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I have been listening carefully to some Politicians, Social Commentators, Think Tanks and Economists dilate on the state of the Ghanaian economy. While some say we are operating a collapsed economy. Others say, the economy is buoyant and has a very bright future. Ghana has had a checkered political history since it attained its independence in 1957. Its economic development has had a close semblance to the political instability of the times

As a student of history, I have thought carefully of bring Ghanaians up to speed on the state of the Ghanaian economy before the introduction of the Fourth republican constitutional era. It is my expectation that such a piece will help us understanding the challenges and efforts put in by the Rawlings, Kufuor, Mills and Mahama administrations to keep the economy on an even keel.

The World Bank captured an interesting but worrisome description of the Ghanaian economy with the following description:

 [The] economy has been steadily deteriorating throughout the past decade but the situation has recently become critical. Past years have been characterized, in varying intensity, by persistent high inflation, declining production, and exports, flourishing illegal activities… A gradual decline in per capita income has increased the incidence of absolute poverty and has been accompanied by worsening income distribution, growing unemployment and the emigration of skilled professionals.”

The specific decline and deterioration were felt is some specific areas of the economy. I will highlight some of the monetary and fiscal challenges of the times.

 In terms of monetary and fiscal issues, the managers of the Ghanaian economy battled with inflation which averaged fifty-five percent (55%) from 1772 to 1981 reaching a high of one hundred and sixteen percent (116%) in 1977 and 1981.

The country’s revenue base deteriorated to dangerous levels of insolvency such that non-tax revenue declined from forty-two million cedis (42 million “old currency” cedis) in 1965 to  Seven million , five hundred thousand cedis (7.5 million old currency cedis) in 1982. The tax base declined to about five percent (5%) of the country’s Gross Domestic Product (GDP), with investments falling below the levels needed just to maintain the depleted capital stock. 

In my view, the decline in the tax base was attributable to many factors which include the declining domestic production, exports and imports, as well as an inefficient tax collection regime

It was very pathetic during the period for the country to experience a revenue contraction in relations to GDP. For example, GDP estimate in 1972 was two thousand, one hundred and fifteen cedis (2,815 old currency cedis) but government revenue was seriously as low as three hundred and ninety two million cedis (392 million cedis).  Accordingly the budget surplus was a negative figure (- 153 million cedis).  In 1977, GDP estimate was 1163 million cedis but government revenue was 153.9 million cedis.

It is instructive to note that as revenues contracted over the years relative to GDP, the governments of the day met the increased deficits from the Bank of Ghana credits. Interestingly, the Bank of Ghana’s statutory limits on lending had been amended to make government borrowing easier. In some of the difficult years, the amended limits were blatantly ignored so much so that by 1983, government deficits had reached 14.6 % of GDP. Incredible!!! As  the Bank of Ghana continued to  finance government budget deficits, there was a corresponding jump in money supply from two hundred and eighty one cedis (281 cedis) in 1971 to one thousand, seven hundred and sixty one (1761 million cedis) in 1977.

It was not quite surprising that by 1979 when the excess liquidity became so bearable, government had no option than to embark on a demonetization exercise which resulted in expropriation of money from private hands.

The country maintained an unsustainable overvalued exchange rate over a length of time. Accordingly, in December, 1971, the government of the day devalued the cedi by forty four percent (44%) from 1.02 cedis to the dollar to 1.82 cedis to the dollar. This was a big reason for a military coup d’etat in January, 1972. The succeeding military government pegged the currency at one cedi (I cedi) to $0.78. Some Political Analysts and Economists at the time said it implied a devaluation of over 20%. By 1982, the cumulative over valuation of the cedi over the years left the cedi with only ten percent (10%) of its value at independence in 1957.

The over valuation of the cedi had a corollary effect on all exports (especially on cocoa exports) as it made exports more expensive than imports. It is important for me to point out that the decline in exports resulted in dwindling foreign exchange earnings which also severely constrained imports. This situation led to a cycle of problems for the country.

This is because all the country’s main exports were critically dependent on imports and therefore the foreign exchange shortages became self-perpetuating. This because mining and timber industries depended on imported equipment and supplies; and the cocoa industry depended on imported farming implements, insecticide, etc.

Accordingly, Ghana experienced a fall in productivity in many sectors. For example cocoa production fell from 557, 000 tons in 1964/5 to 100,000 tons in 1983/84. Cocoa which contributed forty percent (40%) of government revenue made zero contribution in 1980 and incurred a deficit in the budget of 1981/82.

Gold production fell from 724,000 fine ounces in 1972 to 402,033 ounces in 1978 and further down to 260,000 in 1983.

Some of the agricultural stables also declined in production. For example, maize production declined from 486,000 tons in 1974 to 172,000 in 1983. Millet dwindled from 154,000 tons in 1974.

The decline in the economy affected all other sectors of the economy.. Besides, droughts and bushfires in 1978-79 and 1982-83 affected agricultural production which in turn led to deterioration of food supplies to the extent that by the 1980s, the Food and Agriculture Organization (FAO) reported that Ghana’s food supply was only better than the then war-ravaged Republic of Chad.

The county’s economic woes were compounded by unfavorable international commodity prices. For example. Sharp rises in oil prices in 1973 -74 and 1977-80 ceased the country major foreign exchange problems. By 1980, the country face a precarious situation where 50% of total value of imports was for petroleum prices.

As if to indicate that these problems were not enough to break the country’s spine, the Nigeria government expelled over one million Ghanaians form that country. Even in good times, such an inflow of additional mouths would be problematic. Occurring as it did in 1983, it greatly contributed to the general distress in the country.

It is against this state of abysmal decline that in 1983/84, the government of the Provisional National Defence Council initiated the Economic Recovery Program (ERP).  The ERP targeted economic growth of around 5% per annum, reversal of decline in production of all sectors, especially cocoa, moderation of inflation, stimulation of exports through realistic pricing of foreign, increase in domestic saving, and the improvement of the image of Ghana in international financial circles and restoration of confidence of overseas banking and supplies establishments in the Ghanaian economy.

In conclusion, it is necessary to point out that as we journey into the future, we must be guided by the bleak state of the economy of Ghana and the efforts that were done by successive governments to put the country‘s economy on an even keel.  We have come a long way as country and nothing must be done to derail the progress we have chalked. I look into the future with hope expecting implantation of policies which bring Ghana more peace, progress and prosperity.