We’re building new economy - Dr Bawumia

The Vice-President, Dr Mahamudu Bawumia, has assured Ghanaians that the government is building a new economy that is hinged on strong and resilient fundamentals.

“We are building a new economy under the leadership of President Nana Addo Dankwa Akufo-Addo,” he declared in a two-hour lecture delivered at the closing of the National TESCON Training and Orientation Conference at the Pentecost Convention Centre at Gomoa Fetteh in the Central Region on April 7.

Speaking on the state of the economy, the Vice-President stated: “We must celebrate our achievements, big or small, and not to tarnish or belittle them for the sake of politics.”

Notwithstanding the COVID-19 pandemic, Dr Bawumia posited that the agricultural sector was growing at double the rate it grew in the previous four years; the industrial sector was growing at double the rate of the previous four years, while the services sector had recorded a higher average growth than in the previous four years.

“I look forward to all of you playing a role in making our nation great and strong. We are on the right path. With sound policy, and by the Grace of God, we are bouncing back better and stronger,” he stated.

The TESCON is the youth and student wing of the New Patriotic Party (NPP).

The two-day event was attended by the First Lady, Rebecca Akufo-Addo; wife of the Vice-President, Samira Bawumia; the Chairman of the NPP, Freddy Wosemawu Blay; the General Secretary, John Boadu; Ministers of State, NPP Members of Parliament and other national, regional and constituency executives.

First Lady Rebecca Akufo-Addo in a warm embrace with Dr Bawumia after his lecture yesterday. Picture: GABRIEL AHIABOR 

The Vice-President, who was called to deliver his lecture at 3:37 p.m., ended at 5:56 p.m.

Before he began to speak, he had to hold on for three minutes, as the members of TESCON besieged the frontage of the podium, amid singing and chanting Black Sherrif’s song “Kweku Frimpong”, which was acknowledged with waves by the Vice-President.

Fundamental

Dr Bawumia said issues about national economies and how well individual countries were handling their respective economic situations appeared to be the most important thing on people’s minds in recent times, and that from the man on the street to the business mogul, the food we ate, the clothes we wore, the shelter we sought or had, to the benevolence we extended to friends and family, the health of the economy was the cardinal instrument.

Inflation

On inflation, he said the pandemic, which started early 2020, resulted in the greatest economic depression since the 1930s, with most countries recording negative growth.

Supply chain disruptions and the rising price of oil, he indicated, had resulted in major increases in the prices of fuel across the globe, with petrol prices doubling in many countries.

“The global increase in fuel prices is causing hardships in even the most advanced economies such as the United States of America (USA).

Furthermore, the global average cost of shipping a container has increased from $1,446 in December 2019 to $9,789 in February 2022 (an increase of 576%),” he explained.

That, he said, had dramatically increased the cost of shipping goods and, therefore, their prices on the market.

Food prices

On the prices of food, the Vice-President said the Food and Agriculture Organisation (FAO) Global Food Price Index increased from 95.1 at the end of 2019 to 140.7 in February 2022 (an increase of 48 per cent), adding that the increase in commodity prices had been exacerbated by the Russia-Ukraine conflict.

Citing the Ghanaian example, he said “30 per cent of our cereal grains, wheat flour and fertiliser is from Russia, 60 per cent of iron rods and metal sheets imports is from Ukraine, while 20 per cent of Ghana’s manganese exports is to Ukraine”.

He said global inflation was on the rise and many advanced economies, such as that of the United Kingdom (UK) and the USA, were experiencing their highest inflation rates in 30 and 40 years, respectively.

He pointed out that countries such as Algeria and Nigeria were all feeling the impact of price increases.

Using tables to buttress his arguments, Dr Bawumia said in the UK and USA, for instance, inflation was accelerating at three to four times its rate in 2019 before COVID-19, while in Cote d’Ivoire, inflation was accelerating at five times its rate before COVID-19.

Similarly, he said, inflation was accelerating at 1.3 to two times its rate before COVID-19 in Ghana and Nigeria.

The path of inflation in the country, he indicated, had been similar to those of other countries following the COVID-19 pandemic, with inflation declining from an average of 17.5 per cent in 2016 to an average of 7.2 per cent in 2020.

Dr Bawumia interacting with participants after the lecture. Picture: GABRIEL AHIABOR

Since the pandemic, however, he said, inflation had increased by an average of two per cent to an average 10 per cent in 2021 and rising further to 15.7 per cent in February 2022 as a result of global conditions, including a rise in crude oil and other commodity prices and the Russia-Ukraine conflict.

“It is important to note that between 2013 and 2016, inflation averaged 15.9 per cent; between 2017 and 2021, however, inflation averaged 10.4 per cent, notwithstanding the impact of COVID-19.

In the context of sub-Saharan Africa, he said, GDP growth in Ghana had consistently outpaced average growth in sub-Saharan Africa since 2017.

Interest rates

“Before COVID-19, the steady disinflation process provided for significant monetary policy easing. The Bank of Ghana’s Monetary Policy Rate (MPR) was cut by a cumulative 11 per cent between January 2017 and January 2021,” he added.

This process, the Vice-President explained, translated into a reduction in short-term interest rates, with the interest rate on the 91-day treasury bill declining from 21.2 per cent between 2013 and 2016 to an average of 13.8 per cent between 2017 and 2021.

He said lending rates had also fallen from an average of 28 per cent between 2013 and 2016 to an average of 23 per cent between 2017 and 2021.

Debt

Vice-President Bawumia, who also touched on the fiscal balance and debt, said: “The developments in the fiscal balance show a remarkable and sharp dichotomy between the fiscal deficit, which is the difference between government revenue and government expenditure before the COVID-19 and after COVID-19.”

He said the fiscal deficit between 2013 and 2016 averaged seven per cent of GDP, while that between 2017 and 2019, before the COVID-19, declined to an average of 4.5 per cent.

“For the first time in a decade, Ghana recorded primary balance surpluses for three years in a row, and to sustain the path of fiscal discipline, Parliament passed into law a Fiscal Responsibility Act that limits the fiscal deficit in any year to a maximum of 5 per cent of GDP and requires a positive primary balance,” he said.

Difficult decisions

With the sudden emergence of the COVID-19 pandemic, with devastating economic and health consequences, Dr Bawumia said, President Akufo-Addo and the government had to take some quick and difficult decisions.

“The approach of the government was summed up in the President’s famous statement: ‘We know how to bring back the economy, but we don’t know how to bring back lives’,” he stated.

He said the government made a deliberate and conscious decision to protect the lives and livelihoods of Ghanaians and mitigate the suffering of households, adding that “it had no option but to suspend the fiscal responsibility law to allow for increased expenditure”.

Notwithstanding the COVID-19, he said, interest rates were lower now than they were in the 2013-2016 period.

Focusing on the external sector performance with respect to the fundamentals, he said Ghana’s payments position was strengthened in the 2017-2021 period relative to the 2013-2016 years.

“For the first time in over 30 years, the trade balance recorded a surplus for five successive years.

“The trade balance was in deficit between 2013 and 2016 but moved from a deficit of $1.7 billion in 2016 to a surplus of $1.1 billion in 2017, a larger surplus of $1.8 billion in 2018, and an even larger surplus of $2.2 billion in 2019,” the Vice-President indicated.

However, he said, the impact of COVID-19 had seen a reduction in the surplus to $2.04 billion in 2020 and a further reduction to $1.1 billion in 2021.

Nevertheless, he said “this is still a much stronger performance than the trade deficit of $1.7 billion recorded in 2016”.

He made similar comparisons with the positive trade, improvement in the current account performance and increased capital inflows and production, which he said led to the abolition of at least 21 separate taxes and levies, most of them being manifesto promises.

He said no such broad-based reduction in taxes had been implemented by any government since independence.

Exchange rate

Touching on the exchange rate development, the Vice-President said there was a clear dichotomy for the depreciation of the cedi between 2013-2016 and 2017 -2021.

He said cedi depreciation reached a high of 32.5 per cent in 2014 and declined to 9.7 per cent by 2016. The rate of depreciation further declined to 4.7 per cent in 2017, before increasing to 12.9 per cent in 2019 and declining again to 3.9 per cent in 2020 and registering 4.1 per cent in 2021.

He said in the history of the Fourth Republic, the worst performances for exchange rate depreciation happened during 1993-2000 and 2009-2016.

Explaining further, he said such a depreciation could be attributed to a number of factors, including the financial markets’ assessment of the 2022 Budget, which generally concluded that the projected 40 per cent increase in revenue underpinning the budget would likely not materialise and, therefore, the deficit would be higher than projected.

The chaotic battle in Parliament over the budget created uncertainty and signaled to the markets that the government might not be able to get most of its programmes passed in a tightly balanced Parliament, he explained.

“That further reinforced the lack of confidence investors had in the budget,” Dr Bawumia posited.

Furthermore, he said, delays in implementing major tax reforms, such as the benchmark policy reversal, the tax exemptions bill, the common platform for property tax and the review of fees and charges appeared to support the assessment of the market that the government would have difficulty in getting its programmes through Parliament.

To add to that negative market sentiment, he said, there was a sovereign credit ratings downgrade by Fitch and Moody’s as a result of concerns about fiscal and debt sustainability, which resulted in an unwillingness of foreign investors to roll over holdings of domestic debt.

Rather, they demanded foreign exchange to repatriate their investments.

There was also speculative demand for the US dollar as panic set in, he stated.

The combination of those factors, Dr Bawumia said, resulted in a sharp depreciation of the cedi exchange rate in the first quarter.

He said the government approach to ensuring efficient delivery and stemming corruption led to the widespread and aggressive digitalisation of the ports, the Births and Deaths Registry and the rest.

“The process of digitalisation of the records is almost complete and the three databases have been cleaned up and integrated.

“Furthermore, we are integrating the Births and Deaths Register with the databases of the Ghana Health Service, the National Identification Authority, the Ghana Statistical Service, the Immigration Service and the police, so that the record of births and deaths should be consistent across all these databases,” the Vice-President stated.

Conclusion

“Everything we have done since then is in keeping faith with this contract we hold sacred. From our flagship programmes in education, health, agriculture, industry and digital transformation initiatives, through entrepreneurship and youth employment, we have held nothing back in working towards achieving this dream, night and day,” Dr Bawumia said.

In the face of all the challenges, he said, “I am humbled by the overwhelming support and cooperation we have received from the people of Ghana.”