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Finance Ministry dismisses Bawumia's assessment of the economy as inaccurate


Accra, May 4, GNA – The Ministry of Finance and Economic Planning on Friday dismissed the assessment of the economy by Dr Mahamudu Bawumia, running mate of the New Patriotic Party (NPP) presidential candidate, Nana Akufo-Addo, describing it as containing “inaccuracies and distortions”.

A statement issued on behalf of the Ministry by Mr Abdul Hakim Ahmed, Media Liaison Officer, said Dr Bawumia, who was Deputy Governor of the Bank of Ghana, gave credit to the NPP government (2001-2009) when it did not deserve it and mixed the rebased GDP series with that of the old series thereby drawing “invalid conclusions”.

The nine-page rejoinder also criticised him for questioning the credibility and independence of the Ghana Statistical Service (GSS), drawing conclusions on joblessness without reference to any employment survey, using selective statistics and demonstrating his lack of understanding of the computation of the inflation.

“It is curious to observe that Dr. Bawumia's paper, which is being touted as an academic exercise, violated basic principles of academic presentations as it failed to provide relevant sources for all the data he churned out.”

It added: “Despite deliberate efforts to downplay the achievements of H.E. President John Evans Atta Mills and his government, there has been ample commendation for what has been achieved for this country since January 2009 from objective observers both home and abroad. The President and his team will remain committed to the Better Ghana Agenda.”

The following is the full text of the statement.
The attention of the Ministry of Finance has been drawn to a presentation made by Dr. Mahamudu Bawumia, the Vice Presidential Candidate of the NPP on the state of the economy on the 2nd of May, 2012.

Among many other inaccuracies and distortions; Dr. Bawumiah claimed that the NPP government implemented a large number of policy reforms and structural interventions between 2001 and 2008. He strangely asserted that the NPP Government constructed a stadium at Cape Coast when this does not exist. Similarly he claimed the NPP built universities when the facts show that the NPP did not establish a single university. Additionally, Dr. Bawumia strangely takes credit for the Single Spine Pay Policy which the NPP did not implement. The LEAP and Millennium Challenge Account cannot also be presented as NPP interventions. The World Bank and the US Government respectively would not be enthused by such misrepresentation.

Another major weakness in Dr. Bawumia's analysis is that he mixes the rebased GDP series with that of the old series thereby drawing invalid conclusions. For example,

The statement that the growth rate of the economy has increased from 3.7% to 8.4% from 2000 to 2008 is misleading as the 3.7% is based on the old GDP series (1993=100) and the 8.4% is based on the rebased GDP series (2006=100).

That the economy expanded six fold between 2000 and 2008 is not factually correct. This is because the GDP of 16,496 million US dollars (old series) in 2008 is only a multiple of 3.3 of the GDP of 4,983 million US dollars (old series) in 2000.

The growth rates of 7.4%, 15.1% and 8% for Agriculture, Industry, and Services sectors respectively for 2008 based on the new series does not tell the story. However, in 2007, the Agriculture Sector grew by negative 1.7%. In addition the Industry Sector which grew by 15.1% in 2008 was mainly due to the growth in the electricity subsector of 19.4%. This was up from a negative growth of 17.2% in 2007. Such deliberate concealment of the facts undermines the integrity of Dr Bawumia, if any.

Dr. Bawumiah rather strangely disputes the fiscal deficit of 14.5% of GDP (old series) the NPP government left behind in 2008. It should be noted that the fiscal deficit of 6.5% of GDP he quoted for 2008 is based on the new series and includes divestiture receipts. If divestiture receipts are excluded, the fiscal deficit for 2008 was 8.5% of GDP (new series) which is equivalent to the 14.5% (old series) quoted in the 2009 budget.

Dr. Bawumiah also states that the debt to GDP ratio reduced from 189% in 2000 to 29% by 2008. The 189% debt to GDP ratio is based on the old series whilst the 29% ratio is based on the new series. The statistics, however, show that the debt to GDP ratio in 2000 is 181% (old series) and 49% in 2008 (old series). Again, it is intellectually dishonest to deliberately confuse the ratios based on the old and new series.

Dr. Bawumiah questions the credibility and independence of the Ghana Statistical Service (GSS) in producing credible inflation figures. However, he gives credit to the NPP government for “transforming the economy from a low HIPC economy to a lower middle income economy in 8 years”. One may ask about the data he used in assessing Ghana's lower middle income status: answer? The same GSS data. When the data suits him, he uses it but when it doesn't he condemns it.

Dr. Bawumiah paints the picture as though Ghana should fully benefit from the oil price increase of 13% between 2009 and 2011 but forgets that the country started exporting oil only in 2011. Indeed the entire oil revenue is not available to the country as the country's carried and participating interest in the Jubilee Fields is limited to only 13.5%. For example in 2011 the state only realized revenue of 444 million US dollars equivalent to 1% of GDP.

Dr. Bawumia prides his administration for prudent management of the economy in spite of high oil prices of 147 US dollars per barrel in 2008. This is very misleading as the average oil price in 2008 was 102 US dollars per barrel compared to a more difficult situation today when Government is currently paying an average of 112 US dollars per barrel for oil imports.

On the real sector, Dr. Bawumiah uses selective statistics to describe the performance of the agriculture sector. He claims that rather than expanding, the agriculture Sector saw steady decline from growth rates of 7.4% in 2008 to 0.8% by 2011. It should be pointed out that the agriculture Sector's growth was negative 1.7% in 2007, a situation which never occurred during 2009-2011 period. In 2007, all the subsectors in agriculture showed negative growth rates except Livestock. Crops, Cocoa, Forestry & Logging and Fishing grew by negative 1.4%, 8.2%, 4.1%, and 7.2% respectively. One wonders why Dr. Bawumiah conveniently concealed these facts. He also excludes cocoa in his analysis of the crop subsector for reasons best known to him.

The fishing sub-sector has for years witnessed fluctuations. For example in 2007, the sub-sector posted a negative growth of 7.2% but rebounded to 17.4% in 2008 before contracting again to 5.7% in 2009.

The analysis of the industrial sector performance also left out the negative growth of the Electricity sub-sector in 2007 by 17.2% which was much worse than the contraction of 0.8% in 2011.

He also alleges that there is no policy framework targeted at supporting the private sector to become competitive globally. Is Dr. Bawumiah not aware of the Private Sector Development Strategy II, which is currently being implemented to support private sector competitiveness? In fact in addition to creating the enabling environment for the private sector, government has supported the sector directly through such means as the provision of government guarantees and direct borrowing for some private sector operators. Similarly, government has formulated a PPP policy to enable the private sector partner the public sector to engage in mutually beneficial economic activities. If this is not private sector support then what is it?

On unemployment, Dr. Bawumiah asserts that the growth of the economy is jobless without reference to any employment survey. One wonders the source of his evidence for his claim of jobless growth of the economy. This is unbecoming of a person touted by the NPP as an economic guru.

Dr. Bawumia amply demonstrated his lack of understanding of the computation of the inflation. He compares the price of six selected items in three years to make a case that the increases in those prices are not consistent with single-digit inflation figures. The calculation of inflation as exhibited in the table on page 16 of his speech violates any inflation formula. Inflation is calculated as a monthly change, point-to-point (year-on-year), and annual average by the Ghana Statistical Service. None of these inflation rates mentioned above conforms to the calculations in the table on page 16. Nowhere in the world is inflation calculated the way Dr. Bawumiah calculated it. The argument presented in that table constitutes what is usually called the “rate of change fallacy” or the "Politicians Error". The rate of change fallacy occurs when comparing rates of change in two numbers that start out at different levels. What Dr. Bawumiah calculated is a cumulative price change and not inflation. What any first year student of Economics would do would be to collect the prices of those items in April 2011 and compare them with that of April 2012 and not December 2008. While dabbling in this intellectual dishonesty, Dr Bawumia failed to explain to the people of Ghana that the price increases he was lamenting pale into insignificance when set against astronomical increases in prices of consumer items between 2001 and 2008 under his NPP government. The table below illustrates this point.

Comparative Consumer Price Analysis: 2000-2008

Selected Items
'00 – '08
Gallon of Kerosene
Gallon of Petrol
Bundle of Roofing Sheets
Bag of Cement
Single Room Rental
Electricity bill per 100 units per month
Sachet of water
Loaf of Bread
Tin of Milo
Tin of Milk
Olonka of Gari
Bag of Maize
Bag of Rice
Ball of Kenkey (no fish)
Fresh coconut
Bar of key Soap
Bottle of Coke
KVIP attendance fee
In addition the basket of goods and services used in measuring inflation by the Ghana Statistical Service is much more representative than the paltry six commodities he selected. Indeed, there are 242 commodities in the basket the GSS uses. There is, therefore, no rational basis for debunking the single digit inflation figures as he did. Dr. Bawumia's analysis of inflation confuses price, value and quantity and refuses to acknowledge that the items talked about have differing weights in the basket.

The data presented on prices of six selected items is quite misleading. Right after the redenomination exercise in July 2007, there was some rounding up of prices in the economy and as a result, prices of items like sachet water moved up from 3Gp to 5Gp. It will be recalled that upon implementation of the redenomination, the pure water price of 2.5Gp was adjusted upwards to 3Gp by the end of 2007. By the end of 2008 when the NPP Government was leaving office the price of sachet water was 5Gp. On that basis the percentage change of 233 quoted for sachet water from end 2008 - April 2012 in his presentation is wrong. Dr. Bawumiah who was then the Deputy Governor when the redenomination exercise was executed and took credit for its implementation failed to recognize the impact of redenomination on prices.

As a former Deputy Governor of the Central Bank, Dr Bawumia ought to have been fully aware from his engagement at the Bank of Ghana that the price of cement does not feature in the calculation of CPI inflation.

The paper also talked about the fact that there was a high probability that monetary policy might be reacting to false inflation numbers and that might have informed the Bank of Ghana to set loose monetary policy. The fact remains that there is only one institution in the country responsible for generating inflation numbers and that is the Ghana Statistical Service. This is the only inflation numbers available to any policy maker engaged in policy. If Dr Bawumia feels that inflation in the country is of another dimension, triple digit as he suggests, he is free to present it for an assessment of his methodology for calculating such numbers.

He rubbishes the achievement of single digit inflation and bases his doubts on single-digit inflation on the alleged inconsistency of the inflation with economic fundamentals such as interest rates and exchange rates. He failed to realize that the economy of Ghana like any developing country has market imperfections and may not exhibit a theoretical relationship between inflation, exchange rate, and interest rate as he expects. In addition, historical data shows that the current correlation among inflation, exchange rate, and interest rates is not peculiar to the period 2009-2011 but also 2000-2008.

Dr. Bawumia's interest rate analysis compares development in an 8 year period with a three year period. What the analysis failed to talk about was the inertia in rates that had built up following the macroeconomic imbalances that characterised the economy in 2008. After observing interest rates decline to 27 percent within the 8 years from 2001 to 2008, the rates increased to 33 percent in 2009 due to the fiscal slippages and macroeconomic imbalances of 2008. Since then lending rates have declined 800 basis points to 26 percent. Thus, Dr. Bawumia's assertion that interest rates have declined by 1 percent is a misrepresentation of the facts. In line with the declining trend in inflation, the rate on the 91-day Treasury bill instrument also declined significantly from 25 percent in December 2008 to 10.3 percent in December 2011. In line with the increase in the monetary policy rate in 2012, the rates had risen to 12 percent as at March 2012. Similarly, the interbank lending rates, the rates at which the banks lend to themselves, have also declined from 19 percent to 11 percent.

The Exchange rate has depreciated by about 11 percent since the beginning of the year and the impact has not been fully passed on to inflation. Studies conducted by Dr Bawumia and his colleagues whilst he was at the Bank of Ghana showed that the pass through of exchange rate depreciation to inflation is about 0.3 percent. Per his analysis, the 11 percent should be adding an extra 3 percent to inflation. In that same study he seems to suggest that the pass through could take as long as 6 months. The question that we must be asking is that why is Dr. Bawumia forcing this pass-through at this stage when he himself attests to the fact that the maximum lag impact is 6-months? One must also not forget that the economy is undergoing transformation all the time and the way the economy responds to such mild shocks might be changing. The maximum lag impact could be getting longer at this stage. It was also highly irresponsible on Dr. Bawumia's part to have engaged in wild speculation that the market already expects a further depreciation of the cedi to reach GH¢2 to USD1 soon.

On fiscal developments and public debt, Dr. Bawumia argues as though government borrows without due cognizance to debt sustainability. The borrowing policy of Government is premised on debt sustainability. The main issue about borrowing is not the amount of money borrowed but what the money is used for and whether the borrowed amount can be serviced sustainably. Our debt indicators clearly show that as at the end of 2011, our total debt to GDP ratio stood at 40.35% which is significantly below the debt threshold of 60% for lower middle income countries. In addition Debt Sustainability Analysis (DSA) undertaken by the World Bank and the Ministry of Finance and Economic Planning in 2011 showed that Ghana's debt is sustainable.

Dr. Bawumiah should also note that if the quantum of money borrowed is used on productive ventures, the benefit of the loan would far outweigh the cost. In fact a sizeable number of the projects which are financed by the loan contracted are self-financing. For example, the 850 million US dollars out of the 3billion US dollars Chinese loan facility would be used for the provision of gas infrastructure for the production of gas.

On corruption, Dr. Bawumia claims that corruption in Ghana is on the increase and references the Corruption Perception Index published by Transparency International without quoting any figures. From 2002 to date, per the corruption index statistics by the Transparency International, Ghana achieved the best performance in 2010 when it recorded an index of 4.1. In 2011 the index dropped to 3.9. Dr. Bawumiah should know that our worst performance in 2011 happens to be the NPP's best performance achieved in 2008. Dr. Bawumia also claims that there is increasing resort to single-source procurement which compromises the transparency of the procurement process. The data from the National Procurement Authority puts the percentage of single-source procurement at 8.85% in 2010 which is not significantly different from the 8.58% recorded in 2007 when Dr. Bawumia's Party was in power.

Dr. Bawumiah also claims that fiscal policy is more expansionary than it appears. In 2008, Dr. Bawumia's government left a fiscal deficit (excluding divestiture receipts) of 8.5% of GDP (new series) and by end 2011 the NDC government had reduced the deficit to a low of 4% of GDP. Is this what Dr. Bawumia refers to as expansionary?

Gross International Reserves (GIR) which was at 2.8 billion US dollars at the end of 2007 declined significantly to 2.0 billion US dollars at the end of 2008. During that period, import cover of reserves declined to 2.1 months. Under prudent management, the country's gross international reserves have moved up consistently to 4.7 billion US dollars (equivalent to 3.7 months of import cover). At the end of December 2011, GIR stood at 5.4 billion US dollars, the highest ever in the history of the country. Due to the phenomenal growth in imports of goods and services to support the 14.4 percent growth in GDP, this provided 3.2 months of import cover and this is higher that the import cover of below 2.5 that was recorded for the period 2006-2008. In March 2012, the import cover of reserves is 2.6, and not 2.4 as stated by Dr. Bawumia. GIR also stands at 4.6 billion US dollars, in spite of the enormous support that have been provided to cover high import growth in 2012.

We wish to set the records straight on why lending rates were relatively low prior to 2009. In cataloguing their achievements (refer to bullet point 29 under Policy Reforms and Interventions) he talks about the abolition of secondary reserve requirements as one of the prime achievements and this was done in 2006. The fact of the matter is that the abolition of the secondary reserves in 2006 resulted in the banks being awash with excess funds. Simple economics teaches us that when there is excess supply of funds, the price falls. The price of loans fell in the event. The fact that proper economic management resulted in banks chasing customers for loans is incorrect and the facts must be made clear to all. Also the banking dynamics in the past two years have changed considerably. With the coming on stream of the oil sector, numerous investment opportunities have emerged and banks now have several areas to invest and therefore are not rushing to lend to hitherto unproductive areas which will result in the accumulation of Non-Performing Loans (NPL).

In order to reinforce earlier monetary policy actions, the Central Bank announced new measures which were aimed at ensuring stability in the foreign exchange market. These measures include requiring all banks to keep a mandatory 9 percent cedi cover for their domestic and foreign currency deposits in order to free up all foreign deposits held by them for their transactions purposes. The Bank of Ghana has also reintroduced the BOG treasury bills in tenors of 30-days, 60-days and 270-days with to enhance the mop-up of excess liquidity.

Contrary to Dr. Bawumia's assertion that the NHIS is in a state of disrepair and at the verge of collapse, it is refreshing to put on record that the NHIS is not in a state of disrepair and it is also not at the verge of collapse. Previously, there was high level of indebtedness and delays in claims payment to healthcare providers. Indeed, as at the beginning of 2009, the NHIS was heavily indebted to healthcare providers by an average of seven months' claims. Currently, through combined initiatives such as the establishment of an ultra-modern claims processing centre, improved commitment by government to release NHIS funds on time and improved financial management, claims processing and payments to healthcare providers have reduced to a little over two months. In fact, the subscriber base which stood at 14 million in 2008 now stands at 22.4 million as at the end of 2011.

The Ministry condemns in the strongest possible terms, Dr. Bawumia's penchant for discrediting state institutions including those he has been privileged to work with. The Ghana Statistical Service and the Bank of Ghana do not deserve this reward from a former member of staff and somebody who seeks the mandate of Ghanaians to supervise these institutions. Such disregard for institutions whose figures he selectively agrees with when they suit him must not be countenanced.

It is curious to observe that Dr. Bawumia's paper which is being touted as an academic exercise violated basic principles of academic presentations as it failed to provide relevant sources for all the data he churned out.

Despite deliberate efforts to downplay the achievements of H.E. President John Evans Atta Mills and his government, there has been ample commendation for what has been achieved for this country since January 2009 from objective observers both home and abroad. The President and his team will remain committed to the Better Ghana Agenda.