Dr. Mahamudu Bawumia
Dr. Mahamudu Bawumia?s Tuesday expose of what he described as ?fundamental problems? with the Ghanaian economy, has apparently rattled the John Dramani Mahama administration as it has forced the economic advisor to the President, Dr. Nii Moi Thompson, to make a rare response, describing Dr. Bawumia?s analysis as ?questionable.?
Dr. Bawumia enumerated several problems facing the economy, including the rapidly depreciating local currency, unbridled government spending, Ghana?s rising debt stock and a general deterioration of all the major macroeconomic indicators as well as deep-seated corruption.
?At this rate?the country will be on its knees before the end of the year?the Ghanaian economy is in a crisis,? Dr Bawumia warned during his Tuesday public lecture delivered at the Central University College, Accra.
Nii Moi Thompson Admits Challenges
Dr. Nii Moi Thompson admitted that the economy is in crisis, but quickly countered that it did not appear as bad as Dr. Bawumia sought to present, blaming the former Deputy Governor of the Bank of Ghana and Vice Presidential hopeful of the opposition New Patriotic Party (NPP) for being selective in his analysis. ?We are definitely facing challenges; we have challenges with energy, infrastructure, etc. but the point is that we are taking measures to address those issues.?
?I noticed some kind of selectivity, which sort of undermines the integrity of an otherwise great analysis that he had done,? Dr. Thompson pointed out.
Since his scathing indictment on the NDC government?s handling of the Ghanaian economy, several other sympathizers and officials of the ruling National Democratic Congress (NDC) have also been quick to react, condemning Dr. Bawumia?s economic diagnostics as bogus.
Franklin Cudjoe?s Input
?Bawumia, my senior brother, simply meant we should stop telling policy lies?? Franklin Cudjoe, the Executive Director of political think tank IMANI Ghana said.
?A policy lie is when you promise onetime health insurance when you know it is not economically feasible. A policy lie is when you promise yourself local businesses and investors that you will build a gas plant in six months and you go announcing completion dates like those obtained from soothsayers and magicians and lotto permutations. But then you know that it is not like building your backyard car workshop,? Mr. Cudjoe slammed the Mahama administration for its several failed promises to transform the economy.
The John Mahama administration has conceded it is facing difficulties with the economy as it grapples with uncontrolled economic variables and the current energy crisis caused by government?s inability to find the requisite funds to import either crude oil or gas to fire its power generating plants and huge wage bills held in arrears.
Dr. Bawumia?s analysis reflects similar warning issued by the International Monetary Fund (IMF) and basically all the international rating agencies ? Fitch, Moody and Standards and Poors.
It is estimated that if the Mahama administration does not radically reverse the deteriorating trend, the Ghanaian economy might collapse by August this year.
?? The Ghanaian economy is in a crisis. It is time for serious action. If government does not take the right decisions and soon, then Ghana would likely have to approach the IMF for a bail-out before the end of the year. At the end of the day, the obvious lesson is that, we cannot run away from fiscal and monetary discipline, no matter how hard we try,? Dr. Bawumia cautioned.
A major difficulty facing the economy is the depreciating cedi where barely in the first quarter of 2014 the rate of depreciation of the Ghanaian currency against the US dollar hit 16 %, compared to 14.5% depreciation recorded for the whole of 2013.
?For a small open economy like Ghana, this trend is worrying because these massive depreciations in the currency end up increasing the cost of living and the cost of doing business,? Dr. Bawumia observed.
Influence on Prices
The economist warned that the exchange rate is a significant component of the pricing of utilities and petroleum products. ?It means that other things being equal, if the exchange rate depreciates, we can all expect to pay more for utilities and petroleum products and virtually all other commodities,? he noted.
Some government officials have argued that exchange rate depreciation, to an extent, could be good for the economy because it creates an incentive to increase exports relative to imports and thereby improves the balance of payments.
Dr. Bawumia disagreed with that line of argument saying, ?Notwithstanding the massive nominal and real depreciation of the cedi over the years however, exports have not increased proportionately. This means that the exchange rate alone may not be sufficient as a policy tool to achieve export competitiveness.?
Dr. Bawumia pointed out that the economic growth being touted by the NDC government is cosmetic because when the GDP growth reached 15.0 percent in the year 2011, it was mainly hinged on oil production.
?At the heart of any effort to transform the economy, is accelerated and broad-based growth. The reality however, is that real GDP growth in Ghana, notwithstanding the onset of oil production, has declined significantly since 2011?the data for non-oil growth shows that real GDP growth has declined from 9.4 percent in 2011 to 3.9 percent in 2013. This means that Ghana?s economy (excluding oil) is growing at the same growth rate as the year 2000 and half the rate of economic growth in 2008,? the renowned economist bemoaned.
By Raphael Ofori-Adeniran