MACROECONOMIC INDICATORS: Real outcomes or theoretical values?

MACROECONOMIC INDICATORS: Real outcomes or theoretical values?

As a measure of a nation’s progress, several tools are engaged depending on the area of life of a nation that is the subject of the assessment. In the economic life of a country, macroeconomic indicators are generally used to track the progress a country has made within a given time frame. Additionally, they form the framework around which growth & development projections are made.

Globally used indicators of economic development includes the GDP growth rate, inflation rate, interest rates, fiscal deficit, exchange rate, debt to GDP ratio, international reserves, balance of payment, unemployment rate among others. These indicators focus on the different aspects of the economy and a good analysis will generally depict how they interact with each other to create opportunities and wealth in an economy to impact standard of living.

In Ghana, macroeconomic performance, often in its skewed presentations, represent a major component of debates between government officials, political party representatives and Civil Society Organizations. The peak manifestation of these debates is during election season, annual budget statement & economic policy presentations and such other policy engagements either by leading members of the ruling government or opposition party leaders.

It is also triggered by the release of reports by internationally recognized institutions like the World Bank, International Monetary Fund and credit rating agencies. In a typical economic discussion between persons with some political attachments, it is quite common to hear sympathizers of the ruling government tout the “solid macroeconomic credentials” of the government amidst a deep downgrade of the previous government’s achievement, if any. In a sharp contrast member of the opposition, aside shooting down the supposed achievements by the government, almost always pose one question that syncs with a large segment of the population; “How are the figures impacting the life of the ordinary citizen?”

Is there any relationship between macroeconomic indicators and household wealth? How can macroeconomic achievements translate into micro impact? Are achievements as touted through economic indicators of any real use to the ordinary citizen? Are they just manipulative tools use to communicate fictional progress or they represent, as it probably should be, real measures of economic development?

Macroeconomic indicators; what they (should) represent!

The indicators are generated as the aggregate output/effect (in some cases sampled aggregates) of economic activities during a period under consideration. They are very relevant in the overall scheme of the country and they collectively form the vital statistics around which the pulse of the country’s economic environment is measured. Therefore, as aggregate values, improvements in them should reflect somehow at the basic units (individual, household and local community levels). Growth and expansion in the macro economy should, all other factors held constant, reduce problems of high unemployment, low-income levels and low standards of living.

Development institutions and international investors, may for instance, use this indicator as the first point of any due diligence assessment for agreements or transactions with the country. A general improvement in the macroeconomic environment boosts investor confidence and trigger some increases in foreign direct investments.

Central bank policy rates constitute a major component of bank lending rates. Therefore, changes in these rates are expected to have some effects (however small) on general commercial interest rates in an efficient economic environment. This interest rate determines to a large extent how credit can be more or less affordable in the country to stimulate economic activities that generate wealth for the population.

The broken economic bridge  

Whilst any real macro-economic achievement must have some impact at the household/individual level, this may not necessarily be the case especially in most developing economies like Ghana. Like a broken bridge, the disconnect arises as a result of several reasons including deep structural inequalities, spread of the dominant variable resulting in the improvement of the indicator, data quality, low data utilization in policy implementation etc.

Hugely entrenched and continuously widening wealth gap among the population eliminates a large number from accessing most opportunities guaranteed by macroeconomic achievements. Poor access to low-cost capital and corruption riddled bureaucratic public service delivery are the lead contributory factors here. They serve as a major blockade in the flow and spread of wealth from the macro to the micro level among lower-level economic participants. Fair access to employment in public sector is almost non-existent except for persons with the right connections to people with power. Opportunities that are associated with positive outlook of most indicators mainly inure to the advantage of few individuals that control power and capital. Not much of the associated wealth gets to the providers of labour and the general populace.

Again, where there are major economic breakthroughs and achievements that triggers public sector procurement of government goods and services, access to such is known to be unofficially restricted to the advantage of few power brokers and societal elites. There is therefore the real incidence of such an achievement not being felt by the general population so far as it keeps revolving in the hands of a privileged few. Government procurement challenges, lack of openness and fair competition cannot be overlooked. This is partly the reasons why the discovery and production of oil in commercial quantities increased significantly Ghana’s GDP growth rate without the corresponding expected impact among the population.

Where the major growth driver of an economic indicator is not one that connects directly with the daily life of a majority of middle- and lower-class population, any positive change arising is unlikely to impact general living standards. Take for example a GDP growth rate that is largely influenced by oil production. This is not likely to have any direct meaningful impact on the lives of citizens unless a conscious effort is made to channel its associated wealth towards the provision of social goods and services.

This is in sharp contrast to a growth in agriculture which is likely to be felt by a larger segment of the population. The mix of goods in the inflation basket and the dominant product responsible for changes in the inflation figure at any point in time, for instance, may determine if it will have any direct impact on general livelihood. Persistent rise in prices attributable to general food or daily use product prices is expected to have a more direct impact than that of ostentatious products which are generally patronized by few upper class elites.

There is also the problem of policy decisions being driven by political considerations, relegating data inspired solutions to the background. Technocrat views becoming secondary to political opinions targeting short term unsustainable benefits.

Furthermore, there are issues about the quality of the economic data that translates into the macroeconomic indicators. Questions have been asked about the strength and independence of institutions that generates national data such as the Ghana Statistical Service, Bank of Ghana, Ministry of Finance, and other Ministries/Departments/Agencies. Can their data be trusted? What is the level of assurance with which it can be independently relied on? Issues about how independent such institutions are, the linkages between them and their data gathering process have been questionable at one point or the other.

It is, for instance, not uncommon to have two of more these government establishments give contradictory statistics on employment & unemployment. Beyond operating cost and borrower risk premium, how does reductions in policy rates not trigger the needed movements in average bank lending rates of universal banks? Is it the case of an inefficient financial market, pure profiteering by banks or data generation challenges?

The above factors resulting in the low appreciation of macroeconomic outcomes are worsened by the fact that, in the contrary, citizens usually have direct evidence of how government fiscal policy adjustments through tax introductions or increases easily reflects in their cost of living. Direct tax adjustments are clearly seen on pays lips and reflected in payment made or received. Indirect taxes are felt through almost instant price increases on most commonly patronized goods and services. Same direct impact isn’t visible for major macroeconomic achievements touted by governments.

What must happen?

The foundation of the huge inequalities among the population needs to be aggressively tackled with deliberate and committed effort if any meaningful impact is meant to be felt by the larger population from any positive movement in macroeconomic indicators. Removing the structural bottlenecks in accessing public services and opportunities may prove a major breakthrough. The government ongoing digitalization agenda is sending very strong positive signals in this direction.

The use of revenue from oil resources in financing pro-poor social intervention policies like the Free Senior High School (FSHS) policy represents one of the clearest examples of how macroeconomic wealth is distributed and gets to impact the entire population. It is therefore crucial that it is well prioritized, monitored and strengthen together with such development policies like the National Health Insurance Scheme (NHIS) that utilizes public wealth for the benefit of the general population and weaned from the cyclical politics that threatens their implementation and survival.

Economic policies must aim at targeting sustainable growth in agriculture and agro-processing which has effect on the larger population. Dis-aggregated statistics that focus on macroeconomic outcomes at the metropolitan/municipal/district levels must also be pursued. It is possible to track economic growth, unemployment, inflation etc at the district levels which, factually, is the immediate environment in which the population interacts with economic forces.

The presence of independent research and statistical institutions that can generate parallel data to serve as a check on government data can be a useful factor in building confidence in economic data. It will also aid in giving clarity to government policy to aid the monitoring of results.   

Above all there is urgently needed, a strong and consistent leadership that can pull down what appears to be the strong arms of politics that hijacks and redirects the successes of macroeconomic growth and nullifies benefits that should flow to the grassroots levels.

So whilst macro-economic achievements need to be celebrated, the real challenge lies in resolving the overriding challenges that currently renders them as largely moot concepts.

The writer is a member of the Institute of Chartered Accountants, Ghana                          

Email: [email protected]

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