29th August, 2001

ACCRA The eight-month-old government of President John Kufuor has taken bold steps to reduce Ghana's $7,5bn debt burden but economists say a turnaround is still far off.

While agreeing that Kufuor inherited a fiscal mess from predecessor Jerry Rawlings, who ruled for 19 years, they say the new administration has to do far more to put the economy on track. When he took office in January he inherited debt equal to 224% of exports or 709% of budget revenue.

Inflation was about 45% and unemployment 30%. The official inflation rate is hovering at 35%.

Joe Amoako-Tuffour of the Institute of Economic Analysis think-tank awarded the government an A for taking hard steps, but said these figures did not take into account significantly higher unaccounted-for liabilities.

"It's not so much reducing expenditure but waste and corruption that have proved to be our nemesis," he said. "The civil service and parastatal companies are hugely overmanned and need to be whittled down."

One of Kufuor's first steps was to join the heavily indebted poor countries initiative of the Bretton Woods institutions, a politically bold decision. It allows cashstrapped economies limited loan waivers, which are ploughed back into poverty programmes.

Finance Minister Yaw Osafo Maafo said last week that Ghana would save $110m dollars a year by joining the initiative.

Nii Kwako Sowah of the Centre for Policy Analysis said an economic turnaround "will take at least four years. The government inherited an inflation rate of over 40%, external resources of a month-and-a-quarter of import cover and a highly depreciating exchange rate."

The cedi, which traded for about 7200 to the greenback in January, had hardened to 6900.

Kwako Sowah said last week's decision by the government to convert 50% of the total domestic debt of 6,1-trillion cedis (871m) into a three-year bond scheme was laudable. The bond, due to be launched at an auction at the Bank of Ghana, will be listed on the Ghana Stock Exchange and yield biannual interest.

The government expects the bond to lead to fiscal savings of 190-billion cedis on domestic debt payments.

"One of the problems that we have is the short-term nature of the debt. The bond scheme will have a two-pronged effect it will help to lengthen the maturity of the debt and save money and also help develop the money market," Kwako Sowah said.

Another problem is a $39m fine the International Monetary Fund slapped on Ghana for misrepresenting the state of the economy from August 21 to December 31 last year.

Kwako Sowah said that was "offset due to the tremendous goodwill enjoyed by the new government. Spain has released 40m in aid that was held up."

The budget, presented in March, targeted a gross domestic product (GDP) growth rate of 4%. Per capita GDP is $390.

The government also promised to contain the inflation rate at 25% and aim for an overall broad budget deficit equivalent of 5,2% of GDP. Sapa-AFP.