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Ghana’s economy yet to see a recovery – Prof Mensah

Financial Economist, Professor Lord Mensah, believes that Ghana’s economy has not fully rebounded from the various challenges it has been facing.

Professor Mensah’s viewpoint is based on his analysis of the government’s macroeconomic objectives, which, in his assessment, indicate that the country’s economic recovery is yet to materialize.

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His comments come in response to arguments suggesting that the Ghanaian economy can be considered to have recovered, following a reported growth rate of 3.2 percent in the second quarter of 2023.

“What we are seeing now is that government’s spending is driving this expansion, for the second quarter of this year and not real economic activities undertaking by businesses,” Prof. Mensah said on PM Express Business Edition on September 21, 2023 with host George Wiafe on the Topic: “Ghana’s IMF Programme Review and impact on the economy”.

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Data recently released by the Ghana Statistical Service, covering economic activities in the second quarter of 2023, revealed that the economy experienced a growth rate of 3.2 percent.

It’s worth noting that the Ghana Statistical Service (GSS) also revised the economic data for the first quarter, reducing it from 4.2 percent to 3.3 percent.

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While some economic analysts view this slower growth as an indicator of Ghana’s economic recovery, Professor Mensah challenges this perspective. He argues that the growth primarily reflects government spending rather than genuine expansion within the business sector.

“A lot more needs to be done. Government’s spending is driving this expansion, and not real economic activities undertaking by business”, he stressed.

Professor Mensah highlighted that genuine economic growth would have had a positive impact on government revenue.

The International Monetary Fund (IMF) is preparing to conduct Ghana’s initial review under its Fund Program. The IMF Mission, led by Chief Stephane Roudet, will assess the qualitative and quantitative targets established within the IMF program, using data from June 2023. There have been concerns about whether the government will successfully navigate this evaluation.

Professor Mensah expressed optimism that Ghana will indeed pass this initial IMF program review and subsequently receive the second tranche of funding amounting to $600 million. He believes this step will help restore confidence in Ghana’s economy.

Following the program review, the IMF staff will submit their report to the IMF board. A successful review will pave the way for Ghana to receive the funds by November 2023.

In the same discussion, Seth Twum Akwaboah, the Chief Executive of the Association of Ghana Industries (AGI), emphasized the need for the program to be adjusted to better represent the interests of the industrial sector.

Successfully passing this IMF program review may trigger additional financial support from organizations such as the World Bank, the African Development Bank, and other donor partners. The World Bank has indicated that Ghana could receive over $300 million by the end of the year to support the budget and the Ghana Financial Stability Fund.

Professor Mensah advised the government to utilize the additional funding to influence interest rates, particularly for short-term papers, in order to impact the interest curve in the country.

“Because of these funds that are coming in, government can reduce its borrowing from the treasury bills market and that could help change the dynamics”.

“Reducing the Treasury Bills Rate, could help change the interest rates dynamics going forward”, he said.

He proposed that the government has the potential to lower interest rates by introducing new bills with different interest rates.

Professor Mensah further elaborated that if the government decreases its borrowing in the short-term market, commercial banks might be encouraged to extend loans to businesses.

The government has declared its intention to reopen the Domestic Debt Exchange Programme, permitting investors who did not participate when it closed in February 2023 to do so.

Nevertheless, Professor Mensah expresses concerns that this move may not bolster investor confidence and could potentially generate uncertainty within the economy.

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