Leave Single Spine Alone; The Problem Is Bad Policy Choices – Bawumia

Dr. Mahamudu Bawumia, Visiting Professor of Economic Governance at the Central University College (CUC) and 2012 Vice-Presidential candidate of the New Patriotic Party (NPP) has stated during his lecture on “Restoring the Value of the Cedi” that the Single Spine Salary Structure is not the cause of the cedi depreciation or the economic difficulties the country is currently facing.

Dr. Bawumia who was addressing participants at the Public Lecture organized by the Central University Campus at their Miotso campus, compared the wage bill levels before the Single Spine Salary Structure was implemented to the current levels and the increases in revenue to make his point.

“At the end of 2008, the Government wage bill amounted to GHC1.98 billion, representing 41.3 percent of total domestic revenue of GHC 4.8 billion. By the end of 2012, after 99% implementation of the single spine salary system, the government wage bill jumped by some GHC4.6 billion to GHC6.6 billion. While the government wage bill increased by some GHC4.6 billion between 2008 and 2012, total government revenue also increased from GHC4.8 billion to GHC15.5 billion over the same period. The increase in domestic revenue by GHC10.7 billion was more than twice the increase in the government wage bill. Indeed, by the end of 2012, the government wage bill following the implementation of the single spine salary system was 42.9% of total domestic revenues. This is not significantly different from the 41.3% in 2008. At the end of 2013 the government wage bill absorbed 53% of government revenue, underpinned by a weak tax revenue performance.

The current economic difficulties can therefore not be attributed to the single spine salary system which had been 99% implemented at the end of 2012. Furthermore the wage bill as a % of Ghana’s GDP (total income) even though high, is not new. It is within Ghana’s historical standards. Between 2002 and 2005 the wage bill averaged 8.5%. Following the statistical rebasing of GDP, the wage bill as a percentage of GDP declined to6.1% in 2007, and has risen steadily to 9.6% of GDP in 2013.”

Dr. Bawumia noted that the current difficulties were not as a result of the Single Spine scheme which was well thought through and planned for but more the result of policy choices like the quadrupling of the National debt in 5 years with an addition of GHC40.5billion; the payments of huge sums in judgment debts and other fishy expenditures like GYEEDA, SUBAH, SADA etc. as well as the weakening fundamentals of the economy which had limited the fiscal space available in the economy.

“Unfortunately, it appears as though government does not appear to have done a holistic analysis of the impact of its policy choices on the budget and fiscal outlook. If it had done so, it should have been clear that the policy of accelerated borrowing which increased the debt stock by 426% in five years for example would take away some of the cushion or fiscal space that was available to the economy in terms of increased interest costs. The same conclusion would also have been reached with regard to the accelerated payment of judgment debts, GYEEDA, etc.

Between 2008 and 2013 the wage bill increased from 6.6% of GDP to 9.6% of GDP (i.e. an increase of 3.0% of GDP). At the same time, interest payments on government debt increased from 2.3% of GDP in 2008 to 5.1% of GDP by 2013 (an increase of 2.8%). The additional interest costs (of 2.8% of GDP) resulting from the massive borrowing that has been undertaken by government, would have provided sufficient cushion for the economy. At the current rate of borrowing the additional interest cost would increase by 1.5% of GDP (an increase from the 2008 level by 4.2%) by the end of 2014. The problem is therefore not with the SSSS which was planned for, even if poorly implemented. The problem is with the fiscal space that has been eliminated by the high levels of borrowing, dubious payments under GYEEDA, SADA, SUBAH, and questionable judgment debt payments all of which were not planned for at the time the single spine salary system was designed. The SSSS is therefore not the cause of the depreciation of the exchange rate or the current economic woes and therefore should be left alone,” he said.