DISCIPLINE IN ECONOMIC MANAGEMENT: THE KEY TO SUSTAINABLE GROWTH AND PROSPERITY
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Transcript of DISCIPLINE IN ECONOMIC MANAGEMENT: THE KEY TO SUSTAINABLE GROWTH AND PROSPERITY
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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
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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.
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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 inplanning 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 Englands 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
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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 ofthe 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 Ghanas
population was only 6.5 million. To put this in perspective, in 2008, Ghanas gross
international reserves were $2.03 billion, with a total debt stock of GH9.5 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 Nkrumahs vision of state-led industrialization.
Fiscal policy was therefore expansionary. Expenditure on education, health, and
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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 Complex, GIHOC,
GNTC, State Hotels etc
State farms
Nkrumahs 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, Ghanas 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.
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Nkrumah however wanted a banking system that would complement the CPPs
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 Banks and the countrys 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.
Nkrumahs 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.
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military to work. The devaluation and economic difficulties provided the pretext for a
coup detat on 13th January 1972 by the National Redemption Council in 1972 under
Colonel I.K. Acheampong.
1972-1983
Mr. Chairman, For Ghanas 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 Ghanas
history.
The Supreme Military Council was overthrown by another coup detat 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
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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 detat, 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 regimes 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.
Notwithstanding 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 Nkrumahsssocialist
economic philosophy towards Busia and Danquahs 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).
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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 governments 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 sectors 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 and1983 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
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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 governments revenue base, including a shortfall inpetroleum 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 Ghanas 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--vis the US dollar. The countrys gross international
reserves were so depleted that it could not cover a months 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.
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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 from3.7% in 2000 to 8.4% in 2008. In the process, the size of Ghanas 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 NPPs 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 governments 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 Ghanas 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 electionyear. The fiscal slippage in 2008 was the result of government subsidies of utilities,
election year wage increases.
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Exchange rate stability also returned to the foreign exchange market between 2001 and
2007. The exchange rate depreciation vis--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, Ghanas budget deficit was a gargantuan GH8.7
billion, amounting to 12.0% of GDP using the rebased GDP numbers. This is the
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highest recorded budget deficit in Ghanas history. The GH8.7 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 Ghanas history.
Mr. Chairman, the rate of growth of public debt is a matter of concern. Ghanas 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 isthat 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.
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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 governmentsobjective 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.
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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, thisgovernment 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.
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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 kekrekekreto 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! Lets 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
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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/$. By 2008, the exchange
rate was GH1.19/$ (11,900/$) in 2008. By October 2013, the exchange rate was
GH2.20/$ (22,000/$) with all indications that it could decline further by the end of the
year. At this rate, the exchange rate could be GH4.4/$ 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(GH1.19)
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 GH2.2 (22,000)/$, the U.S. dollar hasappreciated 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
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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 a government led development
strategy. Nkrumahs development plan left a legacy including -
free education,
free medical care,
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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 CPPs socialist credentials.
Mr. Chairman, Ideologically Busia was a believer in market capitalism but wanted to
build a democratic welfare state where each is his brothers 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 N4,000 and N6,000 and 5 percent from salaries above
N6,000 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.
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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 Busias 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 countrys 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:
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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 TORs capacity toward processing Ghanas oil
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To what extent has the NDCs 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 Nkrumahs 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
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dire that a citizen vigilante like Martin Amiduand 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% ofcorruption 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 Ghanas 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.
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May the soul of H.E. Alhaji Aliu Mahama rest in peace.
Assalamu Alaikum