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Vice President Mahamudu Bawumia, has admitted that the New Patriotic Party (NPP) Government, whose Economic Management Team he chairs, has been adding to Ghana’s debt stock, even though in the build up to the 2016 election, he had declared that borrowing was a lazy man’s approach to development.
However, he justifies government’s gluttonous appetite for borrowing, which has shot up Ghana’s public debt from Ghc122billion in 2016 to ghc177billion in 2018 with the explanation that the NPP government is actually accumulating the debt at a slower rate than the previous NDC government.
“…a strong fiscal adjustment and better debt management has meant that the rate of debt accumulation which is at 12% excluding the Banking sector clean up, is at its lowest in the last decade,” Dr. Bawumia said.
The submission was made at the much anticipated Town hall Meeting by the Economic Management Team at of Physicians and Surgeons in Accra.
The claim by Dr. Bawumia, who has come under flak because of his Chairmanship of the EMT at a time that most Ghanaians are complaining of increased hardships in the Economy, is contrary to critical observations from experts including, the Economic Commission for Africa (ECA) which has warned that Ghana is at risk of debt distress.
However, explaining, the Vice President said even though in absolute terms, debt has increased over the last two years, a much better debt management has led to reduction in interest payments as a percentage of GDP. From 6.9% in 2016 to, interest payment to GDP has reduced to 5.6% in 2018.
He said, the NPP government’s addition to Ghana’s debt stock, while magically reducing interest payments, is the result of better management of the Economy which has translated into fine macro economic indicators. Among others, he said, total debt to GDP percentage slowed down to 54.8% in 2018, while Inflation dropped from 15.4% at the end of 2016 to 9% at end of January 2019.
The Bank of Ghana has also cut policy rate by a cumulative 9.5% between 2017 and 2019. For the first time in 20 years, he said, Trade Balance recorded a surplus in 2017, and an even larger surplus in 2018; because Ghana is now exporting more, especially in the form of oil and other traditional commodities, including cocoa and gold.
Dr. Bawumia said a resultant positive trade balance has significantly narrowed Current Account deficit as a percentage of GDP. Also, he said, Ghana’s Gross international reserves reached 7.56 billion dollars at the end of December 2017. Even though around this same time, there were upheavals in the Economy, especially reflected in the Exchange Rate, it was not weak Economic fundamentals that had caused them.
The cedi had begun depreciating because of jitters among investors who were skeptical about Ghana’s completion of the IMF Extended Credit Facility Program. The IMF had also made it impossble for the Central Bank to intervene in the money market with a conditionality that Ghana increase its international reserve by $800million. However, after the cedi had sharply depreciated, it bounced back without any intervention from the Central Bank because of the strong fundamentals.
Proof that the fundamentals were strong, he said, included the fact that when Ghana launched a 3billion dollar Eurobond, it was over subscribed by $20billion. He also pointed out that Ghana’s Gross International Reserves in 2019 stands at USD9.9billion, equivalent of five months import cover.
Vice President Bawumia pooh-poohed what he said was the opposition National Democratic Congress (NDC)’s claim that his 2014 statement, that, “if the fundamentals are weak, the exchange rate will expose you,” has become a banana peel for him, saying the reasoning is warped logic because the conditions are different.
Blaming the recent exchange rate jitters on currency speculators and investor skepticisms over the IMF pullout, he said that the exchange rate movement does not necessarily show that the fundamentals are weak. “If the fundamentals are weak, the exchange rate will expose you, but if the exchange rate moves, you cannot jump to conclusion that the fundamentals are weak.”
In 2014, he said the exchange rate depreciated by 31%, fiscal deficit was 10.1% of GDP, the public debt rose to 702% of GDP, inflation rose 17% and GDP, and growth had declined from 7.3% to 4%. In other words the Economic fundamentals had weakened significantly and therefore the depreciation was easily explained.
On the other hand, by the end of December 2017, the cedi had cumulatively depreciated by 4.9% compared to 9.6% in 2016 and this was the cedi’s best performance since 2011.
The cedi had depreciated by 8.4% in 2018 largely on account of emerging markets pressure and US Treasury Rate increases, Dr. Bawumia said. The data on the annual rate of depreciation of the cedi in recent years, he said, shows that the worst performance so far under NPP, 8.4% depreciation, is better than the best performance under previous government between 2012 and 2016.
Source: Whatsupnews Ghana