The Minority group in Parliament has attributed the fall of the cedi to bad economic management by the John Mahama administration and says in order to address the problem, the country needs to get its macro fundamentals back on track by reducing the huge budget deficit, lower inflation and, above all, avoid over-expenditure.
It said the problem was not just the Bank of Ghana’s (BoG) to fix since it was not merely a monetary conundrum.
At a press conference in Parliament House on Friday, the Minority spokesperson for Finance, Dr Anthony Akoto-Osei said,“As the central bank has asserted,it is required of the Minister of Finance to cut back on the huge deficits. The Bank of Ghana needs a lot of help from the Ministry of Finance”,he stressed.
Dr Akoto-Osei said Ghana’s economy was in real trouble with Ghanaians complaining about the rising cost of living, high unemployment, the total lack of confidence in the economy and the depreciating cedi.
He said it was clear that the government was bereft of workable ideas, and added that there was nothing to suggest that it could fix the economy since, thus far, whatever ideas it had conceived and had put forth had proved incapable of fixing the economy.
He noted that the year 2013 saw the introduction of all manner of taxes, including an unorthodox increase in the VAT rate by 2.5 per cent, the removal of petroleum and utility subsidies and the piling up of huge deficits and debts.
“If Ghanaians thought we had seen the end of the economic quagmire, we were to receive a rude awakening when the cedi started wobbling and staggering like a punch-drunk boxer and depreciating beyond anybody’s wildest imagination,” he said.
What went wrong?
Dr Akoto-Osei said the government of President Mahama refused to listen to good counsel and that even after all the credit-rating agencies had downgraded the country’s credit rating as well as its outlook, the government failed to put its “fiscal house” in order and rather engaged in fruitless arguments with the agencies.
All the fiscal consolidation efforts outlined in the 2013 budget, he said, did not see the light of day and the country ended up with a budget deficit of about 11 per cent of GDP in 2013.
The debt burden, according to him, “ballooned” to $23 billion from the $8 billion the NPP left behind at the end of its regime in 2008.
“The combined effect of uncontrolled borrowing, most of which were not supported by any due diligence, the irresponsible spending, including the unprecedented humongous over-expenditure coupled with high inflation is the lamentable weakening of the cedi to the levels we are seeing now. It is a matter of fiscal indiscipline and economic mismanagement. It is not because of dwarfs, high-rise buildings, or re-denomination,” he said.
“Dollarisation has always been something the economy has lived with since the 1970s. This phenomenon comes alive during periods of economic mismanagement and fiscal indiscipline as we are currently seeing,” he added.
According to him, the depreciation of the cedi was attributable to, among other things, the injection of an excess amount of cedis into the economy relative to production.
“We are paying the price for Woyome, Waterville, Isofoton and other so-called judgement debts, SADA, SUBAH, GYEEDA and so on. Dealing with corruption is, therefore, key to restoring sanity in public finance,” he added.
Central Bank’s response
Dr Akoto-Osei said not only did the BoG delay in its policy response to slow down the fast depreciating currency, but it also outlined measures, some of which were outdated and “business unfriendly.”
Additionally, he said, the Monetary Policy Committee had raised the policy rate by 200 basis points to induce demand in the cedi-denominated assets.
“What prevented the Bank from holding the emergency Monetary Policy Committee earlier when the crisis was unfolding? Why didn’t the bank pump more reserves into the ailing economy in time? What has happened to the ‘unprecedented level of foreign exchange reserves’ the government claimed to have built?” he asked.
He said clearly, there had been a regulatory failure on the part of the BoG and the NDC government and added that the directive that all transactions be conducted in cedis was not new.
“If it had not been enforced in the past, the BoG must take full responsibility and stop passing the buck,” he said.
“Again, it is known that Foreign Currency Accounts (FCA) and Foreign Exchange Accounts (FEA) do not earn interest. Yet, individuals open these accounts and submit their forex to the banking system in good faith. As per the new directives, no cheques or cheque books shall be issued on FCA and FEA.
Simply put, even though customers do not earn interest on such accounts, they cannot also withdraw money or issue cheques if they so wished. The BoG, by this directive, may force foreign currency holders to bank their forex in their homes. This directive might not only be illegal, it also has the potential of discouraging savings in a country where the culture of savings with the banks is still very low and less than 50 per cent of all business transactions pass through the banks,” he said.
Dr Akoto-Osei said the directive by the BoG that cash withdrawals not exceeding $10,000 would be permitted only for travelling purposes and other documented official transactions was reminiscent of exchange controls and added that official restrictions on forex exchanges had never been a viable alternative.
“Little wonder that ambassador-designate, Dr Tony Aidoo, himself the immediate past director in-charge of government’s policy, monitoring and evaluation has called these measures panicky. These measures create disincentives for people to save. Additionally, the measures have the potential of reinforcing parallel currency operations. In other words, the parallel or black marketers may become the big gainers here,” he said.
The BoG’s statement to the effect that foreign exchange for imports shall be in a margin account managed by the bank for thirty days, he said, suggested that all importation must necessarily be completed within 30 days.
“What happens in the case where importers buy from several vendors?” he asked, adding that “this will increase the cost of doing business for the private sector which is already too high.”
“There is also the aspect about no forex loans being granted in the country. If forex markets operate efficiently, there is no obligation for the BoG to intervene,” he said.
Dr Akoto-Osei said clearly, the BoG was in panic mood after the “spiritual” interventions in the economy and must accept their own regulatory failures.
“That said, they should also stop focusing on the wrong things that they cannot enforce and deist from reintroducing exchange controls. Exchange controls have never worked in Ghana and will never work. The BoG should know better,” he added.
Apart from reducing the huge budget deficit, lowering inflation and avoiding over-expenditure, Dr Akoto-Osei also suggested the use of foreign exchange reserves to “defend” the cedi.
He said reserves accumulation was unnecessary in the present circumstances, “unless there is something the central bank is not telling us.”
Finally,Dr Osei-Akoto said, real investment needed to be promoted in the economy and the country’s export base increased.
“If Ghana should indeed be the gateway to West Africa, we should not lose our competitive edge in investment. We should sanitise the investment environment to attract more purposeful investment and hence attract hard currency into the system,” he said.