The running mate to the presidential candidate of the New Patriotic Party (NPP) in the 2012 elections, Dr Mahamudu Bawumia, has cautioned that the government will be forced to go to the International Monetary Fund (IMF) for a bail-out at the end of the year if it fails to take immediate steps to correct the weak economic fundamentals facing the country. He mentioned declining economic growth, increasing inflation and central bank financing, a massive rise in public debt stock, decreasing net foreign reserves and the inability of the government to pay arrears to contractors as some of the challenges facing Ghana’s economy. Delivering a lecture on Ghana’s economy at the Central University College’s Distinguished Speaker series yesterday, Dr Bawumia likened the country’s economy to a ‘bone shaker’ vehicle without shock absorbers. He said Ghana would be headed back to HIPC if urgent steps were not taken, but warned that the difference was that “this time the HIPC debt relief will not be available”. Depreciation of the cedi Dr Bawumia said the cedi had been depreciating since the 1960s and indicated that in 2013 the currency depreciated by 13.5 per cent. However, he said in the first quarter of 2014, it depreciated by over 14 per cent, adding that that was worrying to businessmen. He said some people had pontificated that the Single Spine Pay Policy (SSPP) and the dollarisation of the economy were the causes of the poor economic performance. He argued that the economic challenges were as a result of weak economic fundamentals and policy choices of the government. For instance, he said, it was a bad policy choice for the government to pay a judgement debt of about GH¢600 million and also pay GH¢1 billion to GYEEDA. Net reserve Dr Bawumia said Ghana’s gross foreign exchange reserve increased from GH¢2 billion in 2008 to GH¢5.6 billion in 2013. However, he said, the net reserve declined from GH¢4.4 billion in 2011 to GH¢1.5 billion in 2014. That amount, he said, was only enough to cover for two weeks of importation, which he said was the lowest ever. Fiscal development The former Deputy Governor of the Bank of Ghana said arrears in statutory payments and other challenges had been the result of major increases in government expenditure relative to revenue. For instance, he said, there had been a 17.7 per cent growth in revenue in 2012, while the expenditure for the same period had been 20.1 to 26 per cent of GDP. He indicated that the bulk of the increase in government expenditure had been in recurrent expenditure and not in investment expenditure. Dr Bawumia said Ghana had recorded a double digit fiscal deficit for two years and indicated that the country was expected to record another deficit at the end of this year, resulting in three years’ fiscal deficit in a roll. Public debt On the public debt stock, Dr Bawumia said Ghana was declared HIPC in 2001 because it was not able to service its debt. After Ghana had adopted HIPC initiative, its public debt in 2008 was GH¢9.5 billion, which was 33 per cent of GDP. In a period of five years, he said, Ghanas public debt now stood at $49.9 billion, meaning about US$20 billion was borrowed over the last five years but nothing substantive could be pointed to as investment on the amount borrowed. Alternative views Dr Bawumia underscored the need for alternative views to be examined, adding, “We need to come to a consensus. The different explanations must not be ad hoc.” He blamed the nose-dive of the Ghanaian currency on our rising domestic and external debt and added that the central bank’s role in financing domestic debt was counter-productive. He decried the absence of punitive measures against the Bank of Ghana if it exceeded its financing mandate. According to him, the real GDP growth of the economy had declined 15 per cent to seven per cent between 2008 and 2013 and stated that the decline in real GDP growth was manifesting in the agricultural and manufacturing sectors of the economy. He said the declining growth in the economy meant the economy was not expanding and wondered why there was not an admission by the government that the economy was in crisis. Dr Bawumia urged the government to institute a biometric payment system to weed out ghost names from the public payroll system. Recommendations He said it was high time the government admitted that the economy was in crisis and stopped the denial of what was obvious. Suggesting solutions to the predicament of the national economy, he asked the government to resist the temptation to make new promises which could undermine the economic fundamentals and lead to the loss of confidence in the economy. Dr Bawumia also suggested the need for the promulgation of a fiscal responsibility act along the lines of the Financial Administration Act of the United States of America that would require the government to commit itself to fiscal discipline and provide for transparency and impose sanctions. To enhance political accountability, he called for the establishment of independent political institutions which could hold the government accountable, as pertains in some developed countries. He also hammered on the need to amend the Bank of Ghana Act to introduce more accountability to punish breaches and enhance transparency. He suggested to the government to shelve its plans to further borrow from the international market but rather expand the tax net and ensure financial discipline to stabilise the cedi. Dr Bawumia proposed that some of the measures initiated by the Bank of Ghana to contain the declining value of the cedi should be reviewed.
Posted on: Wed, 26 Mar 2014 12:00:51 +0000
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