Posted on: www.dailyguideghana.com
By William Yaw Owusu
Tuesday July 7, 2015
Economics and finance expert, Dr. Mahamudu Bawumia says Ghana now requires International Monetary Fund (IMF) approval to be able to borrow for projects because of its vulnerability.
Ghana, Dr Bawumia said joins the likes of Haiti, an earthquake ravaged country which Ghana had to support with $3million cash to support them when the quake hit the Central American country.
“Today, the IMF has classified Ghana as a country at High Risk of Debt distress. In this regard, any major borrowing for projects to be undertaken by Ghana would now require prior IMF approval,” the New Patriotic Party (NPP) running mate for the 2016 election said in London at the weekend.
Addressing the Young Executive Forum – UK, a group associated with the NPP on the state of Ghana’s economy, the former Deputy Governor of Bank of Ghana said that other countries similarly classified as being at High Risk of Debt Distress included Afghanistan, Burundi, Central African Republic, Chad, and Haiti and asked “Is this the independence our forefathers fought for?”
Loss Of Confidence
He said that “Ghana appears to be having problems servicing her debts and this is making investors lose even more confidence in the economy,” adding “There is word out there in the international financial markets that Ghana has recently defaulted on its debt to Standard Bank for the financing of the Teshie Desalination project.”
“It is very important that the government quickly denies this if it is untrue or rectify the situation if it is true. Again, this government should remember that Ghana’s international debt obligations cannot be treated in the same way as obligations to the DACF or GETFund where arrears are incurred with impunity.”
He said that the implications of Ghana defaulting on the international debt obligations “are severe for the country’s reputation.”
He said that the difficulty in servicing or repaying debts had also led to the recent offer by the Minister of Trade and Industry to the Destination Inspection Companies (DICs) of contracts in exchange for helping government to settle its judgment debt.
“Of course, the Ministry of Finance has denied any knowledge of this incredible offer but I must say that it is highly improbable that the Minister of Trade would make such an offer without consent at the very highest levels.”
Dr. Bawumia said that notwithstanding the massive increase in the debt stock, capital expenditure as a percentage of GDP had actually been on the decline from 9.1% of GDP in 2008 to 4.8% by 2014 and added that capital expenditure as a percentage of GDP averaged 11% for 2001-2008 without oil while that for 2009-2014 has averaged 6% with oil.
“This means that contrary to all the government claims of an increase in infrastructure expenditure on projects all over the country, the reality is that Ghana’s expenditure on infrastructure is declining,” he said.
Dr. Bawumia said that at 67% of GDP in 2015, Ghana’s debt stock had crossed the critical 60% of GDP level that developing countries with limited access to capital flows should worry about in terms of debt sustainability adding “In fact, Ghana is right back to the debt unsustainability that led to HIPC.”
He said that in 2014, the cedi depreciated by 31% against the US dollar, making it one of the worst performing currencies in Africa in 2014 and the depreciation had continued in 2015, with 27% loss in value between December 2014 and June 2015 thus far notwithstanding the IMF bailout.
“In the last 18 months alone the cedi has depreciated by over 50 per cent! The periods of NDC economic governance has now become symptomatic with the periods of massive depreciation of the currency. Unfortunately, the government appears clueless as to what to do.”
He added: “This reflects a lack of policy credibility on the part of the government and a lack of confidence by investors. This is the price Ghanaians are paying for the government’s lack of policy credibility and weak fundamentals.”
IMF Policy Review
Dr. Bawumia said that even the IMF bailout had not been able to restore confidence by “convincing the markets that the government is committed to turning things around.”
He said the IMF itself has instituted a review of the government performance every four months saying “This is unprecedented for Ghana’s IMF programs and demonstrates a lack of confidence by the IMF itself in the government’s commitment to the program even though they would not publicly say so.”
He said the economy is in tatters because some public office holders are stealing state resources with impunity.
“What we have in Ghana today is not just corruption but corruption with impunity,” adding “it is corruption by people who have no fear for the consequences because they know they can conspire to get away with it.”
He said “these acts of corruption are very costly to the nation and take away the opportunities for government expenditure in critical areas.”
“Former President Rawlings has recently noted that the corruption for which he overthrew the government in 1979 is not up to 10% of the corruption we are seeing today,” he said.