The 2012 Vice Presidential Candidate of the New Patriotic Party, (NPP)
Dr. Mahamadu Bawumia says the governing National Democratic
Congress's (NDC) practice of what he calls “Akomfem Socialism” is to
blame for the current economic hardships Ghanaians are experiencing.
Speaking at the first Alhaji Aliu Mahama Lectures on Wednesday, Dr.
Bawumia said “ Akonfem socialism is this new brand of socialism
where the government officials engage in “chopping” the meat to the
bone. Rather than focusing on serving the people, our Akonfem
socialists focus on coming up with schemes to steal money from the
people. This is why we have the creation of schemes such as
GYEEDA, SADA, SUBAH, WAYOME, WATERVILLE, ISOTOFON, AAL, where the state
has been defrauded of billions of Ghana cedis which could otherwise have
been used for productive development expenditure. This is
only what we know about. This is not what Ghanaians expect
from the party of “Probity and Accountability”!
According to him, government’s lack of discipline in borrowing also taking a toll on the economy.
He said “after being in denial for the last couple of years, the true
state of the economy is now obvious for all to see “fiili fiili”, as
they say in my neck of the woods. The propaganda has finally
given way to reality and it is not a pretty sight.”
The Alhaji Aliu Mahama lecture was organised by a foundation established
in memory by the family of late Vice President of Ghana and the New
Patriotic Party.
Below is the full speech Dr. Bawumia gave at the Alhaji Aliu Mahama Foundation lecture
DISCIPLINE IN ECONOMIC MANAGEMENT: THE KEY TO SUSTAINABLE GROWTHAND PROSPERITY
Speech Delivered by: Dr. Mahamudu Bawumia At the:
ALHAJI ALIU MAHAMA MEMORIAL LECTURE
NOVEMBER 13, 2013
ACCRA
Mr. Chairman, H.E. John Agyekum Kufuor, Former President of the Republic of Ghana
Honourable Ministers of State Honourable Members of Parliament Chiefs and Traditional Leaders Members of the Diplomatic Corps
Representatives of other Political Parties
Members of the Media Distinguished Invited Guests Fellow Ghanaians
Ladies and Gentlemen
Assalamu Alailkum and Good evening!
I would like to thank all of you for making the time from your busy
schedules to be present at this inaugural Alhaji Aliu Mahama Memorial
Lecture. I am very humbled to have been asked by the
Foundation to deliver this first lecture. In fact, when the
request came, I thought there must have been some mistake as I felt
someone else more qualified, perhaps a statesman like our Chairman,
should be the one giving this lecture. I am truly honoured
for the opportunity.
I would like to thank the Aliu Mahama Foundation and the family for
organizing the anniversary celebrations to honour our former
Vice-President who was also a humble, generous and decent human being.
I had a very personal relationship with Alhaji and he
treated me like a son. He was determined to do all he could
to support me as he had done for numerous others. We
campaigned together in the 2012 presidential election campaign until he
was taken ill. He was a first class gentleman and all who met
him would attest to that. He also had a good sense of
humour.
Mr. Chairman, distinguished ladies and gentlemen, tonight I
will be talking about an issue that was very close to the heart of H.E.
Alhaji Aliu Mahama, the issue of discipline.
Discipline can be defined as the practice of training people to obey
rules or a code of behavior or using punishment to correct
disobedience. For Alhaji Aliu Mahama, a society without
discipline is doomed to failure. He always lamented about how
we as a people are always so inclined not to follow laid down rules or
codes of conduct. In the area of sanitation for example he
often wondered how long it would take us to have as clean an
environment as in many advanced countries when the practice of
open littering, urination, defecation and occurred with such regularity
without public disapproval.
For Alhaji Aliu Mahama, it was clear that the discipline that we seek
would require a change in attitudes through public education, investment
in infrastructure, rigorous enforcement of planning regulations, and a
National Identification database to assist in planning and law
enforcement.
Mr. Chairman, I now want to turn my attention to the issue of
discipline in economic management. Discipline in economic
management has three elements:
• having a clear vision of what a government or a leader wants to do
• the discipline to follow through on implementing the vision and
• the fiscal and monetary discipline to manage the implementation of the vision
Fiscal discipline basically means spending within your means over a
period of time. We know that any individual who consistently
spends above his or her means would end up in trouble, like the
infamous Abankaba. It is no different for a country.
Monetary discipline on the other hand involves the central
bank matching the money supply with the level of production or foreign
exchange reserves in a country. Excess printing of money
results in inflation. Going back into history, so important
was maintaining monetary discipline in England that by 1121, 900 years
ago, when there was a noticeable decline in the quality of England’s
silver, all the Mint Masters in England (those who “minted” the money,
equivalent to central bank governors) were assembled and punished by
having their right hands cut off! . This was a rather
draconian method of monetary control but it speaks to the historic
importance attached to monetary discipline in some countries.
Mr. Chairman, developing countries have huge gaps in sectors such as
roads, water, energy, education, health, agriculture, etc. The problem
that governments face is one of insufficient financial, institutional
and human capital resources to solve these problems. Governments
therefore have the onerous responsibility to manage the resources of the
country to meet the aspirations of its current citizens as well as
future generations. While it is clear that accomplishing these goals
require fiscal and monetary discipline, the lesson from history is that
the temptation to abandon discipline for political expediency is very
high.
1957-1966
Mr. Chairman, at independence, the Convention Peoples Party (CPP) under
the leadership of President Kwame Nkrumah espoused and pursued an
ideology of socialism, advocating the collective or governmental
ownership and administration of the means of production and distribution
of goods. The CPP inherited from the British, a healthy amount of
foreign exchange reserves of $273 million, (the equivalent of $2.275
billion today). In addition, there was virtually no external or domestic
debt and Ghana’s population was only 6.5 million. To put this in
perspective, in 2008, Ghana’s gross international reserves were $2.03
billion, with a total debt stock of GH¢9.5 billion ($8billion) and a
population of some 23.0 million. The CPP did not therefore face the
typical economic pressures faced by all other Ghanaian governments upon
assuming government. I think the CPP is the only government in our
history that has not said “The country is broke” when they came to
power. They had no reason to.
The CPP quickly set about implementing Nkrumah’s vision of state-led
industrialization. Fiscal policy was therefore expansionary.
Expenditure on education, health, and physical infrastructure such
as schools, roads, dams, hospitals, electrification and so on
dramatically increased from their colonial levels. The inherited
foreign exchange resources financed development projects such as:
• Tema Harbour
• Cape Coast University
• Kwame Nkrumah University of Science and Technology,
• Accra-Tema Motorway,
• Akosombo dam,
• Black Star Line,
• Construction of numerous schools and hospitals,
• Ghana Medical School
• Okomfo Anokye Hospital
• Ghana Atomic Energy Commission
• State-owned enterprises like Ghana Airways, Tema Food, GNTC, State Hotels etc Complex, GIHOC,
• State farms
Nkrumah’s development plans soon confronted the strict arrangements for
monetary discipline contained in the West African Currency Board. Mr.
Chairman, at independence, the Gold Coast was operating with the
colonial international economic arrangements. The British West African
Currency Board (WACB) was constituted in
1912 to control the supply of currency to the British West African
Colonies. The exchange rate of the West African Pound to sterling was
fixed. Under this regime, government could not just print money without
backing it with an increase in foreign reserves. This framework kept
inflation barely noticeable. In fact, at the time of independence in
1957, Ghana’s inflation was less than 1 percent and a year later was
zero. There was no exchange rate depreciation to worry about
against the pound sterling.
Nkrumah however wanted a banking system that would complement the CPP’s
government-led development strategy. It should be noted that the Bank of
Ghana was established in 1957 when the Bank of Ghana Ordinance was
passed by the British Parliament. The Ordinance was designed to protect
the central bank from political interference and prevent the use of the
Bank’s and the country’s resources indiscriminately. The Central Bank
in 1957 was designed to enforce monetary discipline in a manner akin to
the WACB arrangements.
By 1960, the Convention Peoples Party was becoming increasingly
frustrated with the apparent autonomy of the Bank of Ghana. In fact,
this frustration became more strident as Government finances were coming
under severe pressure and the foreign exchange reserves were declining.
The Government deficits were rising and unlike the earlier years when
foreign exchange reserves were relatively plentiful, by 1960, the option
of using foreign reserves to finance the deficit was limited.
Government also exhausted its bank balances and started borrowing from
the banking system. The Government of Ghana began to issue Treasury
Bills in 1960. Exchange controls and import licensing were introduced in
1961 under the Exchange Control Act to limit further loss of foreign
exchange reserves.
A Bank of Ghana Act of 1963 was passed to break from the monetary
discipline that was imposed by the WACB arrangements. Dr. Nkrumah wanted
it all. He wanted a central bank that could print money as needed but
at the same time he wanted to have a fixed exchange rate for the cedi.
He was basically defying the laws of economics and it was only a matter
of time before the center could not hold.
Nkrumah’s ambitious development program took its toll on the economy.
Many of the state-owned enterprises were operating at a loss and
adversely impacting public finances. The fiscal position also
deteriorated as Government spending increased from
9.5 percent in 1957 of GDP to 25.8 percent of GDP by 1965. The
government budget balance deteriorated from a surplus of 14.5 percent of
GDP in 1954 to a deficit of 6.4 percent of GDP by 1965.
The external reserve position deteriorated significantly between
1957 (when net reserves stood at $269 million) and 1966 when they
stood at (-$39 million). Ghana, with so much in foreign reserves at
independence, was broke by 1965.
The deteriorating economic and political situation was used by a group
of military and police officers, (National Liberation Council) as an
excuse to stage a coup d’etat and overthrow the CPP on February 24,
1966.
1966-1972
Mr. Chairman, on coming into office, the NLC immediately embarked on an
IMF supported stabilization program aimed at improving the adverse
balance of payments, cutting the budget deficit, reducing the government
sector, and stimulating private enterprise. There was a reduction in
absolute investment, tighter control over import licenses and a
devaluation of the cedi. The objective of the stabilization was largely
achieved. The balance of trade moved into surplus and the current
account and the government budget deficits were reduced. Inflation fell
from an average of 18.0 percent between 1964-66 to a single digit
average of 9.0 percent between 1967-69
The NLC announced a transition to civilian rule with general elections to be held in
1969. The Progress Party won the 1969 elections under the leadership of
Dr. K.A. Busia and inherited an economy struggling to recover from the
fiscal excesses and debts of the Nkrumah era. Busia’s vision and
philosophy was very different from that of Nkrumah. Dr. Busia’s
vision was founded on the principles of free governments, representative
governments, multiparty democracy, free press, the rule of law
and principles of democratic accountability.
The Busia Government made significant strides with its rural development
agenda in a short period of time but by 1971, the economic situation
was aggravated by a dramatic drop in cocoa prices resulting in a balance
of trade deficit. The government responded with a devaluation of
the cedi by 42.0 percent in December 1971 and cuts in
government expenditure. The attempt to impose fiscal discipline was not
allowed by the military to work. The devaluation and economic
difficulties provided the pretext for a coup d’etat on 13th January
1972 by the National Redemption Council in 1972 under Colonel I.K.
Acheampong.
1972-1983
Mr. Chairman, For Ghana’s economy, the period between 1972 and 1983
under the NRC, SMC, AFRC and PNP governments was characterized by a
dramatic economic decline underpinned by indiscipline in economic
management. This entailed a decline in GDP per capita by more than 3
percent a year. The main foundation of the economy, cocoa, was on the
decline. Central government revenues which amounted to 21 percent of GDP
in 1970 fell to only 5 percent of a smaller GDP in 1983. The revenue
collapse increased the reliance on the banking system to finance
expenditures. Between 1974 and 1983 the monetary base expanded from 697
million to 11,440 million cedis. The loss of monetary discipline
accelerated inflation, which increased from 6.5 percent in 1969 to 116.5
percent by 1977 and 122 percent by 1983, all in the midst of a regime
of controlled prices.
In the meantime, successive governments continued the policy of
overvaluing the cedi by maintaining a fixed exchange rate in the face of
high inflation. Governments responded with import controls which fell
disproportionately on consumer goods. A kalabule or informal economy
evolved and the black market thrived. It is not surprising that this
decade, 1972-1983, represents the worst economic performance in Ghana’s
history.
The Supreme Military Council was overthrown by another coup d’etat in
1979 by the Armed Forces Revolutionary Council (AFRC) under the
leadership of Flt. Lt. Jerry John Rawlings. After four months in office,
the AFRC handed over power to a democratically elected government of
the Peoples National Party (PNP) under the leadership of Dr. Hilla
Limann. Dr. Limann inherited very difficult economic circumstances. The
country was once again broke. Attempts to resuscitate the economy
included negotiations for an IMF loan. The IMF insisted that the
government devalue the cedi. Cognizant of what had happened to the Busia
government, the PNP refused to devalue the cedi. For the
IMF, a refusal to devalue equaled a lack of commitment to
fiscal and monetary discipline and the IMF also refused to grant the
much needed loan. The economy deteriorated amidst internal power
struggles within the PNP. The PNP government was overthrown in another
coup d’etat, by Flt. Lt. Jerry John Rawlings in December 1981, this time
under the banner of the Provisional National Defence Council (PNDC).
The PNDC accused the PNP of economic mismanagement and corruption.
Mr. Chairman, between January 1982 and November 1983 the
PNDC was characterized by socialist revolutionary policies. The
business community, large scale farmers and professionals were the
regime’s declared enemies. Economic policy was interventionist and anti
foreign capital. Price controls, import duties and tariffs were imposed
on a wide range of goods.
Citizens Vetting Committees (CVCs) were empowered to investigate people
“whose lifestyle and expenditure substantially exceeded their known
incomes”. Specifically, anyone with more than ¢50,000 ($1,250 at the
prevailing black market exchange rate of some ¢50/$) had to appear
before the CVC to explain how they acquired it. The wealthy became the
targets of a vindictive Public Tribunal system.
Not withstanding all these supposed “anti-corruption” measures, the
economy turned for the worse and it soon became obvious that the
populist socialist policies were not sufficient to stabilize a monetary
system or grow an economy. Inflation reached 122.8% at the end of 1982
as more money was printed to finance government budget deficits. Fiscal
indiscipline and bad policies were again adversely affecting the
economy.
1983-2000
In its 1983 Budget, the PNDC moved Ghana away from Kwame Nkrumahs’s
socialist economic philosophy towards Busia and Danquah’s capitalist
free market philosophy that the government railed so much against at its
inception. The PNDC proceeded to implement an IMF supported Structural
Adjustment Programme (SAP).
One of the most important reforms of the SAP was to allow a gradual
liberalization of the market for foreign exchange. The official exchange
rate was adjusted in stages from
¢2.75/US$ in 1983 to ¢90.0/US$ by January 1986. In February 1987, the
official exchange rates were unified at ¢150/US$. To bridge the gap
between parallel and official exchange rates, foreign exchange bureaus
were established in February 1988, leading to the virtual absorption of
the parallel foreign exchange market. The cedi exchange rate therefore
became market determined.
A major plank of the SAP was the rehabilitation and provision of
physical infrastructure to help improve productivity. The economy
responded positively and output increased. GDP growth, which was
negative and declining in the three years before the SAP, recorded a
remarkable recovery to register an average of some 5.0 percent per annum
between 1984 and 1991.
Macroeconomic stability was also restored between 1984 and 1991 and the
stability was not attained at the expense of growth. Inflation declined
from some 122 percent in 1983 to 10.0 percent by 1991 reflecting fiscal
discipline.
Mr. Chairman, The economy, between 1983 and 1991, benefited from a
disciplined implementation of the government’s vision along with the
fiscal and monetary discipline to accompany its implementation. However,
the economic policy framework which had brought about macroeconomic
success in the 1983-1991 began to unravel with the transition from the
PNDC to the NDC after the 1992 elections. The economic and structural
reforms slowed just as the gains of the market reforms became evident.
Fiscal and monetary policy were not firm, and the public sector’s
borrowing led to a large build up of external as well as domestic debt,
with an increased dependence on external donor inflows. The core
problem of the lack of fiscal and monetary discipline in
economic management that had plagued successive governments between 1957
and 1983 had reared its ugly head once again.
In the run-up to the 1992 elections, government expenditure increased
dramatically as tax administration weakened. Notwithstanding the decline
in government revenue, government expenditure increased at a rapid pace
in the election year. As a result of these developments, the overall
government budget deficit, which had declined to 1.3 percent of GDP in
1991 increased sharply to 9.4 percent of GDP in 1992.
In the run up to the 1996 elections, fiscal indiscipline reared its head
again. As in 1992, there was significant erosion in the government’s
revenue base, including a shortfall in petroleum revenue. The shortfall
in petroleum tax was the result of the suspension of the automatic price
adjustment formula as the elections drew closer. Again, notwithstanding
the revenue shortfall, expenditure was maintained at about the same
levels as a percentage of GDP (some 30 percent of GDP) as had been the
case since 1993. The fiscal stance in 1996 resulted in an overall budget
deficit of 9.5 percent of GDP (the same as in 1992). In response to the
policy slippages, the IMF and World Bank suspended support to Ghana as
they had done in 1992.
The vulnerability of the Ghanaian economy in the face of persistently
high fiscal deficits and declining foreign exchange reserves was to be
exposed when after the economy was hit in 1999/2000 with falling prices
for Ghana’s two main exports, cocoa and gold and rising prices for oil.
The excessive fiscal expansion in the run-up to the 2000
Presidential and Parliamentary elections tipped the economy into a cycle
of inflation and currency depreciation. In the short span of one year
ending December 2000, the cedi, lost 50 percent of its value vis-à-vis
the US dollar. The country’s gross international reserves were so
depleted that it could not cover a month’s imports.
The debt burden of the economy increased dramatically during the
structural adjustment period, with external debt/GDP ratio rising from
27 percent of GDP in 1984 to 103 percent of GDP by 1994 and rose further
to 182 percent of GDP by 2000. The country was having difficulty
servicing its debts.
It was against this background that the December 2000 Presidential and
Parliamentary elections took place and were won by the New Patriotic
Party (NPP) under the leadership of President John Agyekum Kufuor, ably
supported by H.E. Alhaji Aliu Mahama.
2001-2008
Mr. Chairman, under the leadership of President Kufuour (2001- 2008),
Ghana made significant strides. Without the benefit of oil production,
economic growth increased from
3.7% in 2000 to 8.4% in 2008. In the process, the size of Ghana’s
economy increased from some $5.1 billion to $28.5 billion, a six-fold
increase. Even in the face of a global economic and financial crisis
in 2007/8 (with oil prices reaching a record high of
$147/barrel) economic growth in 2008 rose to 8.4%. Ghana was transformed
during the period of the NPP’s tenure (2001-2008) from a low income
HIPC economy to a lower middle income economy on the frontiers of
emerging market status. We were ready to take-off and had left the first
gear a long time ago!
The stabilization in most of the macroeconomic indicators between 2001
and 2007 was achieved by strictly limiting the central government’s
borrowing requirements. This involved a lot of discipline on
the part of government. The Debt to GDP ratio (thanks to the
successful HIPC completion) was reduced from 182% in 2000 to 32% by
2008. These developments resulted in a crowding-in of the
private sector as bank lending to the private sector increased together
with bank deposits.
Government finances also improved, especially between 2001 and 2005.
The government budget balance as a percent of GDP declined from
8.6 percent of GDP in
2000 to 2.0 percent of GDP by 2005. In Ghana’s recent
economic history 2004 is the only election year in which economic
discipline and stability was maintained. The fiscal deficit
to GDP was 3.2% in 2004. The budget deficit however increased
to 6.5 percent of rebased GDP in 2008. Fiscal indiscipline
had again reared its head in an election year. The fiscal
slippage in 2008 was the result of government subsidies of utilities,
election year wage increases.
Exchange rate stability also returned to the foreign exchange market
between 2001 and 2007. The exchange rate depreciation
vis-à-vis the US dollar was 4.5 percent over the year 2003, and 2.2
percent for the year 2004, 0.9 percent in 2005, 1.1 percent in 2006 and
4.8 percent in 2007. Between 2004 and 2007, the cedi
depreciated by an average of 2.25 percent against the U.S.
dollar. Placed in the context of the historic instability of
the cedi and the 2000 experience of some 50.0 percent depreciation, this
level of stability of the cedi was remarkable. The
period between 2001-2007 recorded the lowest depreciation of the
cedi in any seven year period since exchange rates were market
determined and demonstrates that it is possible to have very stable
exchange rates with disciplined economic management. The
deterioration in the fiscal situation in 2008 resulted in an exchange
rate depreciation of 20.1%.
2009-2013
Mr. Chairman, the elections of 2008 brought in a government
of the NDC under the leadership of Prof. J.E.A.
Mills. The NDC inherited an economy growing at 8.4% without
the benefit of oil production. With crude oil coming on
stream, the economy grew by some 15% in 2011 as a result of oil
production. The non-oil sectors of the economy, in particular
agriculture, industry and services are still growing slower than they
did in 2008. In 2012, real GDP growth was 7.9 percent
(including oil). It is clear therefore that notwithstanding
the production of oil, the non-oil sectors are experiencing declining
growth. There is a noticeable slowdown in economic activity
and both business and consumer confidence have weakened. The
economic slowdown has meant that unemployment is getting worse.
We all know of school leavers and graduates who are having great
difficulty finding a job in this economy. Youth unemployment
remains high and increasing and there has been no better Ghana for our
youth in the last five years. Mr. Chairman, this
is worrying because we seek fiscal and monetary discipline not for their
own sake but to create an enabling environment for job creation.
Mr. Chairman, at the end of 2012, Ghana’s budget deficit was a
gargantuan GH¢8.7 billion, amounting to 12.0% of GDP using the rebased
GDP numbers. This is the highest recorded budget deficit in
Ghana’s history. The GH¢8.7 billion deficit would have been
able to finance seven years of free secondary school
education.
From Nkrumah through Acheampong, Rawlings and Kufuor, no
government has incurred this level of budget deficit.
The crux of the problem is that government spending in 2012
increased astronomically to 34.5% of GDP even though government revenues
amounted to 16.1% of GDP (a gap of over 100%) for the
year. The government abandoned all fiscal discipline in an
attempt to win the 2012 elections.
Mr. Chairman, this NDC government is the first government in
the history of Ghana to have access to oil revenues and yet is finding
it difficult to pay its bills because of the indiscipline in its
management of our public finances. Even meeting statutory
payments like GETFUND, NHIS, DACF as well as salary payments to
workers has become problematic. The cost of doing business
has increased and confidence in the Ghanaian economy has waned with high
interest rates, a weakening currency and increased utility prices.
The Free maternal care, school feeding and national health
insurance programs to protect the poor and vulnerable inherited by the
NDC government are having major challenges, to put it mildly.
What is remarkable about this state of the economy is that it is
occurring at a time when the government has had access to more financial
resources in terms of tax and non-tax revenues as well as borrowing
more than any other government in Ghana’s history.
Mr. Chairman, the rate of growth of public debt is a matter
of concern. Ghana’s total public debt has increased from GHC
9.5bn in 2008 to GHC43.9 billion as at August 2013 (an increase of 357%
in less than 5 years)! Mr. Chairman, the NDC
government has borrowed the equivalent of $20 billion in just the last
five years! What is worrying is that they tell us that this
is only the first gear! Can you see or feel that $20 billion
dollars has been pumped into this economy in the last five years?
Where are the projects to show for the $20 billion? Just
imagine the transformational effect if every region were given $2
billion for development projects.
Mr. Chairman, what is sad about this situation is that the
government appears to have misunderstood its own capacity to borrow by
blindly looking at the debt to GDP ratio without taking into account the
fact the GDP was rebased (i.e. statistically increased by
60% from 2007) without an attendant increase in foreign exchange
liquidity.
In this situation, taking comfort from a debt/GDP ratio of less than 60%
would be misleading. For prudence, the government should be
applying an adjustment factor to the traditional debt/GDP measure to
take account of the rebasing that took place. Despite
warnings in this regard, the government proceeded to borrow at an
alarming rate. Today it is obvious that the indiscipline
of its borrowing is taking a toll on the economy.
With such large scale borrowing, government is crowding out the private
sector which is unable to borrow to grow their business. Risk
free Treasury bill rates are around 23% and bank lending rates are on
the rise because of excessive government borrowing. Lending
rates are now some 30 percent. Electricity and water supply
have been erratic and inadequate, shooting up the cost of doing
business. It is therefore not surprising that businesses are
having a hard time in Ghana right now.
After being in denial for the last couple of years, the true state of
the economy is now obvious for all to see “fiili fiili”, as they say in
my neck of the woods. The propaganda has finally given way to
reality and it is not a pretty sight.
How did we get here? Ladies and Gentlemen, with regards to
government finances, we recall that at the end of 2008, the government
budget deficit to GDP ratio stood at 6.5% (after the rebasing of GDP).
This outcome was described by the NDC as bad fiscal
management. By the end of the election year 2012, the budget
deficit had reached some 12% of GDP (after rebasing of GDP).
This is double the deficit in 2008 which the NDC described as reckless!
Interestingly, Mr. Chairman, today the NDC
government’s objective in the medium term is to get to a budget deficit
to GDP ratio of 6.5%, the same as was the case in 2008, which they
called reckless! This is what is called reverse gear, not
first gear.
Single Spine Salary Implementation and the Economy
Mr. Chairman, the NDC government, in the face of growing
labour unrest, has tried to blame the economic meltdown being
experienced on the implementation of the Single Spine Salary System.
The refrain from Government is that wages and salaries of government
workers account for over 70% of government revenue so workers should
endure economic hardships or pick the next available flight out of the
country. What are the facts?
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 and 46% of tax revenue. 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.
Furthermore, the 2013 budget forecast that the wage bill in 2013
would represent 35% of total domestic revenue by the close of the year.
The current economic difficulties can therefore not be
attributed to the single spine salary system which had been 99%
implement at the end of 2012. In fact, this government was
touting its “unprecedented” economic achievements, including the
implementation of the single spine salary system only last year.
So when did the problem arise? The acute fiscal difficulties
the government is facing is directly related to the massive deficit of
GHC8.7 billion (12% of GDP) incurred in 2012.
This massive over expenditure has left the government cash strapped and
unable to even finance statutory expenditures. Some workers
have not been paid for 22 months! Mr. Chairman, I
also understand five years after you and Alhaji Aliu Mahama left office,
the government has still not paid you your entitlements.
Mr. Chairman, the data available therefore shows quite
clearly that the blame for the current economic difficulties lies
squarely in the area of government economic mismanagement and should not
be blamed on the wages of workers. After all, workers did
not decide to distribute V8 land cruisers and other goodies to try to
win the 2012 elections, neither did workers decide on an unsustainable
path of accumulation of public debt. Workers did also not
make the decisions on GYEEDA, SUBAH, SADA, ISOTOFON, WAYOME, AAL, etc.
In trying to reign in the fiscal deficit, government has
imposed taxes on almost everything, including condoms and cutlasses and I
am sure more taxes are coming in the budget to be read next week.
Government has also increased utility tariffs, water tariffs,
petroleum prices etc. Unfortunately, when as a result of poor
economic management workers demand higher salaries, some politicians
conveniently turn around to accuse them of being unpatriotic or greedy.
After the government does the “kukrukukru” with the economy
they do not want the workers to do the “kekrekekre” to protect their
standard of living!
INDISCIPLINE AND THE PERSISTENT DEPRECIATION OF THE GHANA CEDI
Mr. Chairman, what has been the cost of this persistent
fiscal and monetary indiscipline by successive governments since
independence? We can think of this in terms of the impact on
economic growth, employment, interest rates, inflation, etc. I
will however focus on its impact on the exchange rate of the cedi over
the years. Mr. Chairman, my concern looking at the
developments in the cedi exchange rate since independence is that the
cedi has been on a continuous one direction slide. The only
question is how fast the depreciation is for different governments!
Let’s look at some numbers. At independence, Ghana was
part of the West African Currency Board using British Pounds, shillings
and pence. The exchange rate was the equivalent of 73
pesewas to the US dollar. By 1965, Dr. Kwame
Nkrumah introduced the Cedi. The exchange rate at this time
was ¢1.04/$. By 1983, the exchange rate was ¢52.6/$.
By 1992, the exchange rate was ¢520.8/$.By 2000, the exchange rate
was ¢7047/$. By 2008, the exchange rate was GH¢1.19/$
(¢11,900/$) in 2008. By October 2013, the exchange rate was
GH¢2.20/$ (¢22,000/$) with all indications that it could decline further
by the end of the year. At this rate, the exchange rate
could be GH¢4.4/$ in another 4 years.
Table 1. Cedi-US Dollar Exchange Rates (1965-2013)
Year
Exchange Rate ¢/$
1957
0.73
1965
1.04
1983
52.6
1992
520.8
2000
7047
2008
11,900(GH¢1.19)
2013 (October)
22,000 (GH¢ 2.20)
Mr. Chairman, the price of fiscal and monetary indiscipline
by successive governments since independence is that cumulatively,
between 1965 when the cedi traded at ¢1.04/$ and October 2013 when it
is trading at GH¢2.2 (¢22,000)/$, the U.S. dollar has
appreciated relative to the cedi by some 2,000,000%! . The
value of the cedi has been decimated in the process, losing 99.9999% of
its value relative to the US dollar. For a small open economy like
Ghana, this trend is worrying and should be worrying for all Ghanaians.
Our economy is highly import dependent and these massive these
massive depreciations in the currency end up piling more hardships on
Ghanaians as the cost of living increases.
Mr. Chairman, going forward, government would be applying
automatic price adjustment formulae for pricing utilities and
petroleum products. However, the exchange rate is a significant
component of the pricing of these products and services. It means that
other things equal, if the exchange rate depreciates, we can all expect
to pay more for utilities and petroleum products. These in turn impact
the overall standard of living and the cost of doing business. Workers
under these circumstances would continue demanding wage increases to
maintain their standard of living. What is worrying is that if we
continue with the way the economy is being managed, we can expect even
more depreciation of the cedi and higher commodity, utility and
petroleum prices in the future. Can we continue this way? Can
we ever industrialize and create jobs with these levels of continued
depreciation of the cedi?
Mr. Chairman, this persistent rate of depreciation of the
cedi must be looked at against what is happening to other currencies in
the global economy. Take for example, the US dollar and the
British Pound during the same period. At the end of 1965 the
dollar- pound exchange rate was $1.590/GBP and by the end of 2012 it was
$1.614/GBP, a cumulative pound appreciation of some 1.5% over a 48 year
period. This compares with a 2,000,000% appreciation of the
dollar against the cedi over the same period. Between 1983
and 2013, the Hong Kong dollar exchange rate under the currency board
arrangements of the Hong Kong Monetary Authority has remained constant
at HK$7.80/US$. The question we must ask ourselves is how
come these economies with fixed and floating exchange rate systems are
able to maintain such durable stability of their exchange rates?
Are we willing as a country to do what it takes to attain and
maintain such exchange rate stability?
Mr. Chairman, technically, having a stable exchange rate is
not difficult to do. In the case of Ghana, no matter what
exchange rate regime is adopted, there is a critical requirement by
governments of a commitment to fiscal discipline beyond the electoral
cycle. Are the politicians willing to abide by this
discipline regardless of the impact on our electoral fortunes?
More importantly, are the voters going to demand this discipline from
politicians? The passage and enforcement of a Fiscal
Responsibility Act will be important in this regard if it is supported
by political will. A Fiscal Responsibility law will require
governments to declare and commit to a fiscal policy that can be
monitored. It will include fiscal rules (including rules
governing election year spending), provisions for transparency and
sanctions ( including sanctions on the Executive). It would
mean for example that governments cannot by law spend above a certain
limit relative to revenues. Fiscal indiscipline and the
resulting fiscal excesses are ultimately paid for by ordinary citizens
who have no place at the decision making table of the politicians.
It is therefore important that labour, civil society and all other
stakeholders make a push for the passage of a fiscal responsibility law
as soon as possible. In this context stakeholders can also
debate whether the exchange rate regime that we are operating is optimal
or whether we should move towards a currency board arrangement like
Hong Kong and live with the discipline that would entail.
Discipline to Implement the Vision
Mr. Chairman, discipline as the key to economic growth and
development also entails a discipline to pursue a clear vision and the
discipline needed to manage the already inadequate resources honestly.
What is interesting is that all the political parties in Ghana
have laid claim to commitments to protecting the poor and vulnerable as
part of their ideologies. To what extent have these
commitments been honoured? It is instructive to examine
the record of some democratically elected governments and their
ideologies.
Nkrumah was for example was a socialist. This meant
government led development strategy. Nkrumah’s development
plan left a legacy including -
• free education,
• free medical care,
• State-owned enterprises like Ghana airways, Tema Food Complex, GIHOC, GNTC, State Hotels, State farms etc.
• Workers Brigade
The record shows that there is no doubt about the CPP’s socialist credentials.
Mr. Chairman, Ideologically Busia was a believer in market
capitalism but wanted to build a democratic welfare state where each is
his brother’s keeper.
To realize this vision, a number of initiatives were undertaken by the Busia government.
• A new ministry of Social and Rural Development was created
to seek the welfare, training and employment of youth.
The National Service Corps, Youth in Action and a Voluntary Work Camps
Association were formed.
• A new Ministry of Housing was established to facilitate access to
housing by workers. The Bank of Ghana set up a loan scheme
from which workers could borrow to build their own houses.
Contributions of 2.5 percent were made from salaries of between N¢4,000
and N¢6,000 and 5 percent from salaries above N¢6,000 to a Social
Security Fund for the construction of low cost houses for people with
housing problems. Low-cost houses were built in all the nine
regions in Ghana.
• To encourage rural development, the government
established a Rural Development Fund. This was funded
through a levy of 40 new pesewas from the salary of every worker whose
salary was ¢34.00 and above paid into the fund. This fund was
used to provide the rural areas with good drinking water, through the
Ghana Water and Sewerage Corporation, Latrine pits, markets and health
posts.
• ¢6 million worth of underground sewerage pipes project was
laid in Accra towards the proper disposal of sewerage.
• Under the Department of Rural Water Development, three major city
supply plants for water were established for Accra, Kumasi, and Sekondi.
• secondary schools and clinics were built across the length and
breadth of the country and the administration introduced Experimental
Schools on pilot basis, which is now called Junior High School
• free text books in all the schools in the country.
• free ‘Achimota’ sandals to pupils in middle schools.
All this was done in 27 months!
Mr. Chairman, The NPP government just like Busia’s PP
government believed that there is the constant need in a nation like
ours to cushion segments of the society and ensure that they are carried
along in the country’s quest to develop. As a result of the
many interventions and programmes, poverty declined from some
40% of the population in 2000 to 28% by 2008 along with significant
increases in access to healthcare and education enrollment.
The 2001-2008 period also saw a significant increase in social spending
aimed at protecting the poor and vulnerable in society. This
was reflected in initiatives such as the:
• National Youth Employment Programme
• The School Feeding Programme to provide food to pupils in basic schools
• Capitation Grant to make education affordable and accessible
• The National Health Insurance Scheme (NHIS) to provide accessible healthcare to the population.
• Free maternal care for all pregnant women under the NHIS.
• Introduction of a Metro Mass Transit transport service for urban
areas to provide subsidized transport for commuters and a free bus ride
for basic school pupils in Ghana.
• Introduction of the Livelihood Empowerment Against Poverty (LEAP)
programme under which welfare grants are paid to the extreme poor.
Mr. Chairman, the NPP inherited a HIPC economy but after 8
years in office it has all of these concrete accomplishments to show.
One cannot help but also notice the irony of the “free-market”
oriented NPP government implementing policies that were to some extent
more social democratic than the NDC government.
The NDC reinvented itself as a Social Democratic Party in 2003 seeking
to “marry the efficiency of the market with the compassion of the state
with all efforts geared towards protecting and supporting the
vulnerable, the disadvantaged, and the marginalized and have-nots in
society. Consistent with this philosophy, the NDC promised a
Better Ghana with policies such as:
• One-time health insurance premium
• Pay licensed teachers a professional allowance of 15% of basic salary
• Pay technical-vocational teachers a professional allowance of 10% of basic salary
• Pay teachers in deprived areas an additional allowance of 20% of basic salary
• Assume water and electricity bills of second cycle schools
• Double TOR’s capacity toward processing Ghana’s oil
To what extent has the NDC’s covenant with Ghanaians to deliver on its
social democratic vision been realized over the last five years?
Has the NDC had the discipline to implement its
manifesto promises?
The NDC is supposed to be a Social Democratic Party. But what
type of socialism is this that imposes such hardships on workers and
ordinary Ghanaians. What type of socialism is it that
oversees the weakening of social safety nets such as the National Health
Insurance Scheme, Free Maternal care, School Feeding, and National
Youth Employment Programme? At least in Nkrumah’s socialism
one saw a vision that he was committed to and attempted to implement
with free education, healthcare, industries, workers brigade, state
farms etc.
Mr. Chairman, the socialism being practiced by the NDC is
more in words than in action. In action, it can best be
described as “Akonfem Socialism”. Akonfem socialism” is this
new brand of socialism where the government officials engage in
“chopping” the meat to the bone. Rather than focusing on
serving the people, our Akonfem socialists focus on coming up with
schemes to steal money from the people. This is why we have
the creation of schemes such as GYEEDA, SADA, SUBAH, WAYOME, WATERVILLE,
ISOTOFON, AAL, where the state has been defrauded of billions of Ghana
cedis which could otherwise have been used for productive development
expenditure. This is only what we know about. This
is not what Ghanaians expect from the party of “Probity and
Accountability”!
The Subah Infosolutions contract where the government is literally
giving away hard earned taxpayers money under very dubious circumstances
may just be the tip of the iceberg. With this level of
corruption, the economy will not move and it is not surprising that
after inheriting a legacy of a much stronger economy, the government
says it is still in first gear after five years!
Mr. Chairman, the challenge we face today as a country is how
to deal with corruption in the public sector. As a country
we have vetted people by CVCs, tried people by public tribunals, jailed
people, shot people at the firing squad etc. The situation
has become so
dire that a “citizen vigilante” like Martin Amidu and journalists like
Manasseh Azure and Anas Aremeyaw taking up the fight against corruption
rather than government. We appear to be losing the battle
against very powerful forces. So what should we do?
Mr. Chairman, if you look at the canker of corruption, it is
clear the over 95% of corruption takes place in the areas of award of
contracts and the procurement of goods and services by the public
sector. In my humble opinion the surest way to deal with this
problem is to take the responsibility to award contracts and undertake
procurement out of the hands of the public sector and politicians and
rather give it to an independent body with a value for money secretariat
(under parliamentary oversight). The independent body should
be made up of reputable professional local and international
procurement institutions and experts (and representatives from civil
society). This is the model that was used in the execution
of projects under the Millennium Challenge Corporation (MCC) such
as the N1 Highway. The MDAs or even the Presidency had no
role in the award of contracts for MCC projects. Once this
type of model is put in place, public officials and politicians will
focus on policies and service and not on their ability to make millions
of dollars through dubious contracts and procurement. This is
an idea that we can discuss on its merits on a multi-partisan basis and
come up with a workable solution.
Mr. Chairman, in conclusion, the author H. Jackson
Brown jnr. has stated that “Talent without discipline is
like an octopus on roller skates. There is plenty of movement
but you never know if it is going to be forward backward or sideways”.
This is essentially the story of Ghana’s economic
development. We have been moving like an octopus on roller
skates because of the lack of discipline in our economic management.
As H.E. Alhaji Aliu Mahama would say, “It is all about whether we are ready to submit to discipline or not”.
Mr. Chairman, I submit that it is time for us together to do the right thing for our economy.
May the soul of H.E. Alhaji Aliu Mahama rest in peace.
Assalamu Alaikum
SOURCE [citifmonline.com/Ghana]
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