Senior Research Fellow of the Institute for Fiscal Studies, Dr. Said Boakye, says whereas the $750 million loan facility from the Afrexim Bank is not enough to deal with Ghana’s fiscal problems, it will give the country some breathing space to put things in order.

He stated that within the grace period offered by the loan facility if fiscal authorities fail to put the country’s finances in order, then the rapid depreciation of the cedi that has been witnessed in the first seven months of the year will repeat.

“But it is good that we have had a breathing space now and the fiscal authorities will have to double up and the negotiation that is taking place with the IMF will have to double up, and get a deal so that government finances could improve which will help the capital and financial account to get in some inflow … because the country’s finances will improve and the government can go back to borrow,” he said on JoyNews’ PM Express.

He noted that while this may not be a good solution in the long term, it is viable to stabilise the economy in the short term and win back investor confidence.  

“You can talk about long term solution, but in the short to medium term if the government is able to just put in and be able to continue to borrow and also stop the drain through foreign investors repatriating their profits; if there is improvement in the physical operation, that will help. That is the medium term solution,” he said.

Dr. Boakye explained that to tackle the fiscal problem long term, government would have to find a way to make the current merchandise trade account effectual.

He noted that even though the country often reports surpluses and positive trade balance from its  trade balance, there is little to show for it in terms of foreign inflows.

He has thus called on the government to institute measures to retain the foreign currency inflows from the trade balance in the country.

“You see, for the past few years, the country has been declaring positive merchandise trade balance, they have been positive. There has been surplus. The country has been declaring surplus in the merchandise trade account. Nevertheless, this has not been effectual.

“It is not helping the country so much in getting in foreign inflows. Why am I saying this? If you look at the merchandise trade account we have three major commodities in there; number one is gold, number two is cocoa, and number three is oil. The country gets every grain of cocoa you sell, the dollars involved or the foreign currency involved we get it back.

“Nevertheless, for the [oil] and gold there’s a very big problem. In fact [oil] and gold for instance in the first half of this year constituted about 65% of our merchandise trade export. Nevertheless, the country gets so limited fraction out of it. This is a very big portion of our exports, 65% of our exports,” he  said.

He added that “But what the country gets from it is so limited and for that matter the exports are not contributing much to support the cedi and that’s why at IFS we have been calling, of course, for government to do something for Ghana to be able to take control of our gold export and our oil exports.

“Other than that the merchant trade dash trade account that is supposed to bring in foreign currency is not going to be useful.”