Critical News, 12th October 2014: IMF’s 71% Is On Point

A Deputy Director of Fiscal Affairs Department at the IMF, Sanjeev Gupta countered a Government statistic and declared us HIPC in one single response to a questioner and for a few brief days until the IMF chickened out and did some damage control we were back to HIPC, with a debt to GDP ratio pitched at 71%. Government had calculated its figure at 55%.

Now the program sensitive bureaucrats at the IMF have placed the figure at 56% and rephrased Gupta's glib remark as their estimate by the end of 2015.

This controversy has mega spine implications for the people at the IMF. Without providing numbers to show how he arrived at his 71% ratio, I kind of accepted the figure, based on available statistics and the state of events in the country.

I do however think it is time to get clear reference points when we place these numbers in the public domain, especially when they can be alarming and even cataclysmic.

There are only two figures involved in this calculation and the denominator for GDP, lies with the Ghana Statistical Service (GSS).

The nominator however, lies with the Central Bank, the Ministry of Finance (MOFEP) and the Controller and Accountant General's (CAGD) offices.

Additional figures to complete the debt burden can be referenced from the CAGD's published reports for 2013 and after.

You should read the Finance Minister's mid-year review of the budget statement and economic policy presented to Parliament on 16th July 2014. He based his report on figures as at May 2014.

On page 36, he calculates debt to GDP ratio as 54.8%. So that is that, and that explains the 55% figure as referred.

But, he omits a few line items from the estimation of total liabilities (amounts owed). There are other liabilities to suppliers and contractors, withholding taxes and outstanding PAYE. He also omits payments due to statutory funds. These figures are disclosed by the CAGD and add up to ghc4,458 million at end May 2014.

It is important to note that the comparable figures for domestic and external debt differ between the Ministry of Finance (ghc62,861 million) and the CAGD (ghc50,837 million). The difference is primarily exchange rate, which the CAGD did not factor into its statements.

There are exchange rate gains and losses in both domestic and external debt, but when converted to cedis the MOFEP calculated debt adds up to ghc62,861 million.

To get a more accurate figure, we must add the other liabilities mentioned above. We must also guesstimate a figure for the State Owned Enterprises whose statements are not available but debt is guaranteed by Government, and add debt outstanding at District, Municipal and Metropolitan assemblies, which GIFMIS is meant to flush. But we don't know these numbers.

With this insight, the total debt can be stated as ghc67,319 million (62,861+4,458).

Lastly, there is an accounting principle that guides us how to estimate outstanding liabilities based on what we call an accruals concept rather than purely on cash only records. This figure is lost, totally unavailable with the present accounting system we have in place.

So now we need to work out the GDP figure. The last estimation of a full year GDP from the Ghana Statistical Service is available for December 2013. The GSS puts the GDP for 2013 at ghc93,461 million.

We can allow for some growth between 2013 to date, but it is not likely, because we have heard consistently how 2013 was bad for economic growth because of the election petition and 2014 forecasts have been revised because of a downturn in economic activity.

But let's use the IMF's end of year forecast of 4.5% or MOFEP's 7.1%.

If GDP grows 7.1% we will end the 2014 year at ghc100,097 million. This makes the debt to GDP ratio 67.3%. If we assume growth to be only 4.5%, the 2014 year will end at ghc97,667 million. Debt to GDP is now 68.9%.

And we have not considered the most recent sovereign debt and the cocoa loan, which we all know have been contracted including the recent $800 million debt approved by Parliament.

So why is the IMF running away? If they have done the similar exercise, mine is a back of the envelope, they have more detail, and they should have the courage of conviction and stand their ground.

This pandering to Government in order to maintain their program and status within continental boundaries does not help the Government and does the citizens of Ghana a bigger disservice.

Gupta's 71% debt to GDP ratio is about right and could even be higher if you factor in all the elements surrounding this simple calculation.