Ghana’s Fiscal Deficit Due to Subsidisation of Banks

BY EDMUND SMITH-ASANTE

A Programme Officer of Third World Network – Africa, a non-governmental organisation, Mr. Gyekye Tandoh, has stated that Ghana is currently experiencing a fiscal deficit because banks operating in the country are being subsidised through the sweat of Ghanaians and by government as well.

“Now all of us are subsidising them, the government too is subsidising them and this is really the basis of the fiscal deficit that we have. So if we say that the key thing is for government to reduce expenditure - and in Africa that has been the phenomenon…the chief way in which the government is reducing the deficit right now, is to squeeze expenditure and if you squeeze expenditure you are virtually squeezing money and the economy itself,” he said.

“Therefore all you are trying to say, is that because you have seen some sign , because of somebody else’s agenda that your cocoa price has gone up slightly, that your gold price has gone up slightly, for that reason you are prepared to subsidise, urging priority, not simply of addressing poverty, not simply for reconstituting demand, or the demand base on your own market, financial obligations and investment, but all these have been abandoned, simply because  the priority is to stabilise this market…and all these have consequences,” he lamented.

Mr. Tandoh was addressing a public forum in Accra Wednesday with the theme: “The Global Financial Crisis and Ghana: Are Working People and Producers Paying for the Fault of Big Banks?”

Speaking to the theme as the third speaker to mount the rostrum, Gyekye Tandoh re-echoed the submission by the first speaker, Dr. Felix A. Asante, a Senior Research Fellow and Development Economist of the Institute of Statistical, Social and Economic Research (ISSER), Legon, that Ghana was not able to withstand the shocks of the global meltdown because it employed prudent measures, but by dint of luck.

He explained that whereas the prices of some major primary commodities plummeted on the world market, Ghana’s two main commodities; cocoa and gold had relative stable prices, thereby ensuring that Ghana was not seriously affected by the global financial crisis.

“We were lucky that cocoa and gold did not suffer from shocks as other primary commodities during the global crunch,” he said.

Moving to the African continent, Mr. Tandoh said the two main economic problems facing Africa are that of development, “meaning that we do not have capital, basically, we do not have the means to develop technologies, sustain employment to sustain incomes, diversify economy, industrialise, modernise and pull all our people along the paths of sustained human development and economic transformation.”

He said the second problem is that of mass poverty, citing that all the different computations across Africa in terms of the impact of the global crisis pointed to very severe poverty.

Mr. Tandoh said that on the global scale, it is reckoned that 82 million additional new Africans have been pushed into the ranks of those who could not afford one square meal a day.

Divulging that in Ghana this trend has been going on, the TWN programme officer said early 2009, a study released by the University of Development Studies (UDS), showed that the average numbers of families in the three northern regions of Ghana that could afford one square meal a day had dropped from 51% of all families to 45% of all families, from August 2007 to August 2008.

He added that the trend that existed towards the end of 2009 suggested that the deterioration could have been even worse.

Mr. Tandoh continued that the computations of poverty in different parts of Africa show that to the degree that the impact of the global economic crises caused any of African countries affected to lose 1% in national income, it translated into an immediate absolute poverty of between 1.3% and 1.5%.

Reiterating what the first speaker, Dr. Asante said, he added that Africa’s growth rate declined from 7.2% to 4.1%. While emphasising that it meant the growth rate had declined by a minimum of 3%, Mr. Gyekye Tandoh said absolute poverty rate had also increased to 3.9% of the population.

“That means from a population of 32 million, 880,000 people; that is approximately one million people, just overnight, more or less, had been driven into the absolute depths of the poverty status.”

He said the finance, insurance and real estate sectors still maintained high levels even when they declined, because of the level of the retention of capital and capital withdrawal.

The programme officer also mentioned that in view of the global downturn, the Ghana Stock Exchange has suffered a decline and in terms of its activities has been affected by the global turn of events.

He stated that the condition of growth was not based on increase in productivity, diversification of the economy or anything of the sort, new technique or technology being applied to cocoa or on traditional exports such as pineapple or some miraculous new discovery.

“Nobody has also said that the financial sector has begun to serve the interest of people down the enterprise chain, small and medium enterprises, helping them do research and development, consolidate their market, upgrading their technology; nobody has said that on the basis of this vicious cycle there is an upsurge in technology…and so on,” he added.

According to him, even though they are all important, when export demand is falling, the only place to look to in the world is one’s neighbourhood or sub-region that one belongs to, especially when that sub-region is suffering the same strain and stress from the external forces.

He said it is thus the perfect time for Ghana to reorient towards the domestic economy and towards the regional body, lamenting that some things were however standing in the way.

According to him, no taxes are levied on portfolios leaving the country in order to attract foreign investment, and although there are no taxes on the corporate sector, even when there is open policy, such that government has created a so called environment where interest rates should come down, the banks have refused, because they have an oligopolistic position instead of there being so many banks that they have competition where they compete among themselves to attract and interest rate comes down and so on and so forth.

The first speaker, Dr. Felix A. Asante presented an overview of the general impact of the global economic downturn on countries with particular reference to Ghana, under the topic, “The Global Financial Crises and Policy Responses in Ghana, while the second speaker, Mr. Kouglo Lawson-Body of the International Trades Union Congress (ITUC) – Africa, who is based in Lome, spoke on the Impact of the Crises and the Needs of Working People in Africa.

The forum was chaired by Akua Britwum, a Senior Research Fellow at the University of Cape Coast.