Ghana’s economy: A cabinet full of bitter pills

Unpleasant exchanges

However, media reports hint at more robust exchanges that bordered on the unpleasant. The CEO of the Chamber of Bulk Oil Distributors, Senyo Horsi, had to issue a press statement denying that there had been a near bust-up between the Finance Minister, Seth Terkper, and himself over the government’s indebtedness to members of his chamber. He did, however, admit some differences which he said were in the general spirit of the discussions.

Many on the sidelines remain apprehensive. After claiming that its “home-grown solutions” could resolve the economy’s problems, it took the intervention of the IMF to placate the markets. For many Ghanaians, resorting to the IMF is not only a reminder of how bad things have become (the country quit the programme in 2007) but a return to the “dark days” of the 1980s, when, under the Bretton Woods-directed Structural Adjustment Programme, the country had to undertake a bitter and socially disruptive programme of economic realignment.

Problematic issues identified in the first round of talks include the enormous wage bill, the untargeted and overgenerous subsidy regime and tax waivers that government almost routinely hands out to attract foreign investment.

The Trades Union Congress, for instance, has issued a statement decrying the development and promising to resist any draconian measures that the move may bring. Members of the opposition, especially the New Patriotic Party have been quick to point out that the move vindicates their characterisation of the Mahama-led administration as out of ideas and out of its depth. Should government agree to any difficult measures, as it may well have to, it would face a political battle in selling the package to an already uneasy nation.

Which may be why the President is urging restraint. Problematic issues identified in the first round of talks include the enormous wage bill, the untargeted and overgenerous subsidy regime and tax waivers that government almost routinely hands out to attract foreign investment. None of these will be easy to deal with.

Under the late President Mills, a hiring freeze in the public sector led to a huge outcry, with the opposition NPP, somewhat incongruously for a pro-market party, accusing the government of causing unemployment by refusing to add more numbers to the already bloated public service.

The government has little wiggle room with the Single Spine Salary Structure. The new salary scheme was meant to correct imbalances in public sector pay but as a side effect, caused several fold increases in the wage bill.

Government itself often promotes these subsidies to appear “caring”, while it struggles to pay for them

A similar fate can be said to have befallen the subsidy regime. While generally acknowledged as a drain on government revenues and poorly targeted, any attempts to revise subsidies leads to outcries from the chattering classes who are often the worst hit but who, government argues, need the subsidies least.

Government itself often promotes these subsidies to appear “caring”, while it struggles to pay for them. The bulk distribution companies are as badly hit as utility companies, including the state-run Electricity Company of Ghana, which is also owed a fair sum in subsidy payments.

Revising the tax regime would not come easy either. George Blankson, head of the Ghana Revenue Authority, signalled the intention of the government to withdraw some of its waivers almost immediately after the first round of talks with the IMF. Businesses have been quick to react, arguing that higher taxes in times of economic difficulty would further threaten jobs and the economy itself.

Faced with all these problems, it may be too early to celebrate. The cedi may be rebounding but the core issues remain. The Ghanaian economy will have to take some bitter pills before it heals completely. As an election approaches in 2016, we may find that the economy’s managers do not have the stomach for the bitter pills.