January 18, 2009
New leaders say Ghana "broke" after spending
By Kwasi Kpodo,
ACCRA, Jan 18 (Reuters) - Overspending by Ghana's former government in the
run-up to elections it narrowly lost last month has left the West African
state "broke", the administration of new President, John Atta Mills, said.
Mills's transition team said the former government had exceeded its forecast
budget deficit for 2008 by nearly seven times, bringing it to 13.4 percent
of gross domestic product, the highest in 10 years and well above a 10
"In a word, the government of Ghana is broke," Hanna Tetteh, spokeswoman for
the transition team in charge until Mills names a government, said in a
statement at the weekend.
In the first nine months of 2008 some ministries over-spent their annual
budgets for salaries and benefits by between 76 percent and nearly 270
percent, Tetteh said.
Government overspending was compounded by a ballooning trade deficit driven
by high world market prices for food and fuel imports, adding to the
challenges facing the new administration amid high public expectations for
its four-year term, she said.
Mills was sworn in on Jan. 7, replacing John Kufuor, who had served the
maximum two 4-year terms allowed by the constitution of the former British
colony, the world's No. 2 cocoa grower, Africa's second biggest gold miner
and a future oil producer.
A tense month-long election process which capped a lavish electoral campaign
saw Mills beat Nana Akufo Addo, of Kufuor's New Patriotic Party (NNP), in a
presidential run-off by a margin of less than 0.5 percent. The peaceful
polls won wide praise.
On his last day in office, Kufuor announced public sector salary increases
of 16-34 percent for workers, provoking a barrage of criticism even from
labour unions, who lean towards Mills's centre-left National Democratic
Those salary increases would be "very difficult to implement" given the
financial situation, Tetteh said.
Ghana's public debt reached $7.7 billion, or 53.5 percent of GDP, by the end
of September, up from 51.4 percent nine months earlier, central bank figures
show. Debts have steadily risen since Ghana received billions of dollars in
debt relief in 2005.
Credit ratings agency Fitch downgraded its positive outlook on Ghana's B+
rating last February due to rising debt and a widening current account
deficit, and any further deterioration could erode confidence in its
sovereign eurobond <374422AA1=RRPS>, issued as the first in West Africa in
"While we see a limited risk of default on Ghana's sovereign bond at
present, it is increasingly clear that macroeconomic fundamentals have
deteriorated," investment bank Renaissance Capital said in a note to
investors last week.
Annual inflation, which had fallen back from a June 2008 peak of 18.4
percent, rose sharply to 18.1 percent in December.
After expensive measures to protect the poor from rising fuel and food
prices in mid-2008, Ghana was hit by the global slowdown, including falling
prices for key commodities exports and fears of a reduction in remittances
from Ghanaians abroad, who send home around $3 billion a year, almost a
fifth of GDP.
Taking power in the midst of a global economic slowdown and financial
crisis, Mills faces some of the same problems as U.S. President-elect Barack
Obama, who will be sworn in on Tuesday. But Mills has had less time to
prepare than his U.S. counterpart.
The foreign-trade tax law expert and university professor, who served as
vice-president in the late 1990s, took power just four days after Ghana's
final election result was announced.
He is expected to name a government by the end of January, and will probably
need to use cabinet nominations to heal some of the divisions exposed by the
bruising electoral campaign.
Mills's NDC overturned an NNP majority in parliament, but failed to win an
outright majority itself, meaning it will require backing from minor parties
and may have more trouble enacting austerity measures than Kufuor's
administration. (Editing by Alistair Thomson/Richard Hubbard)