NPP Response to Government on Dr. Bawumia's “State of Our Economy” Lecture
5/7/2012 11:10:34 PM -
Nonetheless, Dr. Bawumia's lecture left the Government's claims of unprecedented achievements and its economic record in tatters and exposed. While such exposure of the true facts relating to the state of the economy has no doubt caused discomfort to and incurred the displeasure of government, the response of the Ministry of Finance is unfortunately unbecoming of such an important state institution. Rather than sticking to the facts, the Ministry of Finance on behalf of Government has misrepresented the facts and continued to obfuscate and mislead rather than dealing with the substantive issues raised by Dr. Bawumia. It is important that we shield our hardworking civil servants from politics because they have to work with all governments.
The following main issues were raised by the Ministry of Finance:
GHANA STATISTICAL SERVICE
Dr. Bawumia categorically stated in his lecture that: “The key question that is on the minds of many Ghanaians is: “Do we really have single-digit inflation in Ghana today?” While I do not want to argue with or question the integrity of our hard working officials at the Ghana Statistical Service who do a good job under very difficult circumstances, and should indeed be resourced (and given more independence) to do the work they do, I will like to state that the available evidence indicates that statistically reported single digit inflation is not consistent with the economic fundamentals and developments in some key economic indicators relating to the cost of living, interest rates and exchange rates. It could be a measurement issue, but the established relationships between inflation and key economic variables appear to have gone missing for now”. (Page 15) This is by no means an attack on the Ghana Statistical service.
Dr. Bawumia is pointing out that what the Statistical Service is capturing or measuring is not being reflected in price developments in our shops and markets and most people in Ghana cannot relate to the talk about single digit inflation when they get to the market.
PRICES AND INFLATION
Dr. Bawumia's lecture went further to note that the developments in prices of some common items, even within the last year (e.g. maize prices in Bolgatanga market which have risen by 60% between 2011 and 2012) appear inconsistent with single digit inflation. With regards to the price changes of selected consumer items presented by Dr. Bawumia, he was careful to note as follows: “I should add that these price changes do not necessarily mean that single digit inflation is not possible. It would depend on what is being measured and over what period.
What we see of price increases for basic commodities in our markets over the last year is that they are increasingly volatile and definitely at rates beyond single digits”. (Page 16) Somehow, the NDC has conveniently forgotten this statement by Dr. Bawumia in their attempt to distort the facts. Dr. Bawumia further points out that: “It is clear that when it comes to established relationships between the cost of living, interest rates and exchange rates, the single digit inflation in Ghana is not consistent with what we expect to see. If single digit inflation is meaningless for cost of living, interest rates, exchange rates, and jobs, what is it for? ......I would however leave the judgement on whether we actually have single digit inflation to Ghanaians who shop in our markets every day.
Nevertheless I think it is time for Ghana to have a truly independent and well-resourced statistical service”. (Page 19) It is therefore clear that the attempt by the Ministry of Finance to use the Ghana Statistical Service (GSS) as a fig leaf to hide from its own embarrassment following Dr. Bawumia's revealing assessment of the true state of the economy is an attempt to court public sympathy by misleading Ghanaians. Dr. Bawumia is calling for more resources and independence of the Statistical Service in the same way that NPP Government granted independence to the Bank of Ghana. Indeed, the very attempt by the Ministry of Finance to defend the GSS only buttresses Dr. Bawumia's call for independence of the GSS. Is the GSS not able to defend itself if it feels under attack? Raising questions about data anomalies is normal.
Were we all not in this country when after questioning our data, the IMF found out that in 2000 the Bank of Ghana deliberately misreported data to the International Monetary Fund for which the country was fined some $38 million dollars? Has the independence granted the Bank of Ghana in 2002 not helped?
REBASING OF GDP AND THE DEFICIT
On the issue of rebasing of Ghana's GDP the NDC government is again disingenuous and has clearly sought to misrepresent the facts. In Dr. Bawumia's lecture he pointed out the misrepresentation of the NDC government of Ghana's deficit numbers between 2008 and 2011. Any look at the NDC Government Budgets of 2009, 2010, 2011, and 2012 (which the Ministry of Finance produced) would see the continued misrepresentation of the facts on the deficit by the NDC government.
In these budgets, the NDC Government continuously misled Ghanaians about the true state of the budget deficit by comparing deficits based on non-rebased figures with deficits based on rebased figures when they had both sets of numbers. How can the Ministry of Finance suddenly want to accuse Dr. Bawumia of doing what he pointed out in his lecture that they were doing? It is clear they either did not listen to or read what Dr. Bawumia wrote or there is a deliberate attempt to mislead the good people of Ghana. In fact, on the fiscal deficit, Dr. Bawumia stated in his lecture as follows: “With regards to government finances, we recall that at the end of 2008, as a result of the global financial crisis the government budget deficit to GDP ratio stood at 6.5% (after the rebasing of GDP) or 11.2% (before the rebasing of GDP).
This outcome was described by the NDC as bad fiscal management. By 2010, with improved external economic conditions, after claiming that the economic fundamentals had been restored, the government budget deficit to GDP ratio stood at 6.5% (after the rebasing of GDP) or 11.7% (before the rebasing of GDP), slightly higher than it was in 2008). So where was the improved fiscal performance? Or as we say in Ghana, did we come or did we go?” (Page 20) ECONOMIC EXPANSION It is not the case that Dr. Bawumia compared apples with oranges as the NDC government was clearly exposed as doing between 2009-2012.
The issue was also raised about the fact that Dr. Bawumia pointed out that the Ghana's economy had expanded from some $5 billion in 2000 to $28.5 billion in 2008 (a six-fold increase). This is a fact. The fact that the figures of GDP from 2006 onwards were rebased does not change this fact. The rebasing took place to correct errors that were present in the data and there is no reason why the correct data should not be used. There was no rebasing between 2000-2005 for example because the figures were presumably adjudged to be correct.
If the GSS believes that the GDP series before 2006 needs to be rebased, then why was the rebasing limited to just 2006 and beyond? We will all welcome such a rebasing if there is a rationale for it but until then we will assume that the data officially reported is correct. Ghana's nominal GDP in US$ terms was some $5 billion in 2000. In 2008 it was $28.5 billion.
Dr. Bawumia 's lecture revealed the alarming rate of the increase in public debt from GHS 9.6 billion to GHS 25.3 billion between 2008 and 2011.
Dr. Bawumia noted that: “The stock of public debt that has been accumulated over the last three years alone is higher than the total stock of public debt accumulated by all other governments since independence through to 2008!” (Page 22) Dr. Bawumia cautioned that but for the rebasing of Ghana's GDP (which did not increase Ghana's foreign exchange reserves) Ghana's debt to GDP would have exceeded the 60% threshold of what is regarded as the threshold for increasingly unsustainable debt. The NDC's response is that this debt has been incurred for investment in productive projects so we should not worry.
Where are these projects all over the country? Would the STX housing project have been one of those productive investments that would have yielded revenues to service the $10 billion debt? The NDC should realize that Ghana and many other countries became HIPC because of this thinking. Were the loans taken during structural adjustment period not for “productive investments”? The European countries that are in trouble now they borrowed more than 100% of their GDP. Why did Ghana then end up as HIPC?
On Corruption Dr. Bawumia notes with regards to judgement debts and overpricing of supplies contracts that: “When monies are paid for no work done, as is the case of some judgment debts, it creates a liquidity overhang (i.e. too much money relative to output), which finds its way into prices and ultimately results in the depreciation of the cedi”. The Ministry of Finance has conveniently ignored the payment of judgements debts at its behest and for no work done and the liquidity overhang that this has created in our economy resulting in pressure on the exchange rate. We would like to hear more from our Ministry of Finance on the issue of the payment of some $400 miilion in judgements debts.
Dr. Bawumia's lecture revealed and explained the alarming exchange rate depreciation we are seeing today. Ghana's cedi is currently Africa's worst performing currency. Again, the Ministry of Finance response ignores this substantive issue and rather seeks to throw dust in the eyes of the good people of Ghana. Dr. Bawumia points out that blaming speculators for the current depreciation of the cedi is the wrong diagnosis: “Unfortunately, rather than tackling the fundamental causes of exchange rate depreciation, there is an attempt to blame speculators for the rapid exchange rate depreciation we are seeing. With all due respect, this is not a good explanation.
Where have the speculators always been? Were the speculators also responsible for the depreciation observed for 1997-2000? Why did the speculators disappear between 2001-2008? Why the speculators are suddenly back in 2012? Unfortunately, a wrong diagnosis of the underlying reason for exchange rate depreciation would result in policy errors that could worsen the rate of depreciation”. For some strange reason the cedi exchange rate seems to depreciate at a faster rate during periods of NDC economic management. Throwing foreign exchange reserves at the problem is also futile. Can the Ministry tell Ghanaians how much of Ghana's Foreign Exchange Reserves have been spent so far to prop up our depreciating currency in 2011 compared to 2007-2008 considering their criticism of the Bank of Ghana at the time?
Overall, the import of Dr. Bawumia's lecture backed by official data is as follows: The period between 2001 and 2008 saw the Ghanaian economy move from low income HIPC status to a lower middle income status in a record time of 8 years! This was underpinned by major structural reforms and policies. Ghana has recently benefited from an almost doubling of cocoa and gold prices and has also seen the become an oil producer. Ghanaians should therefore expect much better. Notwithstanding claims of unprecedented growth since 2009, growth in agric (non-cocoa crops and fishing in particular) and industry sectors are declining, The slowdown in the growth of critical sectors has created a situation of jobless growth Daily reports from the ground on the National Health Insurance Scheme indicate a virtual return to the cash and carry system in some parts of the country.
The education system is also suffering with high school drop-out rates and high failure rates at the BECE, with the number of students achieving pass mark, dropping from 62.16% in 2008 to 46.93% in 2011. The claim of single digit inflation over the last 24 months is practically meaningless as far as the cost of living, bank lending rates, exchange rates and jobs are concerned as Ghanaians continue to see significant increases in their cost of living, high interest rates and a rapidly depreciating exchange rate. There has been no significant fiscal adjustment since 2008.
The rate of accumulation of public debt is alarming and if not properly managed could quickly result in unsustainable debt levels Ghana's gross international reserves are currently not sufficient to cover three months of imports notwithstanding the major improvements in external conditions. It can only cover 2.4 months of imports. The economy cannot be managed with propaganda. The economy has been exposed by Dr, Bawumia as being in a weak position despite all the claims and attempts by the NDC to hoodwink Ghanaians. Dr. Bawumia has woken Ghanaians up to the NDC's mismanagement of the economy and they will be shown the red card come December. It is clear that the only option left for the NDC is to attack Dr. Bawumia's credibility but they have failed miserably and will continue to fail.
As Dr. Bawumia said, “YOU CANNOT MANAGE AN ECONOMY WITH PROPAGANDA”.
NPP Communications Director