Discipline in Economic Management: The Key to Sustainable Growth and Prosperity - The Economy: 2001-2008

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Parent Category: Our Country

Category: Business & Finance

Created on Friday, 22 November 2013 00:00

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2001-2008

Mr. Chairman, under the leadership of President Kufuour (2001- 2008), Ghana made significant strides. Without the benefit of oil production, economic growth increased from 3.7% in 2000 to 8.4% in 2008. In the process, the size of Ghana’s economy increased from some $5.1 billion to $28.5 billion, a six-fold increase. Even in the face of a global economic and financial crisis in 2007/8 (with oil prices reaching a record high of $147/barrel) economic growth in 2008 rose to 8.4%. Ghana was transformed during the period of the NPP’s tenure (2001-2008) from a low income HIPC economy to a lower middle income economy on the frontiers of emerging market status. We were ready to take-off and had left the first gear a long time ago!

The stabilization in most of the macroeconomic indicators between 2001 and 2007 was achieved by strictly limiting the central government’s borrowing requirements. This involved a lot of discipline on the part of government. The Debt to GDP ratio (thanks to the successful HIPC completion) was reduced from 182% in 2000 to 32% by 2008. These developments resulted in a crowding-in of the private sector as bank lending to the private sector increased together with bank deposits.

Government finances also improved, especially between 2001 and 2005. The government budget balance as a percent of GDP declined from 8.6 percent of GDP in 2000 to 2.0 percent of GDP by 2005. In Ghana’s recent economic history 2004 is the only election year in which economic discipline and stability was maintained. The fiscal deficit to GDP was 3.2% in 2004. The budget deficit however increased to 6.5 percent of rebased GDP in 2008. Fiscal indiscipline had again reared its head in an election year. The fiscal slippage in 2008 was the result of government subsidies of utilities, election year wage increases.

Exchange rate stability also returned to the foreign exchange market between 2001 and 2007. The exchange rate depreciation vis-à-vis the US dollar was 4.5 percent over the year 2003, and 2.2 percent for the year 2004, 0.9 percent in 2005, 1.1 percent in 2006 and 4.8 percent in 2007. Between 2004 and 2007, the cedi depreciated by an average of 2.25 percent against the U.S. dollar. Placed in the context of the historic instability of the cedi and the 2000 experience of some 50.0 percent depreciation, this level of stability of the cedi was remarkable. The period between 2001-2007 recorded the lowest depreciation of the cedi in any seven year period since exchange rates were market determined and demonstrates that it is possible to have very stable exchange rates with disciplined economic management. The deterioration in the fiscal situation in 2008 resulted in an exchange rate depreciation of 20.1%.