 1983. The revenue collapse increased the reliance on the banking system to finance expenditures. Between 1974 and 1983 the monetary base expanded from 697 million to 11,440 million cedis. The loss of monetary discipline accelerated inflation, which increased from 6.5 percent in 1969 to 116.5 percent by 1977 and 122 percent by 1983, all in the midst of a regime of controlled prices.

In the meantime, successive governments continued the policy of overvaluing the cedi by maintaining a fixed exchange rate in the face of high inflation. Governments responded with import controls which fell disproportionately on consumer goods. A kalabule or informal economy evolved and the black market thrived. It is not surprising that this decade, 1972-1983, represents the worst economic performance in Ghana’s history.

The Supreme Military Council was overthrown by another coup d’etat in 1979 by the Armed Forces Revolutionary Council (AFRC) under the leadership of Flt. Lt. Jerry John Rawlings. After four months in office, the AFRC handed over power to a democratically elected government of the Peoples National Party (PNP) under the leadership of Dr. Hilla Limann. Dr. Limann inherited very difficult economic circumstances. The country was once again broke. Attempts to resuscitate the economy included negotiations for an IMF loan. The IMF insisted that the government devalue the cedi. Cognizant of what had happened to the Busia government, the PNP refused to devalue the cedi. For the IMF, a refusal to devalue equaled a lack of commitment to fiscal and monetary discipline and the IMF also refused to grant the much needed loan. The economy deteriorated amidst internal power struggles within the PNP. The PNP government was overthrown in another coup d’etat, by Flt. Lt. Jerry John Rawlings in December 1981, this time under the banner of the Provisional National Defence Council (PNDC). The PNDC accused the PNP of economic mismanagement and corruption.

Mr. Chairman, between January 1982 and November 1983 the PNDC was characterized by socialist revolutionary policies. The business community, large scale farmers and professionals were the regime’s declared enemies. Economic policy was interventionist and anti foreign capital. Price controls, import duties and tariffs were imposed on a wide range of goods.

Citizens Vetting Committees (CVCs) were empowered to investigate people “whose lifestyle and expenditure substantially exceeded their known incomes”. Specifically, anyone with more than ¢50,000 ($1,250 at the prevailing black market exchange rate of some ¢50/$) had to appear before the CVC to explain how they acquired it. The wealthy became the targets of a vindictive Public Tribunal system.

Not withstanding all these supposed “anti-corruption” measures, the economy turned for the worse and it soon became obvious that the populist socialist policies were not sufficient to stabilize a monetary system or grow an economy. Inflation reached 122.8% at the end of 1982 as more money was printed to finance government budget deficits. Fiscal indiscipline and bad policies were again adversely affecting the economy.