Home   >   Business   >   Economy   >   201311
Bawumia Outlines History of Economic Indiscipline in Ghana   
 
  << Prev  |  Next >>
 
13-Nov-2013  
Comments ( 0 )     Email    Print
       
 
 
 
 
 
Related Stories
 
Dr. Mahamudu Bawumia, 2004 and 2008 Vice-Presidential candidate for the New Patriotic Party has in the maiden Aliu Mahama Lectures, outlined the history of economic indiscipline in various eras since Ghana’s independence.

Driving listeners through the economic history of Ghana, Dr. Bawumia used the lecture to demonstrate how high a cost, Ghana has been made to pay as a result of fiscal and monetary indiscipline and suggested that the country have a national debate on measures that would enforce fiscal discipline including the possible passage of a fiscal responsibility act which would place limits on the government and provide sanctions anytime governments overspend beyond a certain limit.

Beginning with Nkrumah, Dr. Bawumia noted that as a result of the socialist and expansionary vision of Ghana’s first President to have a state led development programme, Dr. Nkrumah set aside the strict discipline imposed by the original Bank of Ghana Act which was modeled on the West African Currency Board’s set-up.

Dr. Bawumia noted that although Dr. Nkrumah’s program saw the establishment of several industries and saw significant investment in the social sector, it also took a toll on the economy for the worse as a result of the waned discipline

“Nkrumah’s 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.

The external reserve position deteriorated significantly between 1957 (when net reserves stood at $269 million) and 1966 when they stood at (-$39 million). Ghana, with so much in foreign reserves at independence, was broke by 1965.”

On the National Liberation Council which used the prevailing economic and political situation to overthrow Nkrumah, Dr. Bawumia noted that the administration embarked on an IMF supported stabilization “aimed at improving the adverse balance of payments, cutting the budget deficit, reducing the government sector, and stimulating private enterprise”.

The objectives of this stabilization according to Dr. Bawumia were achieved but at the cost of economic growth.

The Busia administration for Dr. Bawumia also tried to impose fiscal discipline to correct the effects of the fiscal excesses and the debts of the Nkrumah era. However, after the drop in prices of Ghana’s major exports, the Busia administration responded with a devaluation of the cedi and the imposition of taxes and cuts in spending on among others the military. These measures were then used as a pretext for the 1972 coup.

Dr. Bawumia described the period between 1972 and 1983 as the worst periods in terms of economic management and indiscipline which led to Ghana’s worst economic performance within the period.

“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 Ghana’s history.”, he said.

Dr. Bawumia speaking on the PNDC/ NDC era noted that although the PNDC began with socialist revolutionary policies, it soon shifted in 1983 toward the Danquah-Dombo-Busia capitalist free market philosophy.

The economy according to Dr. Bawumia responded positively to the measures taking by the PNDC administration backed by the IMF with stability and growth achieved.

“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 sector’s 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 and 1983 had reared its ugly head once again.”

In the run-up to both the 1992 and 1996 elections, government spending increased dramatically while revenues fell, prompting the IMF to suspend support on two occasions.

According to Dr. Bawumia, “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 Ghana’s 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-à-vis the US dollar.”

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.”

On the Kufuor administration, Dr. Bawumia noted that the stability and growth in the economy which saw among others, a six-fold increase in Ghana’s economy was as a result of strict economic discipline but conceded that the discipline broke down in 2008.

“Mr. Chairman, under the leadership of President Kufuour (2001- 2008), Ghana made significant strides. Without the benefit of oil production, economic growth increased from 3.7% in 2000 to 8.4% in 2008. In the process, the size of Ghana’s 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 NPP’s 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 come far from first gear!”

On the JEA Mills/ Mahama NDC administration, Dr. Bawumia said “Mr. Chairman, at the end of 2012, Ghana’s budget deficit was a gargantuan GH¢8.7 billion, amounting to 12.0% of GDP using the rebased GDP numbers. This is the highest recorded budget deficit in Ghana’s history. The GH¢8.7 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. “

He also bemoaned the increase in public debt under the NDC administration saying “Mr. Chairman, the rate of growth of public debt is a matter of concern. Ghana’s 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 is that 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. ”

The lecture was chaired by the former President John Agyekum Kufuor.
 
 
Source: Peacefmonline.com/Ghana
 
 

Comments ( 0 ): Post Your Comments >>

 
 
 
Disclaimer: Opinions expressed here are those of the writers and do not reflect those of Peacefmonline.com. Peacefmonline.com accepts no responsibility legal or otherwise for their accuracy of content. Please report any inappropriate content to us, and we will evaluate it as a matter of priority.
 
 
Featured Video