Formulating economic policy in times of crises; turning Ghana’s “Economic Trough” around

The current state of the Ghanaian economy has inconclusively been defined across the political, economic, and academic divide as either an economy in crises or merely a challenged economy.

 

Irrespective of the position taken for a proper diagnosis of the economy in view of appraising the situation, an incontrovertible conclusion; ‘something was diagnosed and executed wrongly’ emerges. Indeed the seeming moot nature of the debate is somewhat misplaced as the ‘endgame’ is really to provide solutions to arrest the situation; solutions which are not sensitive to the very definition and essence that so called technocrats from politics, economics and academia appear to portray.

The recovery of the global economy in the 1930’s, the dictum of development economics for the global south in the mid-sixties, the challenges of Argentina and other Latin American economies in the early eighties, the Asian financial crises in 1997, and the global financial meltdown triggered by sub-prime mortgage in 2008, are but historical economic antecedents which underscore the impractical distinction between a crisis and challenge, shifting the discourse to the recovery strategies. Consequently, without conceding the fact that the definition of the severity of an economic problem (crises/mere challenge), premium should rather be placed on the recovery strategies to mitigate its negative effect.

The recovery strategies during any economic crises/challenge are a function of the soundness of existing economic policies, and that which is designed to obviate the crises, most of which are designed and implemented by the political class as a ‘knee jerk’ reaction rather than a carefully thought out strategy to turn the ‘economic trough’ around. The focus of this paper is to briefly provide strategies for formulating economic policy in times when the economy is in a trough (crises / challenge).

It aims to provide a checklist of how policy makers can test the pulse of the economy, and develop alternative solutions, selecting the most appropriate solutions which will deliver maximum benefits at a minimum cost. Following which the managers of the economy will have a much harder task of keeping the economy at optimal levels (a much harder task compared to economic recovery).

The recent developments in the Ghanaian economy will be resorted to during the analysis and discussion on diagnostic tools and solutions. The Contractionary Phase through the ‘trough’ of an Economy---Case of Ghana.

The expansionary phase in the business cycle of an economy is generally characterized by a consistent and appreciable growth in real GDP of an economy associated with increasing inflation and a decline in unemployment. Any economy which finds itself in this phase of the business cycle should be wary of a possible period of contraction, where growth decelerates, inflation declines, and unemployment begins to increase.

Without the appropriate mitigating economic strategies, this cycle could further evolve into a ‘trough’- recessionary period, where the economy is not growing, inflation and unemployment could be high compared to their most recent trends. Intuitively no economy desirably will operate within the contractionary and trough phases, due to the significant hardship this brings to the participants within the economy as a result of the loss of economic and social wealth.

The strategies for maintaining the economy at ‘full employment’ are much more difficult than those for engineering an economic turnaround from a trough. In a trough, the economy is expected ‘soon’ turn around theoretically. This turnaround is not a natural occurrence of economic events. It is primarily driven the participants in the economy making ‘adjustments’ to the negative effects of the inflation, unemployment, interest rates, and low productivity.

These economic adjustments and the speed with which the turnaround is engineered is contextualized within policy signals of the markets and / regulation. Thus, it is the primary responsibility of policy, to send signals that engineer the economic turn-around from both private and public economic activities; failure of which will result in a prolonged ‘trough’, bridging of the gap between potential and actual output of the economy. The real effects are quite ‘telling’ on the economy.

Given the above for framework, the next session takes a critical look at the Ghanaian economy over the past five years; a period within which it is believed the economy has peaked and currently rests in a trough.

Consequently, the paper aims to point out possible strategies that could / should be adopted by government through its policy formulation and implementation process, to send positive signals aimed at turning the crises around; policy formulation in times of crises.

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