A former Deputy Governor of the Bank of Ghana, Dr. Mahamudu Bawumia, has painted a bleak picture of Ghana’s debt situation.
He said Ghana was on a slippery slope to the shackles of debt unsustainability, warning that unlike a decade ago when the nation enjoyed debt relief under the Highly Indebted Poor Countries (HIPC) initiative, this time around “debt relief is not available.”
He was delivering a lecture on the value of the national currency against major global currencies at the Central University College organized CUC Distinguished Speaker series.
The causes of the depreciation in value of Ghana’s local currency, the cedi, against its major trading partners, Dr. Bawumia argued, could not be understood without first understanding the economic fundamentals of the country.
According to him the spiraling debt and the high interest payments on the debt had a direct impact on the stability of the cedi.
A 2012 Vice-Presidential Candidate of the New Patriotic Party, Dr. Bawumia said it was important to divorce the depreciation of the cedi from politics.
Touching on the debt stock, he said the country’s 9.5 billion Ghana cedis debt at 2008, had ballooned to 49.9 billion, representing an increase of over 40 billion in five years.
This debt, Dr. Bawumia said, represents 57.7 per cent of GDP.
“Our debt stock will be 60 per cent to GDP ratio by the end of this year,” he said.
He warned that “At this rate we are heading to debt unsustainability and HIPC debt relief is not available.”
Dr. Bawumia likened Ghana’s situation to riding in a bone shaker vehicle on a rough road without shock absorbers.
He further compared the cedi’s depreciation to the other currencies across the globe saying, the trend is worrying.
According to Dr Mahamudu Bawumia whilst the dollar depreciated by just 1.5 per cent to the pound in a period of 48 years, the cedi depreciated cumulatively by over 2 million cedis to the dollar within the same period.
He shredded arguments that the new pay policy the Single Spine Salary Structure as well as dollarisation of the economy among other factors are the reason for the country’s depreciating currency.
Dollarization of the economy
He said dollarisation is only a rational reaction by rational business men who cannot trust government to keep the cedi stable. He said there is no law that will stop business men from thinking in dollars. “One can think in dollars and price in cedis,” he stated.
“We must ensure that businesses have confidence in the local currency” he noted.
The former Deputy Bank of Ghana Governor said the single spine salary structure cannot also be blamed for the depreciation. He argued that in 2008 a little over 1 billion was used to pay salary of workers. In 2012 however that amount rose to a little over 6 billion cedis. While it is true that the wage demand under the SSSS has increased by about GH¢4.8 billion between 2008 and 2012, government revenue has jumped from GH¢4.8 billion to GH¢15.5 billion over the same period. He said what it means is that that workers’ productivity have increased to over billion 10.6 billion which is more than twice the increase in wage bill.
The SSSS therefore cannot be blamed because workers have worked more than twice the wage bill, he stated.
Bawumia indicated that Ghana’s economic management is about policy choices and the poor choices by the government- judgement debts, accelerated borrowing etc. are to be blamed for the sorry state of affairs.
He said government must admit the country is in a crisis and implement tough remedial measures to address it.
“The problem will not go away by refusing to accept it,” he pointed out.
He said the country must not begin to make new promises for new programes. It must restore fiscal discipline by cutting “our coats according to our size”.