For the umpteenth time, Dr. Mahamudu Bawumia, former Deputy Governor of the Bank of Ghana and the 2012 Vice Presidential Candidate of the New Patriotic Party (NPP), has been vindicated as an astute economist as his words and analysis of the Ghanaian economy, days after his restoring the cedi lecture, has been endorsed widely by reputable financial institutions who have virtually come to the same conclusion
Dr. Bawumia came to but which a plethora of NDC propagandists with little knowledge about the field of economics hounded him.
Dr. Bawumia, last week Tuesday, gave a lecture at the Central University College titled: “Restoring the Value of the Cedi” during which he made an impeccable analysis of the continuous depreciation of the Ghana cedi and proved with empirical figures and data that he cause of the cedi depreciation boils down to the weak fundamentals of the Ghanaian economy today including the high fiscal deficit, rising inflation, the unprecedented increase in borrowing and the public debt, the low net international reserves, declining GDP growth, large and increasing central bank financing of the government (printing of money), government inability to meet statutory payments and the loss of investor confidence in the economy.
But Dr. Bawumia hardly finished this much praised lecture when government and NDC propagandists pounced on him to rubbish the lecture without giving any sound basis for their critique of the lecture.
From advisor to the President, Nii Moi Thompson through Fiifi Kwetey, a Minister of State through Deputy Ministers of Information, Mutala Mohammed and Felix Ofosu Kwakye to Allotey Jacobs, Hannah Bisiw amongst others, they all set to devour Dr. Bawumia.
However, with the dust barely settled, a number of reputable international institutions have all come out in their numbers to virtually endorse the position of Dr. Bawumia.
The first institution to do this was the International Monetary Fund (IMF), whose Country Director, Samir Jahjah, in an interview with citifimonline.com, an internet news portal, stated that the fund was of the view and had recommended that government “review the measures in light of the reaction of the business community and investors”.
Dr. Bawumia in his lecture called for a reversal in the foreign exchange measures introduced by the Bank of Ghana since it was based on the wrong notion that dollarization was the cause of the cedi depreciation and noted that the measures would only hurt businesses and cause a loss of confidence in the banking sector but was attacked and called names.
The next institution to also endorse the position of the renowned Ghanaian economist was International credit ratings agency, Fitch, which lowered its outlook on Ghana’s debt to negative from stable saying the government’s policy credibility is at risk from above-target budget deficits for the past two years.
In a statement released by the Firm in London on Friday, the reputable agency stated that “Ghana’s fiscal position has worsened further over the past six months. Revenue underperformance and intractable expenditure on wages and interest led to a budget deficit of 10.8% of GDP in 2013, wider than the government’s target of 9%. This, combined with a sharp 20% depreciation of the exchange rate, caused government debt to rise to 61.8% of GDP in 2013 from 48.9% in 2012.
Fitch’s public debt figure differs from the authorities’’ figure of 52.8% of GDP, due to Fitch’s use of exchange rate data provided by Bloomberg to convert end-year external debt into domestic currency, in contrast to the authorities’ use of the Bank of Ghana transaction rate. Policy credibility has been significantly weakened, following two years of double-digit and larger-than-expected budget deficits.”
The position of Fitch is the same as the position espoused by Dr. Bawumia in his lecture in which he identified the double digit fiscal deficits recorded in two consecutive years as one of the key factors which has led to the current economic difficulties the country faces and the rapid depreciation of the cedi.
Next in line, after Fitch, was Standard Chartered Bank, one of the largest and most respected Banks globally.
The Bank in a statement issued on Ghana’s economy predicted great ‘financial distress’ in the short term for Ghana citing chiefly, the debt burden on the country. The statement among others stated
“In 2013, debt service payments were approximately 40% higher than budgeted (GH¢2.4 bn); domestic interest payments were 47.2% higher than budget targets. Domestic interest payments grew 140% in 2013, reflecting higher levels of borrowing in 2012 and the accumulation of a larger debt stock. Given the extent of overruns in debt service payments, market confidence is rapidly receding. Initial signs suggest that pressure is likely to build further in 2014, with debt service costs becoming even more problematic.
Given its worsening debt profile, Ghana’s revenue-generating efforts will receive less investor attention. This is unfortunate, as the rise in Ghana’s revenue-to-GDP ratio since the 2010 GDP rebasing has been impressive. Revenue collection was an estimated 18% of GDP in 2013, up from only 13% in 2009. But spending increased much faster, clouding the improvement.”
This statement by the international banker endorses the points Dr. Bawumia made in his lecture in which he affirmed that the high rate of, seen in the last five years during which the public debt has increased by 426%, had began to choke the economy as interest payments now took up close to 40% of total government revenues.
Interestingly, when Dr. Bawumia made the recommendation for government to cut down on borrowing and to anchor its policies on a debt reduction plan, the President responded by saying that since he did not borrow to eat or drink, he will continue to borrow more. It remains to be seen, if the President will respond to the similar comments made by Standard Chartered.
Standard Chartered in their statement also stated how problematic the Bank of Ghana measures were and called for a reversal in the measures.
“Measures to deal with FX (foreign exchange) market pressure have not worked, and have done little to restore confidence. The market shortage of FX must be eliminated to encourage new investor participation in local markets. The easiest way to do this would be to allow the market to find its own clearing levels. The rapid rise in yields on short-term debt, which now threatens Ghana’s debt sustainability, could be averted”, the statement said.
This is not the first time Dr. Bawumia’s economic claims have become validated by such major inter-national institutions or become prophetic. It will be recalled that after analyzing the much touted single digit inflation and showing that the figures could be wrong, he received similar attacks from propagandists of the NDC but barely two weeks later, the IMF came out to call on the Ghana Statistical Service (GSS) to review its inflation basket; a recommendation to the GSS duly followed.
Dr. Bawumia it will be recalled predicated the current rapid depreciation of the cedi and the economic difficulties Ghana will face as far back as 2012 and also in 2013 but all his predications and recommendations were met with sharp tongues and insults.
It remains to be seen, if for once, the government will swallow its pride and listen to the renowned economist who has had stints with among others the IMF and the African Development Bank.