Stop Now: Further Government Expenditure Is Devastating Ghana

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Indexes
  1. Exponential growth in Government Expenditure
  2. In conclusion

Ghana is the second largest economy in the ECOWAS region, with an impressive GDP trend (both in real and nominal terms), after Nigeria. However, the government’s activities of increasing expenditure is damaging this country’s economy.

Reflecting on the Data

Looking at data from the World Bank, we see that government expenditure (dubbed ‘Central Government final consumption expenditure — constant LCU’ in the slide below) has been rising from 6.83 billion in 2006 to 14.57 billion in 2011. It dropped impressively for two successive years, then started to oscillate around 10.9 billion and 11.7 billion.

Chart from the World Bank, showing Ghana’s government expenditure

But this trend was jettisoned right after 2017.

Exponential growth in Government Expenditure

In 2017, government expenditure was lower than in 2016. But it started to rise, so fast that it surpassed the staggering 2011 level of 14.57 billion. Last year, it stood at 21.93 billion a very sharp growth. This unveils the exponential soar in government’s expenditure.

The picture is even grimmer if we consider the graph below, which shows (in current US Dollars) the ‘general government final consumption expenditure’, because it attests to the fact that since 1990, there is an exponential growth trajectory for government expenditure — although it had been latent in the ‘90s.

Chart from World Bank showing government expenditure
Source: The World Bank

In 2011, there was a sharp increase in government expenditure, but thence were a period of fluctuation and smooth decline. However, this administration put the expenditure back on exponential growth.

Why is any of this important?

From a political lens, we can see that the New Patriotic Party administrations typically increase expenditure, whereas the National Democratic Congress typically stabilize (or try to bring down) government expenditure.

From an economics perspective, we see trouble: rising government expenditure leads to increasing widening of Ghana’s Budget Deficit, which sets into motion a reduction of our economic growth due to ballooning Public Debt.

But, this issue is very controversial today. How do we encourage future administrations to keep their hands off government expenditure?

The Systems Thinking Perspective

As a systems thinking enthusiast, I was led to ask myself a few questions about the Public Debt, because it is at the center of why more government expenditure is not good for our economy.

Upon research, I found that when governments expenditure exceeds government revenue, the administration has to issue bonds which provide proceeds, but these end up adversely affecting the country’s very GDP.

So, if in Ghana’s case, government expenditure keeps rising exponentially, then our public debt is likely behaving in the same way, which could increase inflation, thence decrease household consumption, which not only dampens government revenue (hence making a deficit more likely) but also eliminates GDP growth — perhaps by enough to actually make GDP fall lower than previous periods.

This CLD shows the underlying complexity for the Public Debt

By eliminating government expenditure, we do not have to worry that our debt is ballooning, because our GDP can rise, leading to higher quality of life of the people of Ghana.

But, how do we actually reduce government expenditure?

One solution is to eliminate non-security and defense related spending. I think that by gradually phasing out salaries of nurses, teachers, and other non-security and defense expenditures, government can reduce expenditure substantially.

It will be a politically unpopular decision, but to me, it is absolutely needed because we need government to focus on helping our economy grow, so it can deliver the higher quality of life we need.

In conclusion

Ghana’s government expenditure has been rising in an exponential growth trajectory, which is a major concern because it increases our public debt and impacts our GDP.

The Public Debt’s structure in the system is presented adequately in a CLD that clearly shows how devastating our government expenditure is on our economy’s growth.

By eliminating non-security and defense spending, Ghana can reduce her government expenditure substantially to keep GDP growth out of public debt’s debilitating reach.