Oil revenues won’t transform Ghana’s economy – UNDP

The United Nations Development Programme (UNDP) says neither Ghana’s new found oil revenues nor the recent rebasing of the country’s economy are fundamentally panaceas for economic transformation.

According to the findings of a study conducted by the UNDP titled “Leveraging fiscal space for human development in Ghana: The 2015 MDG target and beyond”, notwithstanding popular perceptions of an “oil boom,” there is little to indicate from present estimates that future oil revenue will resolve Ghana’s macro fiscal imbalances and structural weaknesses and be in itself ‘developmentally transformative’.

Ghana discovered oil in commercial quantities in June 2007 and commercial production began on December 15, 2010. The euphoria surrounding the new found resource has been characterised by a belief among most Ghanaians that the country’s economic challenges would be over. This study however says it won’t, unless some specific decisions are taken. It goes on to outline the areas government ought to look at to address the fiscal inbalances.

The report indicates that in view of its history of persistent deficits and low savings rate, Ghana lacks the policy credibility to -scale deficit-financed investment strategy and counter-cyclical fiscal expansion.

The report says there is also little prospect of additional support from development partners in the foreseeable future, and warns that as the country becomes or has already become a Middle-Income Country (MIC), Ghana’s access to concessional lending and grants will be reduced.

However, Ghana, the report says would benefit from improving its credit rating and devising a clear exit strategy from aid.

After analysing the implications of the exploitation of oil and of the recent ‘rebasing’ of GDP, including opportunities and uncertainties, the report concludes that the principal means for creating additional fiscal space to boost progress towards the MDGs by the 2015 benchmark will come from increased efficiency and reallocation of expenditures within the Ghanaian budget.

The report draws attention to the fact that the rebasing exercise, however, sheds new light on a number of parameters and options and suggests that the country’s actual tax effort is below 15% rather than around 25% as currently estimated, pointing to the potential for raising tax efforts over the medium run.  Similarly, “the newly computed GDP estimates are likely to foster a rating upgrade and expand Ghana’s access to external finance on commercial terms in the medium run,” it added.

“At the same time, these estimates also reduce Ghana’s current net savings rate, reinforcing the conclusion that further deficit financing would not be a wise policy choice in the short to medium run,” it said.

A meeting beween the government and the UNDP to discuss the report will be held Tuesday February 15, 2011 in Accra.


Source: ghanabusinessnews.com