Bawumia doubts success of IMF bailout
A Visiting Professor of Economic Governance at the Central University College (CUC), Dr Mahamudu Bawumia, has said any economic and financial programme is only as good as the data used to formulate the programme.
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He, therefore, argued that the anchor being sought from the IMF for Ghana’s economy would not hold if the data upon which the programme was built were not credible.
According to Dr Bawumia, who is also the running mate of the 2016 presidential candidate of the New Patriotic Party (NPP), there were inconsistencies with the two main sets of data on inflation and gross domestic product (GDP) which provided the basis on which the IMF programme was fashioned.
He was speaking on the topic: “The IMF bailout: Will the anchor hold?” at a public lecture organised by the CUC as part of its Distinguished Speaker Series.
According to Dr Bawumia, credible data provided the basis of the analytical framework to respond adequately to economic challenges.
“If you have make-believe data, you will end up with counter-productive or inadequate responses to economic policies. If your data are 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,” he told the gathering of academia, politicians, captains of industry and finance, as well as civil society.
Inflation
Touching on inflation, the former Deputy Governor of the Bank of Ghana explained that inflation data were suspect.
“Mr Chairman, the data on inflation produced by the Ghana Statistical Service (GSS) do 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,” he stated.
He said the year 2014 was a very bad one as far as the economy was concerned.
“The exchange rate depreciated by 31 per cent, 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 GSS,” he stated.
He also said between January and December 2014, the rate of increase in food prices, as reported by the GSS, actually declined marginally from 7.1 per cent in January to 6.8 per cent by December.
Non-food prices, on the other hand, increased from 18.9 per cent to 23.9 per cent over the same period, he stated.
Overall inflation, he said, increased from 13.8 per cent to 17 per cent on account of the decline in food price inflation.
“Clearly, the supposed low rates and even decline in food price inflation accounted for the relatively low inflation figures reported by the GSS,” he said.
The evidence on the ground, according to Dr Bawumia, did not appear to corroborate the food price inflation being churned out by the GSS and pointed out that since 2009 the normal relationship between food and non-food inflation seemed to no longer exist.
Decline in food price
He said the decline in food price inflation was a curious phenomenon worthy of further investigation because it defied evidence that suggested otherwise.
“Most people one has talked to cannot believe that food price inflation has declined. Market survey reports by Joy FM News (under the heading “Food prices killing Ghanaians”), as well as the Finder newspaper (under the heading “70 per cent hike in food prices in just one year”) indicate very high increases in food prices,” he stated.
He said one could observe a structural break in the relationship between food and non-food inflation since 2009.
Between 2001 and 2008, Dr Bawumia said, the relationship was much closer, and asked: “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?”
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He proceeded to reveal that contrary to expectations, the Ministry of Food and Agriculture, which collects the same data on food price inflation, had totally different estimates which appeared to be more realistic than the GSS data.
“To conclusively challenge the GSS estimates, however, one needs independent data for the individual food items in the Consumer Price Index over the period. Thankfully, such data exist and have been collected by the Ministry of Food and Agriculture (MoFA) across all 10 regions of the country and published by the Statistics Research and Information Directorate of MoFA,” he said.
He said since the data were collected for the same commodities and over the same period across the country, one would expect a close relationship between the two sets of price data, especially since those data were from both government and state sources.
Thus, according to Dr Bawumia, “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 GSS”.
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“However, a comparison of the MoFA and the GSS (both official sources) estimates of food price inflation overall and across specific food items shows very divergent estimates,” he noted.
The former Deputy Governor of the Bank of Ghana then proceeded to expose the differences between the two sets of data to the audience.
On the composite food price inflation data, he stated: “While the MoFA estimated an increase in overall food price inflation from 0.7 per cent in January to 26 per cent by December 2014, the GSS, on the other hand, estimated a decline in food price inflation from 5.7 per cent in January to 2.8 per cent by December 2014.”
GDP figures
Dr Bawumia also touched on GDP figures, which he said were also suspect and could not be relied upon.
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“When the 2015 budget was announced, I had the opportunity to point out that the purported growth of real GDP by 6.9 per cent in 2014 was not credible. How can an economy which went through so much turmoil in 2014, with a 31 per cent depreciation of the currency and massive load shedding register real GDP growth of 6.9 per cent, only to decline sharply to 3.9 per cent in 2015 when the government claims the economy is in recovery?
“The GSS subsequently revised the real GDP numbers. 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 show growth rates of non-oil GDP at 2006 constant prices. The data contain some curious data. How can agriculture grow at 7.2 per cent, industry at 4.5 per cent and services at 5.6 per cent, but then overall GDP at basic prices grows at 2.2 per cent?” he queried.
Dr Bawumia first questioned the data churned out by the GSS in May 2012 when he delivered the Ferdinand Ayim Memorial Lecture.
His queries, however, drew sharp attacks on his personality by officials of the ruling government and the GSS, though the government and GSS were forced to eat humble pie a few weeks later when an IMF Team to Ghana directed the GSS to review its inflation basket.