Former star economy Ghana faces currency collapse

[Simfan34]

A mounting deficit forces Ghana to ask for help

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This is depressing, considering how well the economy was been doing until recently. My dad just got to Ghana, the slide is horrific, it is now something like 3.70GHS to $1. A bottle of coke is 50 pesewas, which is now 0.14. This is a true tragedy, considering that back five years ago it was approximately 0.93GHS to $1. It slid shortly after redenomination but it was pretty stable until 2011, trading at around 1.40-1.50 to $1.

This happening because the present government has kept on running deficits to an extent not even matched by Nkrumah, much less the prior administration. And it's not as if this is because of massive capital investment, but rather trying to "spread the wealth around" from oil by giving huge raises to government workers- we're talking in terms of doubling and tripling wages- regardless of the fact that the "oil money" hasn't really been coming in. Something like 70% of government expenditure are wages. The result has been to create the massive inflation and trade imbalance that we are now seeing. Another major factor has been the comical array of goods that are imported (liver! vegetable oil! fruit juice! toothpicks!) that could be easily produced domestically, but that's really secondary.

This would not be happening had Atta Mills not died. Not because he would have been any better, but because his party would have been voted out if not for the sympathy vote his death garnered. The government was very crafty in doing that actually- going around the country "thanking" people for their sympathies and support for his funeral and all that- but they've shown none of those wits in actually running the country.

[AggregateDemand]

Deficits and high wages don't necessarily lead to inflation, but Ghana must grow to create the wealth necessary to back their currency. They are spending, but the oil money isn't coming in. I'd say that is the cause of inflation, not artificially high wages.

[Simfan34]

What's the difference?

[Sol]

When is the next election?

[Beet]

If there's one thing we've learned in the past 50 years of economic history, it's that developing countries run significant risks by engaging in either of the two following behaviors: 1) borrowing large amounts of money in a foreign currency, such as the U.S. dollar, particularly from foreign investors, and 2) running large and persistent current account deficits, particularly deficits funded by "hot money" inflows, as opposed to foreign direct investment. The article here says Ghana's current account deficit is over 12% of GDP, which is horrendous.

[Simfan34]

When is the next election?

2016