There can never be a good time to test the resilience and tenacity of the Ghanaian. The level of tolerance exhibited by Ghanaians is truly remarkable. The average Ghanaian today is faced with a barrage of challenges – ranging from increased taxation, increased cost of production for manufacturers and service providers, negative returns and ‘haircuts on investments, importers facing capital erosion due to constant depreciation of the local currency, high cost of capital, etc.
These challenges emanate from governance issues such as misplaced priorities by successive governments, poorly implemented policies, politically-inclined policies mainly aimed at luring unsuspecting/ignorant voters, just to mention a few.
Successive governments sign social contracts to manage our God-given resources to the citizen’s benefit and provide an enabling environment for the citizenry to thrive. While other nations that do not boast the natural resources at our disposal have discharged this obligation equitably and creditably to the benefit of their citizens, the same cannot be said for our governments… which have been extremely poor in this regard. The difference between these governments which have managed their economies well to the benefit of their people and the governance in this part of the world is the love and respect they have for their citizens.
In our part of the world, politicians are proficient in formulating great policies, but extremely poor at implementing same. This is because government appointees cruelly misappropriate funds meant for successfully implementing policies, while governments of the day sit aloof without demanding accountability from those appointees. In some cases, governments are seen to be protecting those individuals due to their political affiliations, and so they will be left unpunished. Government, whose duty it is to protect the public purse, is rather seen to be helping individuals dissipate that same purse.
I don’t have a Masters’ degree in economics, but it is common knowledge that it is not prudent to spend outside one’s means; and if one has to borrow to support their income, the borrowed amount should be spent on activities which yield returns because there is an obligation to pay back with interest. Unfortunately, our parliament – the peoples’ representatives – have failed to hold government accountable and watched us borrow our way into a debt crisis, with nothing or very little to show for it.
Parliament supposedly watches the Executive’s performance in controlling public services to ensure the implementation of public policy conforms to the state’s approved developmental agenda, and expenditure incurred is in accordance with parliamentary authorisation. I believe their responsibilities also include scrutiny and approval or otherwise of loans secured by the Executive. The question is: where was parliament when the Executive started the journey of borrowing their way into debt crisis? Needless to say, the parliament of Ghana has reneged on its duty to hold the Executive accountable – and has let all of us down.
Members of parliament are supposed to represent their constituents and ensure that the voices of constituents are heard and their views respected. The framers of our constitution, in their wisdom, knew there would be chaos if all of us were be debating and expressing our views on a subject matter – hence the institution of a parliamentary system, so there would be one voice through which the entire constituency speaks. Thus, Members of Parliament (MPs) should argue for, and defend the position of their constituents in Parliament House. Sadly, the political machinery has defeated this purpose and reduced the parliament to a rubber-stamp by whipping their members into line to support their political agenda, whether good or bad.
The effects of failures by these arms of government have given birth to monsters like hyper-inflation, high borrowing rates and currency depreciation, which are wreaking havoc on the average Ghanaian of today.
A policy rate of 30% and an inflation rate of 38% in Ghana can have several significant impacts on the average Ghanaian. Permit me to share with you an analysis of some challenges average Ghanaians face in their day-to-day struggles.
High Inflation Rate
Inflation affects the various income groups differently. High inflation tends to hurt those with lower incomes the most, as a larger portion of their income goes into essential expenses like food, transport and housing. This can exacerbate income inequality in the country, because the wealthier individuals may have assets which appreciate in value and provide a hedge against inflation.
Increased Cost of Living
With an inflation rate of 38%, the prices of goods and services are rising rapidly. This leads to an increase in cost of living for the average Ghanaian. People will have to spend more money purchasing the same goods and services they need for their daily lives. For individuals living on fixed incomes, such as retirees, the high inflation rate can significantly erode their purchasing power; making it difficult to maintain their standard of living.
Negative Returns on Investment
In Ghana, investors are facing a double-whammy because their investment is yielding negative returns while also receiving a ‘by-force haircut’ from government. The inflation rate of 38% is higher than the return rate of almost every legitimate investment portfolio in Ghana. This means that the difference between inflation rate and return rate is the rate at which investments of the average Ghanaian is losing value.
After borrowing to an unsustainable level and running to the IMF for cover, government thinks the best decision is to give some category of investors a haircut to tidy up the mess they have created – forgetting or not caring that this may have adverse consequences on the financial sector in the near-future.
High Borrowing Cost
With a policy rate of 30%, borrowing costs for individuals and businesses are likely to be very high. This means that loans, mortgages and credit card interest rates will also be high, making it expensive for individuals and businesses to finance their activities. For the business community, when the cost of capital is high it becomes more challenging for a company to find investments or projects which can generate returns exceeding the cost of capital. It also slows down economic activities, because high borrowing cost tends to discourage businesses from investing in new projects and expansion. This potentially leads to a lower GDP growth rate and fewer job opportunities.
Exchange Rate Pressure
High inflation is putting pressure on the country’s exchange rate. The cedi declined more than 55% between January and October 2022. The cedi had one the steepest declines of any currency in the world. This currency depreciation has led to higher prices for imported goods, further exacerbating the cost of living for Ghanaians.
Ghanaian importers are struggling to stay in business due to the high cost of importing and clearing goods at Ghanaian ports. Some importers are unable to raise enough money to finance planned shipments because of the constant erosion of their capital, through no fault of theirs.
In the face of stagnated incomes, particularly for salaried workers, high inflation combined with high borrowing costs is creating an income squeeze for many Ghanaians. We are finding it challenging to keep up with rising prices while also facing higher debt servicing costs as individuals.
The plight of average Ghanaians is indeed dire. We have endured the effects of some avoidable mistakes by our leaders. The earlier authorities do something about the situation, the better – because they have signed a social contract with us, and also given us assurances that those at the helm of affairs possess the requisite knowledge to turn things around. We shouldn’t have gotten here in the first place, but I know that with political will to curtail the huge, blatant theft of national resources we can build back better.
As we seek to build back better, let us also acknowledge the importance of transparency, accountability and good governance. These principles are the bedrock of a thriving economy and a just society.
God bless our homeland, Ghana!