THE IMF BAILOUT: WILL THE ANCHOR HOLD?
DISTINGUISHED SPEAKER SERIES LECTURE
by:

Dr. Mahamudu Bawumia

Visiting Professor of Economic Governance
Central University College
Ghana
MARCH 24, 2015

Mr. Chairman
President, Central University College
Ministers of State
Members of Parliament
Excellencies, Members of the Diplomatic Corps
Representatives of Political Parties
Captains of Industry and Finance
Distinguished Invited Guests
Faculty
Students
Members of the Media
Ladies and Gentlemen

I would also like to thank all of you here present for undertaking the journey
to this beautiful Miotso campus of Central University College. Almost exactly
a year ago, on March 25th 2014, I had the privilege and honour of delivering
a lecture on “Restoring the Value of the Cedi”. This was at the height of the
crisis of the depreciation of the cedi. During that lecture, I noted that given
the state of the economy, Ghana would likely end up requesting an IMF
bailout if appropriate action was not taken. Today, the IMF bailout has
become a reality. It is only appropriate that this second lecture critically
examines this IMF bailout program, its implications and whether it would
provide the anchor for growth and prosperity in Ghana.

GHANA’S ROAD TO THE 2015 IMF BAILOUT

Mr. Chairman, for our benefit and for a little history, let me state that the
International Monetary Fund (IMF) was founded in 1945 with a responsibility
to maintain the stability of the international monetary system (i.e. the system
of exchange rates and international payments that enable transactions
between countries). Ghana is one of 188 members of the IMF. Each member
of the IMF has a quota that it contributes to the Fund. The quota is set in
relation to a country’s importance in the international financial system. It is
primarily from these quota contributions of member countries that the IMF
lends to countries in distress (usually facing balance of payments problems).
IMF financing provides countries with the breathing room to resolve the
underlying problems. Even though technically classified as “balance of
payments support”, it provides support to the budget by making possible
expenditures such as debt service and essential imports.

When a country makes a request for IMF financial assistance, the IMF
designs a program in collaboration with the country’s authorities to deal with
the ailment diagnosed as causing the underlying balance of payments
difficulties. Continued IMF financing under these circumstances, is
conditional on the effective implementation of the designed program. In
doing so, the IMF takes measures to safeguard the resources of its member
countries that are being lent. The IMF is not a charity.
Ghana is no stranger to IMF bailouts. Ghana has had several programs with
the IMF between 1967 and 2012 (These include programs in 1967, 1972,
1983, 1999, 2001, and 2009). The most recent IMF program with Ghana was
between 2009 and 2012.

Ghana’s most recent request for an IMF bailout has taken domestic and
international observers as well as analysts by surprise. This is because
Ghana was the star of the Africa rising story, the toast of the international
development community, and the benchmark for other African countries for
a number of reasons, including the following;
? Ghana’s GDP more than quadrupled between 2001 and 2008, moving
it from a HIPC country to a lower middle income country.


? Ghana received HIPC relief of $4.2 billion dollars after HIPC
completion in 2004
? Ghana discovered oil and gas in commercial quantities in 2007 and
started exporting oil in 2010
? By 2011 Ghana was one of the fastest growing countries in the world
with GDP growth estimated at 15% and government touted
“unprecedented achievements” in growth and macroeconomic
stability.
Notwithstanding these achievements, four years after oil production began,
Ghana has found itself in need of a bailout from the IMF. The question is
Why? How did it happen?
THE DISCOVERY OF OIL, ELECTIONS AND PUBLIC FINANCES
With the discovery of oil in 2007 the government of Ghana was determined
to make sure that Ghana’s oil resources were managed in a manner to avoid
the dreaded oil curse. In this regard, government brought together the
various stakeholders to chart the way forward and to learn from the
experiences of countries such as Nigeria and Norway in terms of best
6
practices and also what to avoid. The majority of the Ghanaian people were
clear in their minds that Ghana should not end up with the issues that had
bogged many African oil producing nations, most notably Nigeria. To
underpin good governance in the oil sector, these stakeholder discussions
and public consultations resulted in the passage of Ghana’s Petroleum
Revenue Management Act (PRMA) and the Petroleum Commission Act in
2011 based on best practice across oil producing countries.
Deteriorating Public Finances
Notwithstanding all the effort to avoid the oil curse, public finances began to
deteriorate as the 2012 presidential and parliamentary elections drew closer.
In the 2012 election year, Ghana’s budget deficit was a whopping GH¢8.7
billion, amounting to 12.0% of GDP. This is the highest recorded budget
deficit in Ghana’s history. The crux of the problem was that government
spending in 2012 increased astronomically to 31.0% of GDP even though
government revenues amounted to 18.6% of GDP for the year. This came
on the back of a promise by the government to ensure that it maintained
fiscal discipline and that previous over-expenditures that had characterized
7
many of our election years were not repeated. On the contrary, the
government abandoned all fiscal discipline so as to win the 2012 elections.
Following the 2012 election, the government continued to maintain an
expansionary fiscal stance and this led to a further deterioration of public
finances.
The deterioration of public finances has resulted in government being cash
strapped and unable to meet its obligations on statutory payments (for health
education and local government ) as well as non-statutory payments:
? The District Assembly Common Fund (DACF) is in arrears
? The Ghana Education Trust Fund is in arrears
? The National Health Insurance Scheme is in arrears
? School Feeding program is in arrears
? Payments to government contractors are in arrears
Recently, the Ghana Medical Association (GMA) warned that Ghana is
inching towards a return to the dreaded cash-and-carry-system in the
delivery of health services because hospitals across the country have run
into complete bankruptcy due to failure by the National Health Insurance
8
Authority (NHIA) to pay claims made by service providers1
. Furthermore, the
cholera outbreak that occurred last year was linked to the local authorities
being unable to pay for sanitation services.
Mr. Chairman, what is surprising about the current state of public finances is
that over the last six years, this government has had available to it more
financial resources than any government in the history of Ghana and so
unlike previously, the current predicament cannot be blamed on a shortfall in
resource inflows.
The financial resources that have been available to this government are
actually mind boggling.
? In the eight years between 2001 and 2008, the total tax revenue
collected was GHC 15.2 billion. In contrast, the government has
collected a total of GHC 62 billion in the last six years (2009-2014) in
taxes. (Figure 1).

1 http://www.myjoyonline.com/news/2015/March-3rd/we-are-back-to-cash-and-carry-gma-executivewarns.php#sthash.QKVdoeOe.dpuf
9
? In the last six years, Ghana’s total debt has increased from GHC9.5
billion in 2008 to GHC76.1 billion at the end of 2014 (Figure 2).
0
10
20
30
40
50
60
70
2001-2008 2009-2014
Figure 1: Tax Revenue (GHC Billion)
0
10
20
30
40
50
60
70
80
2001-2008 2009-2014
Figure 2: Public Debt (GHC Billion)
10
? Ghana’s gold exports between 2001 and 2008 amounted to $9.0 billion
dollars. Between 2009 and 2014, total gold exports have amounted to
$25 billion dollars. Government has therefore earned significantly more
from the revenues associated with these exports in the last six years.
? Ghana’s cocoa exports between 2001 and 2008 amounted to $7.4
billion dollars. Between 2009 and 2014, total cocoa exports have
amounted to $14.5 billion dollars. Government has similarly earned
significantly more from the revenues associated with these exports in
the last six years.
? Indeed, cocoa and gold prices were 50% higher in the period 2009-
2014 than the 2001-2008 period.
? Ghana has also become an oil exporter during the period of the NDC
government. Ghana has exported $13.7 billion of oil in the last four
years and has earned some $3 billion from oil during this period. There
were no oil revenues accruing from oil exports during the 2001-2008
period or for that matter in any period of Ghana’s history.
11
The question therefore is if this government has had available all these
resources in terms of tax revenue, loans, and revenues from gold, cocoa and
oil exports amongst others, then why is it that public finances are in such a
bad state to the extent that we need an IMF bailout?
Mr. Chairman, this situation with regards to Ghana’s public finances has
arisen because of a major increase in government expenditures relative to
revenues between 2011 and 2014. While government tax revenue averaged
18.9% of GDP between 2011 and 2014, government expenditures increased
of GDP from 20.1% of GDP in 2011 to 31.0% of GDP in 2012 before declining
to 28.2% of GDP at the end of 2014. It should be noted that the fiscal deficits
as a percentage of GDP in the last three years (at 9.5%, 10.9% and 12%)
have exceeded the 8.6% deficit in 2000 that sent the economy into a tailspin.
12
Mr. Chairman, another reason why Ghana is looking for an IMF bailout is
corruption. The increased fiscal deficits have also been compounded by
pervasive corruption in the public sector in the areas of over-invoicing of
contracts underpinned by the practice of sole sourcing in the award of overpriced
contracts, and corruption related to scandals such as judgment debts,
SADA, SUBAH, GYEEDA, ghost names on government payroll, etc.
What we have in Ghana today is not just corruption but corruption with
impunity. It is corruption by people who have no fear for the consequences
because they know they can conspire to get away with it. These acts of
-14.0
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 3: Fiscal Deficit/GDP% 2000-2014
13
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.
Ballooning and Unsustainable Public Debt
Mr. Chairman, probably the most significant contributor to Ghana’s request
for an IMF bailout is the ballooning and unsustainable public debt less than
a decade after being granted HIPC debt relief to the tune of $4.2 billion. The
debt relief obtained under HIPC and the accompanying fiscal policy stance
resulted in a significant reduction of the debt burden. By the end of 2008,
Ghana’s total public debt stood at GH¢9.5 billion (33% of GDP). In the last
six years however, the stock of public debt has seen a dramatic increase to
GH¢76.1 billion (67.1% of GDP) at the end of 2014 (Figure 4). This is an
increase in the stock of debt by 700% (GH¢66.6billion) over a six year period
and it represents an average increase in the stock of debt by 116% a year.
14
As I have said before, this is a frightening rate of accumulation of debt by
any standard and demonstrates a degree of recklessness in the
management of Ghana’s debt. The Government is however on record as
saying that it has actually been undertaking “smart borrowing”. One can only
shudder to think what “not so smart borrowing” would look like. The Minister
of Finance has also recently stated that the increase in the debt stock “is not
our fault”. Really? Was it not this same government that responded to
warnings about the rate of borrowing by saying it had the capacity to borrow
and would continue borrowing? How then can it not be their fault? Who
increased the debt stock by GHC66.6 billion in six years? Is it the fault of
some dwarfs? Who did the “smart borrowing”?
0
10
20
30
40
50
60
70
80
2008 2009 2010 2011 2012 2013 2014
Figure 4: Ghana's Total Debt
2008-2014
15
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 25% (up from 10.6% in 2011) and bank lending rates
are on the rise because of excessive government borrowing. Lending rates
are now 30 percent. Figure 5 shows that the 91-Day Treasury bill rate which
was on a steady declining path between 2000-2007 but has subsequently
been on a more volatile upward trend. In aggregate, the 91-day Treasury bill
rate declined from 41.9% in 2000 to 24.8% in 2008 (a reduction of 17
percentage points). The rate further declined to 10.6% in 2011 but has since
increased to 25.8% in December 2014 (an aggregate increase of one
percentage point over the period 2008-2014).
Source: Bank of Ghana
0
5
10
15
20
25
30
35
40
45
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 5: 91-Day Treasury Bill Rate
2000-2014
16
Mr. Chairman, the interest burden of this high public debt stock has proven
to be extremely high. In 2015, interest payments alone on the debt would
amount to GHC9.57 billion. As Figure 6 shows, interest payments have
increased from GHC 679 million in 2008 to a projected GHC9.57billion in
2015 (an increase of 14 fold). Ghana’s total debt in 2008 was GHC9.5 billion
but interest payments in 2015 alone would amount to GHC9.5 billion.
Interest payment as a percentage of GDP has also increased from 2.8% in
2008 to 7.1% in 2015 (Figure 6b).
0
2000
4000
6000
8000
10000
12000
2007 2008 2009 2010 2011 2012 2013 2014 2015*
Figure 6: Interest Payments GHC Millions
2007-2015
17
These high interest payments occasioned by the astronomic accumulation
of debt within the last six years means that money which could have
otherwise been spent on critical areas have to be sunk into servicing these
debts. The picture becomes clearer when one compares the amount spent
on interest payments to allocations to various Ministries as spelt out in the
2015 Budget. The entire allocations from the budget (excluding internally
generated funds and donor contributions) to the following ministries are as
follows:
? Ministry of Food and Agriculture GHC61.0 million
? Ministry of Water Resources and Housing GHC198.7 million
? Ministry of Transport GHC180.3 million
0
1
2
3
4
5
6
7
8
9
Figure 6b: Interest Payments/GDP% 2000-
2015*
18
? Ministry of Roads and Highways GHC333.0 million
? Ministry of Trade and Industry GHC2.0 million
? Ministry of Fisheries GHC31.5 million
? Ministry of Health GHC44.5 million
? Ministry of Education GHC101.0 million
The total sum allocated to these 8 key ministries amounted to GHC952
million. Interest payment on Ghana’s public debt stock in 2015 would
amount GHC9.5 billion, i.e. 10 times the combined allocation of these eight
critical ministries.
Mr. Chairman, Ghana’s Interest payments in 2015 would amount to at least
four times Ghana’s projected oil revenue for 2015.The interest cost of the
debt is therefore depriving key sectors of critical resources. This situation is
in fact reminiscent of Ghana in the run up to HIPC where the debt burden
had taken away critical resources that could have enhanced capital and
social expenditure.
Mr. Chairman, the indebtedness of government has reflected in other sectors
of the economy. In the energy sector for example, government is highly
indebted to VRA and ECG. Government owes ECG some GHC700million
and owes VRA GHC1.0 billion. This has compromised the balance sheet of
19
VRA and its ability to import crude oil for the generation of power. This
situation has in turn forced VRA to over use the Akosombo dam by 30%
more than recommended since 2012 thereby causing the drop in the level of
the dam. Mr. Chairman, the untold story about the erratic gas supply from
Nigeria is that Ghana owes Nigeria Gas US$100 million. Nigeria Gas is
therefore dragging its feet with regards to the supply of Gas while this amount
is unpaid. Ultimately, the dumsor problem is more of a financial problem than
a technical one.
Mr. Chairman, Ladies and Gentlemen, it would also interest you to know that
Ghana has recently been sanctioned by the African Development Bank
(AfDB) for non-payment of debt obligations due. This sanction means that
signature of new AfDB loan agreements, disbursements on all AfDB ongoing
projects and the granting of any new loans have been suspended until
the situation is rectified. The sanctions were effective in January 2015. In this
regard, Ghana regrettably joins an exclusive list of nations currently under
AfDB sanctions. The other countries are Somalia, Sudan, Zimbabwe, and
Djibouti. Ghana’s arrears on its AfDB debt obligations only serves to
emphasize the pressure on government cash reserves as well as the poor
debt management. You cannot treat external debt obligations in the same
20
way as you treat your obligations to the NHIS, DACF, GETFUND or Road
Fund.
Mr. Chairman, at 67% of GDP, Ghana’s debt stock has crossed the critical
60% of GDP level that developing countries with limited access to capital
flows should worry about in terms of debt sustainability. In fact, Ghana is
right back to the debt unsustainability that led to HIPC. However, HIPC debt
relief will not be available again. Ghana’s status can thus best be described
as that of a Highly Indebted Lower Middle Income Country (HIMIC).
Mr. Chairman, notwithstanding the massive increase in the debt stock,
capital expenditure as a percentage (%) of GDP has actually been on the
decline from 9.1% of GDP in 2008 to 4.8% by 2014 (Figure 7). Capital
expenditure as a percentage of GDP averaged 11% for 2001-2008 (without
oil) while that for 2009-2014 has averaged 6% (with oil).
21
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. The numbers indicate
that relative to GDP, this government is investing about half what the
previous government invested in infrastructure. It is in fact a travesty that
Ghana before the discovery of oil was spending a higher proportion of its
income on infrastructure investment than after the discovery of oil and the
massive increase in the debt stock. This decline in investment in
infrastructure runs counter to what one would have expected. Even though
the allocation of oil revenues is skewed towards infrastructure, the decline in
0
1
2
3
4
5
6
7
8
9
10
2008 2009 2010 2011 2012 2013 2014
Figure 7: Capital Expenditure/GDP% 2008-
2014
22
capital spending means that the infrastructure expenditure from oil revenues
is substituting for rather than adding to existing capital expenditure. After all
the loans, all the taxes and all the oil, how can investment in infrastructure
relative to GDP be at half the level that it was in 2008 (without oil)? This
means that if the government had just maintained the 2001-2008 levels, it
would be doing twice as much as it is doing now in the areas of roads, water,
schools, hospitals, energy, etc. The sad decline in infrastructure investment
partly explains why GDP growth has declined significantly from 15% in 2011
to a projected 3.5% in 2015.
Mr. Chairman, it is therefore clear that most of the increase in the debt stock
has not gone into capital expenditure. A case in point is the utilization of $1
billion Eurobond proceeds received in 2014. While the Government sought
to convince the public that the sovereign bond monies had been used for
infrastructure investment, the evidence shows otherwise. A look at the Bank
of Ghana Monetary Accounts for 2014 reveals the true picture, which is that
the sovereign bond has rather been used to reduce Government
indebtedness to the central bank and not applied for the purpose for which
the funds were borrowed. This is why the government cannot seem to be
able to answer the simple question as to what the funds were spent on. One
23
wonders why our economic managers can’t just be honest when these
issues come up?
Mr. Chairman, I wonder how this high rate of borrowing and interest
payments which has led to an increase in interest rates, deprived the state
of resources in several critical sectors like health and education, led to lower
investment in infrastructure and led the country to the doors of the IMF for a
bailout, can be described as “smart”. This must indeed be a new form of
“smart” we are not aware of. It is like asking an alcoholic why he is drinking
so much and he tells you that he is doing “smart drinking”.
LOOSE MONETARY POLICY
Mr. Chairman, I now turn to the role of the Bank of Ghana’s monetary policy
in our journey towards the IMF bailout. The Bank of Ghana is responsible for
maintaining price and exchange rate stability in Ghana. To do this, the Bank
of Ghana adopted an inflation targeting monetary policy framework in the
context of a market determined exchange rate regime in 2002. The inflation
targeting monetary policy framework uses the interest rate as the instrument
24
to maintain price stability. If inflationary expectations are heightened, the
framework would generally call for an increase in interest rates and viceversa.
A disciplined adherence to this framework is important for success but
the framework can easily be unraveled if the central bank increasingly
becomes the source of financing government fiscal deficits over time.
Unfortunately this has been the recent experience of Ghana.
Mr. Chairman, as I stated last year, excessive fiscal expansion creates
problems in many developing countries because it tends to be largely
monetized and the excess injection of liquidity results in inflation and
exchange rate depreciation. This has been Ghana’s experience in the last
four years. There has been a dramatic increase in central bank financing of
government recently (i.e. equivalent to the printing of money), in addition to
borrowing to finance the fiscal deficit. Central bank financing (net claims on
government) has increased from GH¢1.45 billion in 2008 to GH¢13.95 billion
by 2014, an 863% increase (Figure 8).
25
Mr. Chairman the excess printing of money to finance the fiscal deficit causes
inflation. In accommodating Government in this manner, the Bank of Ghana
is by itself undermining the value of the currency that it is required by law to
protect. After declining from 40.5% at the end of 2000 to 18.1% at the end of
2008 (an aggregate decline of 12.0 percentage points) inflation further
declined to 8.5% in 2010 but has since increased to 17% by the end of 2014
(an aggregate decline of 1.1 percentage point between 2008 and 2014) -
Figure 9. Non-Food inflation increased from 19.1% in 2008 to 23.9% by the
end of 2014. I will return to these official inflation numbers later.
0
2000
4000
6000
8000
10000
12000
14000
16000
2007 2008 2009 2010 2011 2012 2013 2014
Figure 8: BOG Financing of
Government 2007-2014
BOG Financing of
Government 2007-
2014
26
Source: Bank of Ghana
Furthermore, the inflation targeting framework that the Bank of Ghana is
pursuing is inconsistent with a simultaneous attempt to control the exchange
rate. In general you cannot maintain a fixed exchange rate and at the same
time have an independent monetary policy. Unfortunately and very
surprisingly, the Bank of Ghana tried to do this in 2014 in the face of a major
depreciation of the cedi.
The Bank of Ghana imposed foreign exchange controls. In particular,
0
5
10
15
20
25
30
35
40
45
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 9:Consumer Price Inflation
(2000-2014)
27
1. Exporters were directed to have their export proceeds repatriated
within 60 days and such earnings should be converted into cedis
within 5 days of receipt.
2. Withdrawals from foreign currency accounts (FEA and FCA) would
be paid in cedis except for $10000 for travel purposes.
Not surprisingly, these measures added an element of uncertainty to
Ghana’s exchange rate regime and created panic in the foreign exchange
market.
These exchange controls resulted in a wide divergence between the Bank of
Ghana rate and the interbank market and forex bureau exchange rates. The
mismanagement of the exchange rate and the resulting depreciation proved
to be very costly to the Ghanaian economy, affecting individuals and firms
alike.
Deteriorating External Payments Position
28
Mr. Chairman, another major factor that has led to Ghana seeking an IMF
bailout is that Ghana’s external payments position has also deteriorated
(consistent with the deterioration of public finances) with increasing current
account deficits and a fragile foreign exchange reserves position. The
current account of the balance of payments has seen a steady deterioration
over the last four years, increasing from a deficit of $2.77 billion (8.3 percent
of GDP) in 2010 to $4.92 billion (12.2 percent of GDP) in 2012 and $5.8
billion (13.2 percent of GDP) in 2013. The deficit narrowed to $3.6 billion
(10.2% of GDP) in 2014 (Figure 10).
-14
-12
-10
-8
-6
-4
-2
0
2
4
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 10: Current Account Deficit/GDP%-
(2000-2014)
29
Source: Bank of Ghana
This is the first time in Ghana’s history that the current account has registered
double digit deficits three years in a row.
The persistently high current account deficits contributed to a significant
decline in Ghana’s foreign exchange reserves. Ghana’s net international
reserves declined from a peak of $4.4 billion in 2011 (equivalent to 3.1
months of import cover to $950 million in September 2014 (equivalent to 0.6
months of import cover) – Figure 11.
Source: Bank of Ghana
0
0.5
1
1.5
2
2.5
3
3.5
2008 2009 2010 2011 2012 2013 Sep-14 Dec-14
Figure:11: Net International Reserves in Months of
Import Cover 2008-2014
30
In terms of months of import cover, that was the lowest import cover for the
NIR since 2000 and the lowest for any middle income or oil producing country
in the world. At the end of 2014, and also as a result of the $1 billion
Eurobond proceeds and the cocoa syndicated loan, Ghana’s net
international reserves cover had improved to 2.2 months of import cover2
.
This shoring up of foreign exchange reserves through borrowing from the
international capital market is not sustainable. It is like when a guy borrows
his friend’s car to impress a girl he has met. She may be initially impressed
but very soon his friend would come for his car and the girl will find out that
he does not actually own a car! It is not a sustainable strategy.
Mr. Chairman, in response to the deterioration of the external payments
position, the exchange rate of the Ghana Cedi has also depreciated sharply
following the expansive fiscal and monetary policy stance (Figure 12).

2 Bank of Ghana Monetary Policy Committee, February, 2015.
31
Source: Bank of Ghana
In 2014, the Ghana Cedi depreciated by 31% against the US dollar, making
it one of the worst performing currencies in Africa in 2014. The depreciation
of the cedi has continued in 2015, with an 11% loss in value between
December 2014 and March 2015 thus far. Between 2001 and 2008, the cedi
depreciated cumulatively against the US dollar by 51% in eight years.
Between 2009 and March 2015 so far, the cedi has depreciated cumulatively
by 98% after just six years (Figure 12b).
0.0
5000.0
10000.0
15000.0
20000.0
25000.0
30000.0
35000.0
40000.0
Figure 12: Exchange Rate Cedis/US$ 2000-
2015
32
Mr. Chairman, on the financial sector, I would like to note that while the
banking system has been described as generally stable, vulnerabilities
remain. The weak economy and huge borrowing from government threatens
stability. The entire financial system is at risk from rising non-performing
loans (NPLs). Standard Chartered Bank for example, a well-managed bank,
has seen its NPLs increase from 15.5% in 2013 to 27.3% in 2014. According
to Stanchart’s financial statement for 2014, “The increase is attributable to
exposure of some of our customers to payment delays from
government”. The NPLs in the non-Bank sector in particular is becoming
explosive and the Bank of Ghana has signaled that it may soon review capital
requirements for the entire system.
0
20
40
60
80
100
120
2001-2008 2009-2015
Figure 12b Exchange Rate Depreciation
Cedis/US$ 2000- Mar. 2015
33
Growth is Fast Declining
Mr. Chairman, another major reason why Ghana has requested an IMF
bailout is because the economic growth in the country is on a steep decline.
Real GDP growth has declined from 15% in 2011 (with the onset of oil
production to a projected 3.5% in 2015 (including oil) – Figure 13. The
decline in economic growth is reflected across all sectors (Agriculture,
Industry and Services). The 2015 budget is projecting non-oil growth of 2.7%
in 2015. These facts are as revealing as they are disturbing. The growth rate
in 2015 would be just about what it was in the year 2000 and half the rate of
the 8.4% achieved in 2008 without oil! Non-oil growth in 2015 will be below
the growth rates attained in 2000. When growth is declining this sharply,
government revenue targets would also be compromised relative to
expenditure and budget deficits would increase.
34
With the decline in economic growth, it is not surprising that unemployment
is on the rise. Job creation is the ultimate measure of success of economic
policy. No matter what a government does, no matter the statistics and no
matter the projects any government can claim, if at the end of the day,
graduates and the youth in general cannot find jobs to build their lives, then
all those claims are pointless. If at the end of the day, economic policy leaves
millions unemployed and with no hope of finding jobs, then the government
would have failed the country and especially the youth.
Figure 13b is a summary of the health condition of the Ghanaian economy,
an Economic Odometer. It indicates that the economic conditions are for the
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Figure 13: Real GDP Growth% 2000-2015
35
most part in red (bad). Ghana is in a bad state of economic health. As at
August 2014 when the Government asked for the IMF bailout, the economy
was characterized by:
? Declining Real GDP Growth
? Rising Cost of Living
? Depreciating exchange rate
? Declining Net International Reserves.
? Increasing Financial Sector Fragility
? Deteriorating Energy Situation- Dumsor
? Rising Interest Rates
? High Risk of Debt Distress
? Declining Business Confidence
? Declining Consumer Confidence
? Increased Fuel and Utility Prices
? Large Fiscal Deficits
? Arrears to DACF
? Arrears to GETFUND
? Erosion of Policy Credibility of Government
? Increasing Perceived Corruption
? Arrears to Pensions
? Arrears to NHIA
? Worsening Sanitation
? Rising Youth Unemployment, and
? Double digit current account deficits
36
All these negative developments point to the fact that Ghana has squandered
the opportunities offered by HIPC debt relief and the oil discovery and in the
process government has lost policy credibility..
FIGURE 13 (b). ECONOMIC ODOMETER
37
Notwithstanding these adverse developments government continued to
insist that we were only going through a few challenges. They refused to
admit that we were in a crisis. After a period of dithering, the government
finally faced the reality of its inability to meet its obligations on a sustainable
basis by opting for an IMF bailout in August 2014. Even when the decision
was made, there was a reluctance by government to admit it. Government
ministers explained variously that it was not a bailout but rather “technical
assistance”. Government also explained that Ghana was this time around
going to the IMF with its own conditions and could thus not be dictated to by
the IMF. This left many people confused. If you have your own program to
implement why would you need the IMF to come and implement it for you?
How can one be seeking bailout from an institution and be setting the
conditions it wanted to follow?
But just as with pregnancy that cannot be hidden for nine months, when the
crisis finally became unbearable, government requested for an IMF bailout.
Government admitted that it needed the IMF bailout not only for the money,
but more importantly for policy credibility. Unfortunately, because of the
delay in taking the decision for an IMF bailout, Ghana entered the
negotiations in a very weak position. This drawn out negotiation was
concluded with the IMF staff in February 2015 and is awaiting Board
38
Approval in April 2015. Following the conclusion of negotiations, the IMF
announced that3
:
“ The main priority of the program is to restore debt sustainability
through a sustained fiscal consolidation and to support growth with
adequate capital spending and a reduction in financing costs. The
program rests on three pillars-
? restraining and prioritizing public expenditure with a
transparent budget process,
? increasing tax collection, and
? Strengthening the effectiveness of the central bank monetary
policy”4
.
Mr. Chairman, this statement is very revealing regarding the IMF’s
assessment about the state of the economy. The IMF view inter alia is that:
? Ghana’s debt is unsustainable
? Financing costs are too high
? Capital spending is inadequate to drive growth
? Public expenditure levels are too high

3 The views expressed following the conclusion of negotiations are those of the staff and not the Executive Board
of the IMF
4
IMF Mission Statement. Press Release No. 15/76. Accra February 26, 2015
39
? Tax collection is on the low side relative to expenditure
? The Bank of Ghana’s monetary policy is not effective
Does this sound familiar?
WHAT ARE THE CONDITIONS FOR THE IMF BAILOUT?
Mr. Chairman, following the negotiations, the IMF agreed to provide Ghana
with $940 million Extended Credit Facility (ECF) over a three year period
(2015-2017) provided the Government of Ghana meets certain conditions.
Like a doctor dispenses medicine according to the diagnosis of the ailment,
the IMF would set conditions for the loan that are in line with its diagnosis of
what is ailing the Ghanaian economy. From statements of the government
as well as the IMF (including recent IMF staff assessments), the type of
focused conditionality under similar ECF and other programs in Zambia,
Tanzania, Jamaica, Grenada, etc. and reading between the lines, one can
surmise that the key conditions for the bailout program would include the
following:
40
1. To restore debt sustainability, the policy prescription is to achieve this
through “sustained fiscal consolidation”. This basically means that
government would have to reduce its fiscal deficits over time (from
9.5% of GDP in 2014 to 3.5% of GDP by 2017). There is no debt relief
available as was the case with HIPC and so there can be no reprieve
from debt repayments.. This time around Ghana will have to bear the
burden of adjustment itself. In 2015 for example the agreement is to
reduce the fiscal deficit from 9.5% to 7.5% of GDP. This is to be
achieved through:
? Expenditure Cuts, including cuts in capital expenditure
? Increases in tax collection
? Elimination of government subsidies e.g. on utilities.
? Measures to eliminate ghost workers on government
payroll
Mr. Chairman, in my lecture last year and even in 2013, when I identified the
high fiscal deficit as a problem, the government would not listen. Today
because it is the IMF offering the same assessment, the government
response is “Yes Sir Massa we agree with you”
41
2. The government would as part of fiscal consolidation, have to reduce
its borrowing and accumulation of debt. When some of us made this
recommendation last year, the President responded that the
government would even borrow more because they were not
borrowing to drink tea! Today because it is the IMF offering the solution
as a condition, the government response is “Yes Sir Massa we agree
with you”
3. To give legal backing to the process of fiscal consolidation, the
government is likely to be required by the IMF to pass a Fiscal
Responsibility law. A Fiscal Responsibility law will require governments
to declare and commit to a fiscal policy that can be monitored. It will
include fiscal rules and provisions for transparency and sanctions.
Mr. Chairman, in my lecture here last year and earlier in November 2013
when I delivered a lecture to mark the anniversary of the passing of Ghana’s
Former Vice-President, Alhaji Aliu Mahama, I offered this same piece of
advice to government but the Minister of Finance responded that it was not
necessary. Today because it is the IMF offering the solution as a condition,
the government response is “Yes Sir Massa we agree with you”
42
4. To prevent the runaway printing of money by the central bank to
finance the large deficits of government, the IMF is requiring that Bank
of Ghana reduces its lending to government to zero by 2016. This
means that in 2016 (the election year) the Bank of Ghana would not
be allowed to lend any money to government.
Mr. Chairman, in my lecture last year, when I advised that the central bank
was printing too much money to finance government, the Bank responded
that it was not the case. Today, because it is the IMF offering the same
assessment, the government has agreed with it.
5. As the IMF has stated, government would be required to remove all
subsidies on utilities and petroleum products. This will cause increased
hardships.
The removal of subsidies will also mean a strict implementation of the
automatic price formula for utilities and petroleum products. Mr. Chairman,
many in civil society as well as the minority political parties have criticized
government for not applying the automatic adjustment formula for petroleum
products, especially given the global decline in oil prices. The government
43
has refused to listen. Today, because it is the IMF offering the solution as a
condition, the government has agreed with it. For , I would like to urge the
government to publish all the elements of the automatic price formula so that
we can all monitor.
6. Government has also apparently agreed to begin the rationalization of
public sector staff through a combination of worker layoffs and
voluntary retirements. My understanding is that government wants the
IMF agreement to delay the worker layoffs until after the 2016 election.
I wonder why? I suppose the message is “vote for me before I fire
you”.
Mr. Chairman, the Bank of Ghana, especially last year, cast doubt on its
ability to competently manage the foreign exchange market following the
hastily announced foreign exchange control measures which virtually
confiscated the foreign exchange deposits of firms and individuals. These
measures, which were later reversed after they had proved
counterproductive, if anything, worsened the plight of the cedi and
undermined confidence in the Central Bank and the Ghanaian financial
sector generally. In this regard the IMF has signaled that it would be
44
introducing reforms to make the foreign exchange market more efficient and
transparent. To achieve this:
7. There would have to be a transparent quotation of exchange rates by
the Bank of Ghana to reflect market conditions. This would make sure
that the Bank of Ghana does not manipulate exchange rates in such a
way as to create a major divergence between the Bank of Ghana rates,
forex bureau rates and interbank rates.
8. Mr. Chairman, I also understand that the Bank of Ghana may be
required to eliminate the compulsory surrender requirements of foreign
exchange by exporters. Gold exporters for example will no longer be
required to surrender their foreign exchange to the Bank of Ghana.
Mr. Chairman, this potential reform makes me a little nervous because I am
not quite sure we are ready for this. However, I would much rather trust the
foreign exchange market to allocate foreign exchange efficiently than the sort
of exchange rate management that we witnessed in 2014 by the Bank of
Ghana. One downside of this potential reform is that since most exporters
bank with just a few banks, the foreign exchange market would end up being
dominated by just a few banks. If indeed, it is true that this reform is being
45
introduced, then I can only hope that the Bank of Ghana is much better
informed than the rest of us because if they get it wrong, we would see more
depreciation of the cedi this year.
WILLTHE IMF BAILOUT ANCHOR HOLD?
Mr. Chairman, the big question is whether the IMF bailout would provide the
anchor necessary to propel Ghana’s economy on a path of sustained growth
and prosperity. If the program is successfully implemented as designed, it
should restore macroeconomic stability, policy credibility, investor
confidence and unlock donor funds. However $940 million is not a lot of
money over three years (an average of about $313 million per year). It is the
equivalent of the building cost of three Kumasi markets under this
government’s pricing. We should recall that the government issued a US$1
billion sovereign bond in 2013 and that was not sufficient. The government
issued another US$1 billion in 2014 and that was not sufficient. So what
difference would US$313 million a year make?
The IMF would however provide us the analytical rigor that is presently
lacking in the economic management space as evidenced by the policy
46
failure that has led us to seek an IMF bailout. It is clear that an analytical
anchor is very much needed.
Mr. Chairman, what we should all recognize is that economic policies and
the responsibility for their implementation is ultimately that of government.
The IMF can design the best policy framework for you and if you mess up in
the implementation, the country can end up in a mess. The IMF bailout is
meant to restore macroeconomic stability through fiscal consolidation.
Experience has shown that the IMF policy framework can provide an anchor
for macroeconomic stability but in the case of Ghana at least governments
have usually pursued policies that have returned the country onto a path of
macroeconomic instability for electoral gain. At the end of the day we have
to do it ourselves.
? Dealing with corruption is key to our development. However, the IMF
cannot stop the corruption such as those associated with Woyome,
GYEEDA, SADA, SUBAH, etc. if the political will to do so is not there.
We have to do it ourselves.
? The issue of National ID cards for the population is very important.
However, the IMF would not tell you to issue National ID cards even
47
though this is very critical to growth and development. We have to do
it ourselves. Why can’t we issue national ID cards seven years after
the National Identification Act was passed?
? Mr. Chairman, financial inclusion is also a key pillar for development.
Too many Ghanaians do not have a bank account. Without this, there
would always be insufficient savings in the financial system. But the
IMF would not tell you to make sure most of your citizens have bank
accounts. We have the technology to change this within a year. We
have to do it ourselves.
? As a country, the benefits of moving from cash-based economy to an
electronic payments based one are enormous. The IMF would
however not tell you to move towards electronic payments and away
from a cash economy. We have to do it ourselves.
? Economic transformation and job creation should be at the heart of any
economic strategy for Ghana. However, the IMF bailout would not
provide us a path towards economic transformation and job creation.
We have to do it ourselves.
48
? Tax policy is very important in providing incentives to the private sector.
The IMF bailout will however not tell you that in fact, you can increase
tax collection by reducing taxes strategically. For example the marginal
tax rates were reduced from 32.5% in 2003 to 25% by 2007 and yet
government had higher tax revenue. We have to do it ourselves.
? Mr. Chairman resolving the current energy crisis is so critical for
economic growth. However, the IMF will not tell you how to resolve
“dumsor” (power outages). It will not tell you not to sign a 10 year
emergency power deal to address a two year problem. It will also not
tell you to wait for three years of dumsor before looking for an
emergency solution. The government’s approach to the delivery of
emergency power from Turkey or General Electric does not reflect the
seriousness of the power situation. As I speak today, my
understanding is that the Turkish power barges had not left Turkey as
of last week and so the promise that they will be here to deliver power
in April is not likely to be met. The IMF cannot do this for us. We have
to do it ourselves.
49
? Mr. Chairman, agriculture holds the key to our economic
transformation. However, the IMF program will not tell you to pay
attention to agriculture. We have to do it ourselves.
? Mr. Chairman, an IMF program does not guarantee fiscal discipline.
Only a commitment to fiscal discipline by the government can
guarantee it. Zero central bank financing is certainly new territory for
Ghana. Will this government be disciplined in an election year (2016)?
Most analysts are rightly skeptical. Notwithstanding the bailout
agreement with the IMF, on March 20, 2015 Moodys downgraded
Ghana’s credit rating further into ‘junk” territory (to B3) with a negative
outlook. This is six levels below investment grade and signifies high
credit risk. This means that investors are not yet convinced about the
prospects for the economy even with an IMF bailout. Ghana would
have to do a lot to convince the markets that it is committed to the
program. It is in this regard that the announcement last week that
Ghana was seeking new bridging loans of up to $1.5 billion was quite
shocking. It demonstrates a lack of understanding or appreciation of
Ghana’s debt dynamics by the government. How can the government
be seeking to contract this magnitude of non-concessional loans at this
50
time when it does not have enough cash to meet statutory payments?
This is like an alcoholic who has just been convinced to enter rehab
and just a few days before rehab asks for a carton of whisky! Can this
person be trusted to stick with the rehab program? Undertaking this
additional borrowing would mean that the anchor is not likely to hold
as it would compromise the objective of fiscal consolidation and debt
sustainability. Given Ghana’s economic situation, this bailout program
will require a commitment to fiscal discipline that will test the resolve of
any government in a developing country such as ours and it is
important that the government understands what it has signed up for.
We should collectively be prepared for some painful adjustments.
? Mr. Chairman, this IMF bailout would require that wage increases are
very minimal if the targets are to be met. How understanding would
labour be as the austerity program bites? If labour demands higher
wage increases to compensate for the increase in austerity, the
program targets for fiscal consolidation may not be met. Workers are
already suffering from increases in prices of petroleum products,
utilities, goods and services, layoffs (the Industrial and Commercial
Workers Union is expecting some 2000 workers to lose their jobs by
51
June as companies cut back or shut down due to the high cost of doing
business) and the effects of dumsor, etc. Take the increase in
petroleum prices as one example. Figures 14 and 15 shows the price
of Premium Gasoline and kerosene as a percentage of the daily
minimum wage between 2000 and 2014.
0
10
20
30
40
50
60
2000 2008 2014
Figure 14: Price of Kerosene/Litre as a % of
the Daily Minimum Wage
52

By 2014, the price of kerosene and premium petrol per litre, relative to the
daily minimum wage, was almost double that in 2000 and 2008. Furthermore,
the 2009-2014 period has seen an almost doubling of the change in these
product prices as a percentage of the increase in the minimum wage
compared to the 1992-2000 and 2001-2008 periods. It is therefore clear that
workers are being squeezed. How much more austerity can workers take?
If expectations are not well anchored, the success of the program would be
compromised. Most Ghanaians have no idea how difficult the adjustment to
this bailout program is going to be and this is partly because Government
continues to paint a rosy picture.
0
10
20
30
40
50
60
2000 2008 2014
Figure15: Price of Premium Gasoline/Litre as
a % of the Daily Minimum Wage
53
CREDIBILITY OF THE DATA
Mr. Chairman any economic and financial program is only as good as the
data used to formulate the program. Credible data provides the basis of the
analytical framework to respond adequately to economic challenges. If you
have make-believe data you will end up with counterproductive or
inadequate responses to economic policies. If your data is not credible, the
anchor cannot hold. With make-believe data as the basis, the best you can
achieve is make-believe results which will soon be exposed as we are
witnessing currently. I would like to examine the two most critical pieces of
data underlying the IMF program, GDP and Inflation. This data is produced
by the Ghana Statistical Service (GSS).
Mr. Chairman, credibility and reliability of key data like GDP and inflation is
important because:
? If the inflation and GDP data are wrong, the inflation targeting
framework will not work. The Monetary Policy Committee (MPC) may
end up reducing interest rates when in fact they should be increasing
interest rates.
54
? If the inflation and GDP data are wrong, then fiscal consolidation
targets would be wrong. Goals of debt sustainability may only be
achieved on paper. A higher GDP estimate than is the case would
lead to an overestimation of revenue. Expenditure based on this
overestimated revenue will result in budget deficits as the revenue
would not be realized.
? If the inflation and GDP data are wrong, then there will be a
disconnect between statistics and reality
? If the inflation and GDP data are wrong, then there will be a
breakdown in the expected relationships between economic
variables: e.g. inflation and depreciation, inflation and interest rates
? The bottom line is that the anchor will not hold if it is built on straw.
The GDP Data is Not Credible
55
Mr. Chairman, when the 2015 budget was announced, I had the opportunity
to point out that the purported growth of real GDP by 6.9% in 2014 was not
credible. How can an economy which went through so much turmoil in 2014,
with a 31% depreciation of the currency and massive load shedding register
real GDP growth of 6.9% only to decline sharply to 3.9% in 2015 when the
government claims the economy is in recovery? The Ghana Statistical
Service (GSS) subsequently revised the real GDP numbers5
. These revised
numbers are however still very problematic and the Ghana Institute for Fiscal
Studies (IFS) has recently pointed out these anomalies.
The revised GDP 2014 estimates (reproduced in Table 1 below) shows
growth rates of non-oil GDP at 2006 constant prices. The Table contains
some curious data. How can agriculture grow at 7.2%, industry at 4.5% and
services at 5.6%, but then overall GDP at basic prices grows at 2.2%?
The GSS also revised the estimates for net indirect taxes (in constant
terms). Curiously, however, real growth rates for net indirect taxes are equal
to real growth of GDP at basic prices for all the years since 2009 (Table 1).
We expect the growth of indirect taxes to correlate with the growth of GDP

5 Revised Gross domestic Product 2014. Ghana Statistical Service, January 2014
56
at basic prices, not to be equal all the time (Table 1 ).
Mr. Chairman, comparing the GSS net indirect taxes at constant 2006 prices
data to the figures in the 2015 budget appendices, for the same data
(reproduced in Table 2 below) is interesting. The Ministry of Finance is the
custodian of indirect tax data; its figures should not differ from the GSS, but
that's the case we have here. Where did the GSS get their data from? The
GSS needs to explain these anomalies in the data.
Table 2; Net Indirect Taxes: GSS and MOF
Table 1: Growth Rates of Non-Oil GDP at 2006 Constant Prices
2009 2010 2011 2012 2013 2014
Agriculture 7.2 5.3 0.8 2.3 5.2 5.2
Industry 4.5 5.6 16 8.5 3.6 3.5
Services 5.6 9.8 9.4 12.1 10.3 4.1
GDP at basic prices 2.2 7.6 8.2 8.6 6.7 4.1
Net Indirect Taxes 2.2 7.6 8.2 8.6 6.7 4.1
GDP at Purchasers values 2.2 7.6 8.2 8.6 6.7 4.1
57 Year
Net Indirect
Taxes at
Constant 2006
Prices - (GSS)
Net Indirect Taxes
at Constant 2006
Prices - (MoF)
2009 1,554.00 1,672.40
2010 1,677.00 2,654.40
2011 1,913.00 3,964.50
2012 2,090.00 2,532.90
2013 2,244.00 2,714.10
2014 2,338.00 2,840.20
The GSS Inflation Data is Suspect
Mr. Chairman, the data on inflation produced by the GSS does not appear to
reflect actual price developments. I have raised this issue before and I have
returned to it today with further and better particulars. The year 2014 was a
very bad one as far as the economy is concerned. The exchange rate
depreciated by 31%, utility and petroleum prices went up significantly and
economic growth declined but for some reason inflation, especially food price
inflation remained relatively subdued according to the Ghana Statistical
Service. Between January and December 2014, the rate of increase in food
prices as reported by the GSS actually declined marginally from 7.1% in
January to 6.8% by December. Non-food prices on the other hand increased
58
from 18.9% to 23.9% over the same period. Overall inflation increased from
13.8% to 17% on account of the decline in food price inflation (Figure 16).
Clearly, the supposed low rates and even decline in food price inflation
accounted for the relatively low inflation figures reported by the GSS (Figure
16).
Figure 16 :Inflation Trends 2014
0
5
1 0
1 5
2 0
2 5
3 0
Overall Inflation
Food Inflation
Non-Food Inflation
Mr. Chairman, the decline in food price inflation is a curious phenomenon
worthy of further investigation because it defies evidence that suggests
otherwise. Most people one has talked to cannot believe that food price
inflation has declined. Market survey reports by Joyfm news (under the
59
heading “food prices killing Ghanaians”6 as well as the Finder news paper
(under the heading “70% hike in food prices in just one year”) indicate very
high increases in food prices7
.
Mr. Chairman, figure 17 suggests a structural break in the relationship
between food and non-food inflation since 2009. Between 2001 and 2008,
the relationship was much closer. Why did the relationship start to drift apart
and even move in opposite directions? Was there a deliberate attempt to
keep inflation down by fixing low food price inflation?

6 http://www.myjoyonline.com/business/2014/july-22nd/high-food-prices-killingghanaians.php#sthash.C2oTPSrD.dpuf
7 http://www.ghanaweb.com/GhanaHomePage/NewsArchive/artikel.php?ID=318014
60
To conclusively challenge the GSS estimates however, one needs
independent data for the individual food items in Consumer Price Index over
the period. Thankfully, such data exists and has been collected by the
Ministry of Food and Agriculture (MOFA) across all ten regions of the country
and published by the Statistics Research and Information Directorate of
MOFA.
Mr. Chairman, since the data was collected for the same commodities, and
over the same period across the country, one would expect a close
0.0
10.0
20.0
30.0
40.0
50.0
60.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Jan 2001
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Percent
Figure 17: Food Vs Non-Food Inflation 2001-2014
Food Inflation Non-Food Inflation
61
relationship between the two sets of price data, especially since these are
both government/state sources. Thus if we even decide to ignore all the
experiences of the market women and others, who complain of sharp rises
in food prices, we expect that at least, the figures of the Ministry of Food and
Agriculture, should to a large extent corroborate the figures of the Ghana
Statistical Service.
However, a comparison of the MOFA and GSS (both official sources)
estimates of food price inflation overall and across specific food items shows
very divergent estimates. Figure 18 shows that for 2014, while the MOFA
estimated an increase in overall food price inflation from 0.7% in January to
26% by December 2014, GSS on the other hand estimated a decline in food
price inflation from 5.7% in January to 2.8% by December 2014.
Figure 18: Food Price Inflation: GSS versus MOFA
62
0
5
1 0
1 5
2 0
2 5
3 0
3 5
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
Composite Food (GSS) Composite Food (MOFA)
Going to specific food items, the divergences are quite stark as well. A few
examples will suffice in the charts below for yam, rice, oranges, maize,
groundnuts, and smoked herrings (see figures 19-24 below). In all these
examples (as with the composite) the inflation measured by the MOFA is
significantly higher than the GSS estimates .
Figure 19 shows that for 2014, while the MOFA estimated an increase in yam
price inflation from 0.6% in January to 8.4% by December 2014, GSS on the
other hand estimated a decline in yam price inflation from 3.4% in January
to -1.8% by December 2014.
63
Figure 19: Yam Price Inflation: GSS versus MOFA
-10
-5
0
5
1 0
1 5
2 0
2 5
Yam -White (GSS) Yam -White (MOFA)
Figure 20 shows that for 2014, while the MOFA estimated an increase in rice
price inflation from -2.3% in January to 5.2% by December 2014, GSS on
the other hand estimated a decline in rice price inflation from 4.3% in January
to -11.6% by December 2014.
64
Figure 20: Rice Price Inflation: GSS versus MOFA
(20.000)
(10.000)
-
10.000
20.000
30.000
40.000
50.000
60.000
Rice - Local (GSS) 0.726 Rice - Local (MOFA)

Figure 21: Groundnut Price Inflation: GSS versus MOFA
-10
0
1 0
2 0
3 0
4 0
5 0
6 0
Groundnut -shelled (GSS) Groundnut -shelled (MOFA)
65
Figure 21 shows that for 2014, while the MOFA estimated an increase in
groundnut price inflation from 7.8% in January to 43.2% by December 2014,
GSS on the other hand estimated a decline in groundnut price inflation from
5.9% in January to -2.98% by December 2014.
Figure 22: Orange Price Inflation: GSS versus MOFA
-
10.000
20.000
30.000
40.000
50.000
60.000
70.000
Oranges (GSS) Oranges (MOFA)
Figure 22 shows that for 2014, while the MOFA estimated an increase in
oranges price inflation from 6.8% in January to 46% by December 2014,
GSS on the other hand estimated a decline in oranges price inflation from
9.9% in January to 4.9% by December 2014.
66
Figure 23: Maize Price Inflation: GSS versus MOFA
Figure 23 shows that for 2014, while the MOFA estimated an increase in
maize price inflation from 3.5% in January to 48% by December 2014, GSS
on the other hand estimated a decline in maize price inflation from 4.8% in
January to -2.3% by December 2014.
Figure 24 shows that for 2014, while the MOFA estimated an increase in
smoked herring price inflation from -0.4% in January to 35% by December
2014, GSS on the other hand estimated an increase in smoked herring price
inflation from 4.7% in January to 12.7% by December 2014.
(10.000)
-
10.000
20.000
30.000
40.000
50.000
60.000
70.000
80.000
Maize (GSS) Maize (MOFA)
67
Figure 24: Smoked Herring Price Inflation: GSS versus MOFA
Mr. Chairman, the MOFA estimates appear more consistent with the
observations and experiences of people than the GSS estimates. These are
prices of the same food items in the same markets across the country. Why
should there be such wide differences? The GSS needs to explain these
anomalies quickly to continue to maintain the confidence of the public. At the
end of the day, if the data is not credible, the anchor cannot be credible.
-10
0
10
20
30
40
50
Smoked Herrings (GSS) Smoked Herrings (MOFA)
68
CONCLUSION
Mr. Chairman, the IMF bailout was totally avoidable if the government had
listened to sound advice from many quarters much earlier. But government
refused to listen. They believed in their own propaganda and said “Yentie
Obiaa” (We won’t listen to anyone). When government was cautioned about
the scale of borrowing, the government responded that they would borrow
more. Now that their propaganda has been exposed by economic reality,
they are now forced to listen to the IMF. We have moved from “Yentie Obiaa
to “Yebetie IMF Nkoa” (we will listen to the IMF only).
Mr. Chairman, what is worrying is that the government is still unwilling to
admit the reality that the policies pursued over the last few years harmed our
economy. Government continues to rationalize and even justify these very
policies that have landed us in the hands of the IMF with claims like “Smart
Borrowing” still being pushed by the managers of our economy. With this
thinking, it is hard not to be worried about whether these same managers of
the economy will be willing or even able to oversee the significant changes
required to turn the tide and return the economy to a healthy state.
69
Ghana has had many IMF bailouts before. Will the anchor hold this time?
What is clear from our experience is that the anchor will have to be provided
by the commitment of the government and people of Ghana to fiscal
discipline and sound economic policies and not the IMF. Without this, the
anchor will not hold. The anchor certainly will not hold if the GDP and inflation
data on which the program is based is not credible. There are also many
other issues that are outside the remit of the IMF (e.g. corruption, agriculture,
National ID cards, financial inclusion etc.) which are critical for the anchor to
hold.
Mr. Chairman, I believe that with hard work, dedication, integrity and sound
economic policies, Ghana’s brighter days are ahead of us. We can do it
ourselves but as I continue to say, discipline and honesty remain the keys.
We can change the current reading of the Economic Odometer from red to
blue if we do the right things. Fellow Ghanaians, with good economic
management and incorruptible leadership, we can do it ourselves.
FIGURE 13 (b). ECONOMIC ODOMETER
70
Thank you for your attention
God bless you
God bless our homeland Ghana