Statistics, Economics and Finance professionals advocate for a base period which is not too distant away in order to accurately capture economic data that feed into reliable planning and assessment of the economy. As a result, rebasing the GDP of Ghana so that the base year is closer to the current to capture the contributions of almost all sectors of the economy to reflect a better and enhanced GDP is important, but in many cases, especially in developing countries, it is a mere statistical exercise. Nigerian rebased its GDP in 2013 and became the largest economy in Africa but could not deal decisively with her fundamental problems. Ghana did same in 2010 but that a could not stand the test of time. Eventually, the country has to sign onto an IMF program post-rebasing.
It is good when economic date is deemed accurate by capturing all relevant item to produce better outlook. Some will however, ask how frequently should a country undertake this exercise so its role in properly projecting the performance of the economy is not lost? Another question that will generate political debate is which governance regime should the credit go to? Should it be the NDC or NPP? After all, rebasing means you are only bringing to the current level what the size of the economy should have been. The last base year of 2006 was towards the end of Kufour regime. Assuming a base year of 2014 is chosen, then we have more political economic debate of whom to attribute the possible larger size of the economy.
It has been announced that Ghana has started the process of rebasing the GDP, which is expected to increase the size of the economy and lower the debt to GDP ratio. This exercise, while important, will not solve our fundamental economic problems. The greatest opportunity it creates is for government to have borrowing space to borrow more because the debt to GDP ratio will fall. If government was able to borrow close to GHC17 billion, excluding energy bond, in a year, what will happen when the space is created to borrow.
Some facts to note are that: 1.rebasing will not increase capital expenditure;
2. rebasing will not increase tax to GDP ratio which is crucial for Ghana as it has reduced from 18.20% in 2016 to 16.90% in 2017 and was projected to reduce further to 16.5% in 2018. Debt addicted nations with less than enough tax revenue mobilization may not address fundamental problems with rebasing.
3. rebasing will not reduce debt repayment cost because the quantum of repayment depends on the size of maturing debts and effect of exchange rate. The ability to repay depends on revenue mobilization and making all sectors productive.The 2018 budget indicates that interest repayment on debt from 2016 to 2019 are estimated to be higher than capital expenditure. In 2017, interest payment was GHC13.94 billion but capital expenditure was GHC6.4 billion. Interest payment projection for 2019 is GHC14.88 billion while capital expenditure projection for same year is GHC10.4 billion.
Rebasing is necessary but not a solution to the fundamental problems of high debt stock, high repayment burden, high youth unemployment and underemployment .
Ghana is a country in need of inclusive economic growth, improved social benefits, vibrant manufacturing sector, deployment of innovative ideas and improvement in domestic revenue generation.
By Prof. John Gatsi