According to the practice of economic policy, an expansionary fiscal policy has power to bring the economy out of recession. This has not been always the case! Indeed fiscal policy financed by money creation and debt accumulation of the state can slow economic growth. Until then, I had thought that this was only possible with the economies of developed countries said. I remember when I was taking my economics classes, this topic was very hard to understand because at that times it was about the French economy.
This phenomenon is known under the term “Crowding-Out”. How does the “Crowding-Out” threat economy?
Take the example of the Ghanaian economy.
- Fiscal policy has been financed by an accumulation of public debt,
- Supported by a suspicious increase in money creation. This allowed a rise in inflation. The increase in public debt has been at the expense of the private sector. So this has led to a rise in interest rates (the Crowding-out effect).
The combined effects of 1) and 2) and other external shocks have led to an economic slowdown in Ghana.
HOW TO REMEDY THIS SITUATION
- The funding of public expenditure through an increase in public debt must be reduced
- inflation should be put under control
- the financial market should be able to stimulate the ” Crowding-In” in other words, to allow the private sector to be active on the investment market.
© Mounou Konan economic Global Consulting