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| "Weak Cedi Can’t Support Overspending" |
6/8/2014 |
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Ghana’s longest serving Minister for Finance, Professor Kwesi Botchwey, has stated that the Cedi is not a strong currency to support overspending by government.
According to him, “Ghana cannot afford to live beyond its means because the cedi is not a strong currency to support overspending. Developed countries like the United States and Britain can get away with living above their means because their currencies area good store of value.”
He made the assertion during a lecture delivered on Tuesday at the 3rd Distinguished Speaker Series organised by the Central University College at Miotso near Tema.
He bemoaned excessive government expenditure, which he said had imposed certain rigidity on the national budget.
He explained that “a number of factors has led, in recent times, to an erosion of the country’s credibility in the markets among other development partners and importantly in the eyes of the public, among them the missing of macroeconomic targets for two consecutive years, with budget outcome deviating significantly from published forecasts and surprises, some would say panic driven changes in the foreign exchanges market regulations.
“In last year’s budget alone, two terms alone, the wage bill and interest cost on public debt accounted for 82 percent of total revenue, leaving a paltry 18 percent for everything else, including vital capital expenditure. This is a challenge, which has not been fully understood or sufficiently in public discourse.
“For 2014, the situation is even dire. Out of a projected total revenue of just over 24 billion cedis, statutory and quasi statutory spending, namely the wage bill, pension, gratuities, social security, interest cost, external loan repayments and transfers to statutory fund (DACF, GETFund, NHIS, and the Road Fund) take 101.2 percent.”
He said the target set for the medium-term in the proposed home-grown financial and economic policy framework may not be easily attainable, especially the target of reducing the wage bill from 57 percent to 35 percent by 2017.
“So we are basically living beyond our means and must borrow from the domestic and external markets to finance the deficits, including sovereign bond issues from the capital markets.
“As a consequence of such borrowing in recent times, our public indebtedness has just about reached the limits of our external liability at the same time, our graduation to lower middle-income status has reduced our access to concessional long-term financing from multi-lateral institutions like the World Bank.
He indicated that “borrowing from international markets thus carries its own conditions and are not markedly different from the conditions from borrowing from International Monitory Fund (IMF).”
“The country can decide that we will not go to IMF for funds; we can decide that instead of medium term drawings from the IMF at lower cost, we will borrow from international markets at greater costs and short tenure and with pretty much the same conditions.
“Unless this is done, it will be difficult to deal with the challenges for restoring macroeconomic stability and come to grips with difficult issues like our public sector wage policy.
From Vincent Kubi, Miotso
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