Kindly give us an overview of Ghana’s economy.
We have been the fastest growing economy for some number of years now. We have been growing at an average of 7% to 8%. Last year, our growth was at 7.1%. We have been a very stable democracy, we have been running elections; around six or seven elections since we went back to democratic rule.
What makes Ghana a good place for business?
In terms of the political situation, it is fairly stable. Ghana is a very good country to do business in. We used to be a British colony so our language for doing business is English. We follow a similar legislative and educational structure as the British. People who come here to do business are obviously protected under the English law.
What challenges have you faced on the financial side?
Under finance, our deficit has been reasonably managed for years. Until 2012, we had some serious challenges that resulted from a number of other issues. First, there is the wage belt following the government’s attempt to improve the wages of the public servant. We realized that public servants were not being paid well and that we were losing a lot of talent to the private sector. To make the public service competitive, government decided that we were going to review and improve the wages of the public sector.
We have a public service workforce of about 600,000. We ended up paying salaries in the region nearing 70% of tax revenue, which is simply not sustainable (particularly, if you look at the wage average of about 35%).
We realized that the wage hike was too high. We decided to put a temporary freeze on wage increases. Instead of increasing the basic salary, we used the cost of living allowance (COLA).. We have negotiated with the unions to put COLA at 6.5%. Furthermore, wages are now going to be negotiated before the budget is actually done.
Secondly there were the interest burdens on the budget. Our debt level was quite high. At the moment, the debt level is around 57% of GDP. It had moved closer to 60%. Now, it is coming down. So we had a lot of interest burdens because most of our debt, especially domestic debt, was on the short end of the market. That covers the 90-day and 182-day domestic bonds. Their interest rates were quite high, and because they were at the lower end, they mature very quickly and create a lot of problems for us. When we came into office, there were some projects that were not properly budgeted for, and so the money was not enough for the project. We had to borrow at the short end to finance these projects, and they created interest problems.
The third issue had to do with the subsidies. We were heavily subsidizing petroleum and utilities. That put a lot of pressure on us on the expenditure side. On the revenue side, we were not meeting the revenue targets, and the money that was pledged to us by development partners was not forthcoming. We were not getting enough revenue from lower cocoa prices (as external prices for cocoa had come down). Gold prices had also come down. There was not enough revenue coming in. Because companies were not making enough money to pay their taxes, the government was not getting the money that it needed.
Our revenue problems were exacerbated by the fact that the development partners were not giving us the money that they had pledged. This led to a high deficit in 2012 and which went up to 10.1% in 2013.
What is being done to address these challenges?
The idea now is to try to bring the deficit down. Obviously, this is not something that we can do one year. We intend to do this in a medium term, in 2 to 3 years. We expect to bring the deficit down to about 6%. By next year, we hope to get a deficit down to 8% or 8.5%.
We have put a lot of measures in place basically to achieve fiscal consultation, but we got to a point where the president advised that we should get people from all walks of life in the country to help decide where our economy should be going. Because a lot of things were changing all around us, part of the problems as I explained to you were internal, others were external. So we decided to have this forum to basically address the situations that are being faced in the country.
Have you faced issues in becoming a low-to-middle-income country?
Because things like grants are no longer available to us, the cost of financing has become relatively expensive. One of the underlining factors was that Ghana had turned into a low-to-middle income country, which meant that a lot of things were changing around us. For instance, we used to get concessional loans with a 40-year and 10-year grace period. We used to get a lot of grants, and all those things are dwindling as a result of becoming a middle-income country.
Those facilities are no longer available to you because other countries are considered to be much poorer or in more difficulty than you are. They are the ones that get these facilities. We are in a realm where we now have to go more or less to the capital market to be able to raise money through issuing bonds or commercial loans.
You mentioned issues arising from subsidies. Can you elaborate on that?
As for the subsidies for petroleum and utilities, there is very much subsidy left at the moment, and that is why we have increases in petrol prices and increases in utilities, and that is your electricity and water. This was a very difficult decision to take, because it has a social implication. Ghana is still a relatively poor country, and there are still people who are vulnerable and living beneath the poverty line. Increases in petroleum and increases in electricity and water will have a direct impact on them.
First, we are trying to find a way to protect them by giving them a blanket subsidy. People who can afford to buy their own petroleum or can afford to pay the full price for electricity and water should no longer be subsidized.
A lot of things have taken place in terms of tax reforms with the Ghana Revenue Authority (GRA).
We have brought all the revenue agencies under one umbrella through the GRA. If you bring all this together, people can benefit from synergies and economies of scale. We realize that there are quite a number of human interventions in terms of individuals being involved in the collection of taxes. We are trying gradually to put all tax mobilization on an electronic platform and take out the corruption issues that we have in that area.
As for our tax laws, we realized that we have not reviewed our tax laws for many years. Some of the taxes were obsolete, limited, and unfair. We embarked on a very comprehensive tax reform. Last year, we have been able to revise a lot of the taxes. In fact, we have had quite a number of tax changes.
How would you describe the country’s business sector?
The business sector (BS) is very solid. It is the private sector (PS) that drives the economy. A lot of incentives are given to investors and the PS. If you go to the Ghana Investment Promotion Center (GIPC), you will get a number of those incentives, including tax waivers for people coming to the country to set up a business (a lot of whom are in the energy sector).
The government has also made significant injections into the SMEs by introducing a new fund for SMEs and the Minister of Trade has given a lot of incentives through one of the venture capital companies which are also government agencies who are supposed to be supporting the PS in terms of giving funding for companies. We have done a lot in the pharmaceutical industry, where we are getting a lot of growth.
What has been done to address the currency problem?
A lot of measures have been put in place to address the currency problem. One of the other problems is that the economy is more or less becoming dollarized. We are spending dollars here, when we should be spending Cedi. The Central Bank is de-dollarizing the economy by taking the dollars out of the system. You cannot price anything in the country in dollars. Also, people who have money in various banks in dollars cannot withdraw money in the country to use in dollars. Use your dollar account to purchase and do things externally, where the dollars are needed. There is a misconception that when you put your dollars in a bank you cannot get it back. That is not true.
How are the government and the Ministry of Finance (MF) working on the economic volatility?
Yes, volatility is something that we have not been able to manage, especially in terms of external shocks, and even in external rates that we pay for our foreign debt, we pay our foreign debt in foreign currencies, and their rates are basically, especially the floating side of foreign debts, are affected by global or external interest rates.
There is the issue of how we can hedge some of these things going forward. At the moment, in terms of interest rates, we have a Bill in Parliament looking at using derivative products or instruments to hedge future rates. Going forward, we will have to look at gold and cocoa to see how we can manage should global prices move against us. However, cocoa prices are going up again. These are cyclical: as the prices go up, we do benefit from the exchange; as they go down, we do not.
Do you have a specific philosophy in life, and what is the input that you are bringing to the Ministry of Finance?
This is my first time being in public service. I have been in the PS all my life, an investment banker all my life. I have applied my training in the US and in London where I studied. I have worked for some of the prestigious US and UK investment banks for about 20 years before returning to Ghana. This is my 5th year here.
I am an economist by profession and an investment banker by trade. I came into this Ministry with a lot of market experience and my experience is now more relevant to the market than it has ever been in the past. As we become a low-to-middle income economy, and as we get the market exposure, we need to find mechanisms to manage our external debt, our interest payments, and our commodities.
I am probably one of the few people in the country who have operated in that kind of environment. So I bring that experience here. Also, as an economist, I bring a lot of experience in terms of managing various environments. I am new to public service but I bring a lot of PS experience into government. In terms of discipline, in terms of organization, and in terms of getting things done— that is what I believe I bring to the table.
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