The Institute of Economic Affairs (IEA) on Tuesday stated that real Gross Domestic Product (GDP) for 2007 fiscal year dropped to 6.2 per cent from the 6.4 per cent recorded in 2006.
"The 6.2 per cent economic growth rate recorded for 2007 was also slightly below the government's target of 6.5 per cent documented in the government budget statement for 2007," IEA stated in its annual 2007 Economic Review and Outlook documents made available to the Ghana News Agency in Accra.
The Economic Review presents an overview of the performance of the economy of Ghana during the calendar year 2007 and outlook for 2008 and beyond based on provisional data released by the Ghana Statistical Service.
The IEA report attributed the economic decline to a combination of factors, which included the nation-wide electricity energy rationing that ended at the end of September 2007 and increases in the world market prices of crude oil.
The IEA 2007 Economic Review and Outlook Survey was conducted by a team of economist including, Dr Kwabena Asomanin Anaman, IEA Head of Economic Centre and Director of Research; Professor Alhassan Wayo Seini, IEA Senior Fellow; Prof John Asafu-Adjaye, IEA Senior Fellow and Mrs. Charity Osei-Amponsah, IEA Research Assistant.
The rest are Dr. Daniel Bruce Sarpong, Senior Lecturer and Head, Department of Agricultural Economics and Agribusiness, University of Ghana; Dr. Kofi Marfo Mrs Abigail Abandah-Sam; Mr Matthew Armah and Mr Martin Esan Benjamin, all Seniors Executive Officers of Millennium Development Authority (MiDA), Accra.
The Report said the 6.2 per cent marginal growth in 2007 was largely achieved on the back of the services sector, the construction and mining industries.
The provisional fiscal outturn in 2007 showed that the total government expenditure was 5,701.5 million Ghana cedis as compared to total revenue of 4,508.2 million Ghana cedis.
The government budget deficit for 2007 was 1,193.3 million Ghana cedis, which was about 8.5 per cent of the GDP based on commitments. The overall budget deficit for 2007 including divestiture sales of government assets was 1,132.2 million Ghana cedis equivalent to 8.1 per cent of GDP.
The IEA Economic Review Document said the deficit was higher than the 7.8 per cent recorded in 2006. The deficit figure for 2007 was just over two-and-a- half times the target budget deficit of 3.2 per cent contained in the 2007 government budget statement.
The domestic primary balance deficit was 6.7 per cent of GDP and this was substantially higher than the target 0.6 per cent of GDP set by the government.
Total government domestic revenue as a proportion of GDP increased from 22.3 per cent in 2006 to 25.8 per cent in 2007, which was the highest since 2002.
The total revenue and grants as a share of GDP also increased from 27.8 per cent of GDP in 2006 to 31.8 per cent of GDP in 2007. The total size of grants in 2007 was 857.2 million Ghana cedis, representing about 19 per cent of the total revenue.
In general, fiscal management deteriorated considerably during the 2006-2007 period. The economic growth over the two-year period (averaging 6.3 per cent) was generated partly due to excessive fiscal deficits.
According to IEA the government deficits over the last two years (2006 and 2007) and the high deficit for the first six months of 2008 raise concerns about the sustainability of financing government projects.
On the Agricultural Sector, the IEA Economic Review document noted that growth in the industry was far below the target while there was a decline in the growth of the manufacturing industry continuing the trend over the last decade of shrinkage of the manufacturing industry during a period of continuous economic growth.
In 2007, the agriculture sector grew at a rate of 3.1 per cent lower than the revised growth rate of 4.5 per cent achieved by this sector in 2006. The growth rate of the agriculture sector was also significantly below the government's target of 6.1 per cent contained in the government 2007 budget statement.
Contrary to the IEA figures, the ruling New Patriotic Party (NPP) in its Election 2008 manifesto dubbed: "Moving Ghana Forward; Building a Modern Ghana," said the sector has recorded massive and real growth.
The NPP figures indicate that the agricultural sector's growth rate increased from 2.1 per cent in 2000 to 4.4 per cent in 2002 and 6.5 per cent in 2006.
The IEA Economic Review document also recorded decline in the industrial sector, recording 6.6 per cent from the 9.5 per cent recorded in 2006.
The services sector, however, grew at an annual rate of 10.0 per cent recorded in 2007, much higher than the 6.7 per cent recorded in 2006. In 2007, the services sector became the largest sector of the economy outstripping the agriculture sector of its dominant role.
The relatively weaker performance of the agriculture and industrial sectors (especially the continuously shrinking manufacturing industry) is of some concern as it indicates lower ability of the country to produce essential goods and commodities in the agriculture and industrial sectors for consumption and the sustainable development of the country, the IEA report states.
Under monetary developments, the IEA Economic Review analysis confirmed that money supply growth was the major driver of the inflation in the Ghanaian economy.
The broad money supply, which is the total liquidity in the economy, grew sluggishly at an average monthly rate of 4 per cent from January to December 2007.
The ratio of foreign currency deposits to the broad money supply was about 22 per cent indicating that there was moderate but not strong evidence of "dollarization" during 2007.
However, since 2007 and over the period, April to July 2008, there has been significant increase in the dollarization of the economy coinciding with the depreciation of the Ghana cedi.
The ratio of currency outside banks to broad money supply declined in the early parts of 2007 increasing slightly from May 2007 indicating a slight deterioration in the financial intermediation of the economy.
Reserve money grew at a monthly rate of 7 per cent in 2007. On a year-on-year basis there was a 48 per cent increase over the 2006 amount. This growth could be attributed to the growth in the net financial assets of the Bank of Ghana.
The prime rates were maintained at 12.5 per cent during the most parts of 2007 by the seed to 16.0 per cent in May 2008 and 17.0 per cent in July 2008 to tame surging inflation.