{"id":596270,"date":"2019-03-05T12:23:08","date_gmt":"2019-03-05T12:23:08","guid":{"rendered":"

Dr. Nii Moi Thompson is an economist<\/p>

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Dr. Nii Moi Thompson is an economist<\/p>\n

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With the president finally stating publicly that he is \u201cupset\u201d over the rapidly depreciating cedi, and the implications for the economy, perhaps it\u2019s time for him to call a national economic forum to seek ideas on how best to rescue the situation before it gets worse.\u00a0 <\/span><\/p>\n

By now, it should be clear to any Ghanaian that no single government (or president) has all the solutions to Ghana\u2019s seemingly intractable economic problems, and that if we can’t have coalition governments \u2013 the ideal form of governance for a developing country like Ghana that would harness the best ideas from all political parties for national development \u2013 then the least we can do in times like this is to set aside our narrow political differences and rally around common solutions to our common problems. <\/span><\/p>\n

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In 2014, as the cedi took a tumble and the economy crumbled, the government came to this inescapable realisation and proposed a national economic forum. The leading opposition party boycotted that forum, and the cedi went on to lose about 33.0% of its value against the dollar, wiping out US$10 billion from nominal GDP in 2014.\u00a0\u00a0 All the cacophony and theatrics of prayers to raise the cedi at the time amounted to nothing (as expected), and it took good policies, some from the economic forum, to reverse the crisis and set the economy on the path to recovery.\u00a0 By 2016, the depreciation had slowed to just under 4.0%.\u00a0 <\/span><\/p>\n

Five years after the economic forum, the opposition party is now in power and finds itself in the same quicksand of the currency markets as its predecessor did in 2014.\u00a0 Between the end of December 2018 and the end of <\/span>February<\/span>\u00a02019, the cedi lost a whopping 13.15% of its value against the US dollar, the largest year-to-date depreciation since 2014, when the cedi lost 12.81%.\u00a0 For the same two-month period in 2018, the depreciation was only 0.07%.\u00a0 The year-on-year depreciation (February 2019 vs. February 2018) was 20.38%, the highest rate since 2015, the peak of the economic <\/span>recession<\/span><\/span>\u00a0when it was 27.38%. For the same year-on-year in February 2018, the cedi actually appreciated by 1.36% against the dollar.\u00a0 (See nearby table).\u00a0\u00a0 <\/b><\/span><\/p>\n

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These are gathering clouds of an impending economic crisis, and living in denial is no longer an option.\u00a0\u00a0 We are in this together.\u00a0 We must face it together.\u00a0 Or sink together. <\/span><\/p>\n

To be sure, the economic context today is significantly different from what it was in 2014.\u00a0 Back then, <\/span>dumsor<\/span> had laid waste to the industrial landscape and created pervasive despair across the country. But whilst <\/span>dumsor<\/span> may be dead today (for the time being, anyway, as it has periodically reared its head over the past 30 years), its ghost continues to haunt us.\u00a0 In parts of Accra recently, \u201c<\/span>dumsor<\/span>-lite\u201d has disrupted some business and inconvenienced households. The <\/span>Menzgold<\/span> imbroglio, and the larger financial <\/span>crisis<\/span><\/span>\u00a0remains an albatross around our necks.\u00a0 Big problems always start small, and this may well be the beginnings of a \u201cbig\u201d problem \u2013 especially if the cedi\u2019s woes lead to higher utility tariffs and consumer prices, as it invariably will.\u00a0\u00a0\u00a0 <\/span><\/p>\n

Already, we can infer some of the consequences for both government and business.\u00a0<\/span>Government<\/span> will now need more cedis (not budgeted for) to service its debts.\u00a0 That money will likely come from the infrastructure budget, the usual victim, or worse, critical social programmes. As the overall cost of doing business rises (as it would), many government programmes may be scaled back or abandoned altogether.\u00a0\u00a0\u00a0 For businesses, the depreciation may have already made nonsense of their budgets, possibly leading to a reduction in planned investments or hiring, maybe even a dismissal of workers. This all will be bad news for the <\/span>fiscus<\/span><\/span>, already starved of revenue in a weak-growth environment and burdened by expenditures that promote consumption rather than growth.\u00a0 <\/span><\/p>\n

Confronting these risks to the economy may require tough and possibly unpopular decisions that call for more than government\u2019s will to act; they will also require the understanding and patience of Ghanaians, including political parties, which can only be secured at a no-holds-barred public forum on the economy.\u00a0 It\u2019s clear the government alone does not have the solutions to this impending crisis. We need a forum. <\/span><\/p>\n

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This list of topics to be discussed at such a forum is endless, but we can tease out a few: <\/span><\/p>\n

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Myth of \u2018the oil money\u2019:\u00a0\u00a0 During the elections, many grandiose promises were made with the expectation that \u201cthe oil money\u201d would be used to fund them.\u00a0 Problem is, there was never really any oil money, and there is hardly any now, and there\u2019s not likely to be much in the future either.\u00a0 The first inflow of what the government calls \u201ccompany taxes on oil\u201d was not until 2013 (two years after commercial production started), and it was only GH\u00a2418,782,010, accounting for 2.9% of total tax revenue that year.\u00a0 As of 2017, this figure had gone down to 0.70%.\u00a0\u00a0 Our oil production, which is already low (Saudi Arabia produces more in a week than we do in a year) is expected to peak by the mid-2020s and then decline.\u00a0Best to face reality now and cut our proverbial coat according to our cloth.\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

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Mythical \u2018double-digit growth\u2019:\u00a0\u00a0 Most of the extravagant promises were linked to the mother of all promises:\u00a0To \u201cachieve double-digit GDP growth annually for the next four years\u201d, as stated in the government\u2019s manifesto.\u00a0 The highest growth so far has been 8.1% in 2017 (boosted by an unsustainable growth of 30.3% of the oil sector).\u00a0 Overall growth is projected to slow to 5.8% by 2021, supported by oil growth of a lousy 1.4%, and then up to 7.6%, when oil is expected to expand by 14.6%.\u00a0 It is clear that whilst oil has a disproportionate magnifying effect on overall growth, its net contribution to government revenue and national development for that matter is marginal, at best, and an illusion, at worst.\u00a0 Best we plan, budget, and manage the economy as if there is no oil \u2013 until we have significant majority stakes in the sector.\u00a0 For now, most of the benefits end up offshore.<\/span><\/p>\n

The curse of manifesto fundamentalism:\u00a0\u00a0 Non-existent oil money, elusive double-digit growth, and a consequent squeeze on government revenue should ordinarily lead to a re-ordering of government\u2019s spending priorities, with accelerated economic growth in mind. Instead, there appears to be a fundamentalist interpretation of the government\u2019s manifesto, irrespective of the financial implications for the fiscus (\u201cWe will do it because we said we would; damn the consequences!\u201d).\u00a0 In just over two years, we have created six new regions (complete with an expensive referendum) and 44 new districts, all requiring new charges to a national budget that is already bursting at the seams.\u00a0 Ridiculous promises like giving a \u201cmillion dollars\u201d to each of the 275 constituencies in a country where the cedi, not the dollar, is the legal tender did not only show poor judgement but it has contributed to undermining confidence in the cedi; ditto, the decision to charge US#$10,000 per person at the fundraiser for a \u201cnational cathedral\u201d that we don\u2019t need. (China, the country we run to for money every so often is an officially atheist state \u2013 so there\u2026).\u00a0 Throw in the consumption-based payment of teacher and nursing trainee allowances and the creation of NABCO, and the high cost of manifesto fundamentalism becomes dangerously and abundantly clear.\u00a0 These and related issues must be discussed at the forum.<\/span><\/p>\n

Dead knowledge and the sick economy:\u00a0 As with most of the textbooks in our schools that are 10 to 20 years out of date, a lot of the techniques and indicators for managing and measuring the performance of our economy are either archaic or misleading, creating a false sense of progress when we should be alarmed.\u00a0 Take the much-ballyhooed debt\/GDP ratio, for instance, which was reduced from 73.3% in December 2016 to 57.9% as of November 2018 and has received much mention in the government\u2019s list of achievements.\u00a0 Japan\u2019s debt\/GDP ratio is 253%, which has averaged 137.4% per year since 1980.\u00a0 Does that mean that Ghana\u2019s economy is stronger and better managed than Japan\u2019s?\u00a0 Of course, not. Despite the high debt-GDP ratio, consumer inflation in Japan is only 0.20%, compared to 9.0% in Ghana, and the policy rate there is -0.10%, compared to 16.0% for Ghana.\u00a0 In 2017, Japan spent only 9.4% of its budget on interest payments, compared to 26.1% for Ghana.\u00a0 Most of Ghana\u2019s debt is contaminated with corruption in the form of inflated loans and contracts, what economist call \u201codious debt\u201d.\u00a0 Combined with a high-inflation environment based on a partial reading of the causes of inflation, we spend scarce resources to service debts that never really contributed much to the growth of the economy in the first place but instead enriched individuals. Indeed, nothing captures the high cost of corruption to the Ghanaian economy more that our debt stock.\u00a0 For the forum to be worth the effort, corruption must take centre stage \u2013 otherwise, forget it.<\/span><\/p>\n

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Governance reforms: Our economic decisions are greatly affected by our winner-take-all parliamentary-republican hybrid that has so far proved disastrous and even anti-development.\u00a0 Neither of the two major parties that are destined to govern Ghana in the foreseeable future have all the ideas or qualified people to deliver development.\u00a0 (You need\u00a0look no further than some of the people who appear before the parliamentary vetting committee).\u00a0 It\u2019s time to consider a new system that allows coalition governments and thus more sources of ideas and skills for national development.\u00a0 Germany, for example, could not have become the economic powerhouse of Europe without its tradition of \u201cgrand coalitions\u201d that embody as many political parties as possible.\u00a0 They are the better for it, just as we are worse for ours.<\/span><\/p>\n

Building Institutions for Development:\u00a0\u00a0 Development is ultimately about \u201cinstitutions\u201d \u2013 the organisations and the laws, policies, regulations, customs, values and systems that govern them.\u00a0 Without effective, efficient, responsive, and dynamic institutions that keep pace with the times, development will remain elusive, dragged down by low productivity, low incomes, and pervasive poverty.\u00a0<\/span><\/p>\n

These were spelt out in the 40-year plan, which, regrettably, was rejected by some ministers even before it was completed.\u00a0 They will do well to include it in a national forum on the economy, for it remains the only viable path to getting us out of our current morass and dealing with both the structural and cyclical problems that have plagued us since the 1950s, when a 1952 study of the Gold Coast economy described it as \u201cfragile\u201d.\u00a0<\/span><\/p>\n

The irony can\u2019t be lost on even the most cynical person.\u00a0\u00a0<\/span><\/p>\n

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The author is an economist and former Director General of the National Development Planning Commission (NDPC)<\/span>,<\/span><\/b><\/span><\/p>\n

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