Ghana’s economic revitalisation of debts; ‘wɔ gba jwɛi’

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The good people of Ghana voted massively for a party and candidate that sold to us a clear vision of prosperous Ghana, based on good governance principles,  a higher principle of accountability and greater fiscal responsibility in managing the resources of this Nation.

Today, we must ask ourselves if the directions sold by the then opposition leader who secured our mandate to govern from 7th January, 2017, kept to the direction sold and bought; has the guiding principles for economic management professed the same path taken today?

Principles of Good Budget

A Budget is a central government policy as to how it will prioritise and achieve its annual and multi annual goals and objectives. It is a policy contract between citizens and the state, telling us how resources will be raised and how those resources raised will be used for the delivery of public service and satisfying the development needs of the Nation thus propelling growth.

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The Budget is a plan that must guide us into reality. It must motivate and inspire confidence in the system to afford all stakeholders some reliability. Above-all it must be the basis of Accountability; how the resources of the State were allocated and utilized. And the rest is up to us as citizens to ascertain if the allocation and utilization of resources was done in a manner consistent with our Medium-Term Strategic Plan (MTSP) and whether the budget did achieve its objective of propelling growth.

A good Budget must have limits and predictable limits for that matter. This is the reason for sound fiscal policy that avoids the build-up of large, unsustainable debts but rather build-up resilience and buffer against more difficult times and unforeseeable external pressures.

Our Budget must be closely aligned with the medium-term strategic plan of government and therefore we must ascertain whether we are on track and if not, why? We do this effectively, if we analyse the data from the 2017 Budget of this Government and their initial medium-term strategic plan, we will come to the realization the Train has derailed from it tracks.

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Managing a Nation to Fail

Many a times, we have sort to create an impression that the principles of managing a nation is so different to that of managing our homes and businesses. There is but very little difference and it’s all about the scale of what we manage.

Maturity Transformation – is the art of borrowing short-term and lending long-term 

This practice can usually be found in the financial sector where banks take short-term deposit from depositors and lend it long-term to other customers. But what we must understand is that, nations are involved in maturity transformation by borrowing relatively short-term from our partners and lending long-term to Projects outside the banking system without any regulatory supervision is simply irresponsible.

We have run this nation by building up leverage, knowing they are not runnable debt thus, the health of the economy in relation to this practice have been relegated to the background. We have a whole ministry and government machinery to manage our finance and they have done that recklessly since they have “no skin in the game”.

Banks, other financial institution and the financial sector regulators have employed several tools to manage this aspect of their business. Nations have refused to accept their involvement in maturity transformation.

Interesting to note, Ghana have continuously borrowed to finance debt repayment and the question we should ask is why? It is this simple reason that we are engage in maturity transformation without caution, thus we borrow to invest in assets that takes too long to pay for itself.

Securitization – repackaging of mortgages into assets to serve as security for credit 

One of the reasons the US financial sector collapsed in 2007 which, nearly collapsed the entire US economy was securitization. Securitization is where mortgage owners could easily attract credit using the mortgaged backed assets as security to obtain credit.

Again, nations that fails have employed this tool aggressively and have called it Debt-to-GDP. Government of Ghana borrows to invest in the construction sector, agriculture, industry, service sector which, grows the volume of products and services we produce backed by credit then turnaround to use that same assets backed credit as a leverage to borrow more. This is certainly an issue of securitization of the economy.

I must mention, failure is usually a healthy and rich phenomenon, that ought to instill discipline in Government, its agencies, regulators and the people at large. But when failure is suffered without any lessons learnt; then its reoccurrence become a usual site to hold. We continuously manage this nation knowing it will fail.

That mindset is behind the production of various budgets under this and other government, we must take step to exorcise that mindset. The current administration prior to coming into government was able to articulate this very situation brilliantly yet in government has failed to live up to a shadow of what they preached.

Financial Sector Debt 

A Vulnerable Financial Sector –  is the biggest challenge I believe we have as a nation and our growth is stagnant because of the poor management of our financial sector with continuous interference and manipulation by government leading to its vulnerability.

“When a bank is in crisis it must be wind-down safely to avoid default” 

A typical example is when the taxpayer’s dollar was used to financed Bear Steans risky assets which later produced $2.8billion returns for taxpayers in the US. The handlers of the US Economy had wanted to do same for others like the Lehman and AIG but for lack of political backing.

We took delight in the failure of our Banks to the extent the Minister of Finance and the President came-out to indicate to all how irresponsible managers of those failing Banks have managed their finances and must pay for their mismanagement.

We ended up eroding confidence from the financial sector. We went ahead to borrow from the market and crowed-out credit from the private sector to save depositors money. When the business of crisis managers was to show credible protection against devastating outcomes, they choose to be participants.

Interesting to note, that the good-assets of failing Banks were halved-off to form a new Bank. The Bank then formed with good-assets have been in existence since 2018 and I believe Ghanaians deserve to know how it has performed and projections showing us when it will be able to pay off the opaque-assets left for us to pay.

Rather, we are told that Banks will have to pay for the incompetent decisions taken by crisis manager. Unfortunately, we might not be able to raise enough funds in time to pay-off this debt with the measures instituted by government, thus the imminent spillover of the financial debt into the Budget.

Energy Sector Debt

We have continuously blamed the energy sector debt on capacity charges but the real challenge has not been brought to the table for proper national discussions and a clear solution has eluded us. The establishment of ESLA Plc is a typical example of maturity transformation and in this case poorly managed.

Our energy sector legacy debt is largely due to the poor management of the currency, poor electricity pricing tariff regime, fuel invoice and poor payment to VRA and other energy sector players.

What we continuously finance through debt is our indiscipline, but not to ensure we find a lasting solution to the issues at hand. It is also a matter of time the financial sector debt will eventually spillover into the Budget.

VRA has improved drastically its revenues but the bottom-line has not improved; we are still making loses. Our debt position keeps compounding although payments from the ESLA Plc have been made to VRA and other institution; the challenge is still persistent. A clear indication that the lazy approach isn’t working.

We have failed to stop the bleeding how can you pretend treating the wound?    

Our Growth

Ghana like many other nations have used the GDP as a tool to measure the performance of its national accounts for many years. I will not engage in the different approaches used to compute GDP but to mention, Ghana has used the production approach for many years in measuring the monetary value of all finish goods and services produce within a fiscal year.

The determination of GDP cannot be successful without the two main ingredient being the price and volume of services and goods produced. The sectors where information on pricing and volume will be taken from must also be identified.

Sectors used by Ghana in the computation of GDP are as follows:

  1. Agriculture (Crops, Livestock, Forestry & Logging and Fishing)
  2. Industry (Mining & Quarry, Manufacturing, Electricity, Water & Sewerage and Construction)
  3. Services (Trade, Hotels & Restaurants, Transport and Storage, Information & Communication, Financial & Insurance, Real Estate, Professional & Administrative, Public Administration & Defense, Social Security, Education, Health & Social Works)

The current handlers have consistently praised their effort since 2017 when the reins of this nation were handed to them; but we must understand the real reasons in the expansion of the economy base on their own admissions.

Mr. Speaker, the Ghana Statistical Service (GSS) completed the GDP rebasing exercise in September 2018. As a result, our economy is 24.5 percent larger. This increase reflects economic activities that hitherto were not captured (e.g., natural gas production), or were captured with insufficient data (e.g., fruits, vegetables, mining and manufacturing activities).” 2019 budget statement, Page 7-paragraph 23.

The above comments are clear indication as to how the expansion of 24.5% was achieved without any ambiguity. I can therefore confidently say it was not by any effort of the government but a pure issue of recognition and changes in price (rebasing). However, I am prepared to give government the thumps-up for the effort in the new form of recognition.

Real Economic Growth is a good indicator in determining the performance of the overall economy only when its sustainable. Achieving a high growth rate in one fiscal year and a contraction in another fiscal year is an indication of a weak economy; but our interest has been to grow or expand the economy as security to borrow.

“The rebasing resulted in a number of changes in some economic indicators. The good news is that per capital GDP rose from GH¢7,110 to GH¢8,863. On the other hand, with the expanded GDP base, the 2017 GDP growth rate of 8.5 percent was revised down to 8.1 percent, which is still the highest in recent years. We are fully aware of what happened the last time Ghana’s economy was rebased, in November 2010, resulting in a 63 percent upward change. It gave the then managers of the economy a false sense of security, as the debt-to-GDP ratio was significantly reduced. They went on a borrowing spree, forgetting that rebasing also exposed how very little revenue we raise through taxation” 2019 budget statement, Page 7-paragraph 24

Need to ask whether this same false sense of security described above that informed the then NDC administration same, informed the current administration to increase the nominal debt stock to 76.1% of GDP compared to then debt-to-GDP of 72.5% in 2016?

We can continue to advance reasons to support why we are here but, the reality is we are in a worse situation compared to 2016. There is no excuse to those who sung to the entire world that we cannot borrow ourselves out of debt; the very ones calling the acquisition of debt a success.

Our revenue inflows have improved drastically over the past four (4) years under the NPP looking at the nominal values. To whom much is given, much is required – Luke 12:48. I believe it is fair to ask the then Running Mate of the President the same question he posed on September 8th, 2016 – how has the management of huge resources at the disposal of the Akufo Addo government impacted on the economy?


Ghana is in financial crisis and its time we face it head-on. Financial crisis is said to be a product of emotional and perceptions as well as inevitable lapses of human regulators and policymakers. It is time to be honest and to begin honest conversation to bring a lasting solution to our financial crisis, which has become cyclical in nature.

We failed and the only way forward is to admit we failed and take the path of honest solutions to recover and set this nation on a path of true growth.

In my article published on September 18, 2018 – Mr. President; financial sector crisis – A quick fix or a right fix? I clearly stated:

We are dangerously living on borrowed times and I wonder if these statistics can stand the test of time but that is for posterity. Again, your handlers should stop using time series in predicting the outcome of inputs but rather to use a more accounting-base structural analysis that looks at demands and supply with keenly observing market behaviour.

Today posterity has exposed us and yet we are in denial. It is better to accept your incompetence for the past four years and strive to be better in the next four years. Our wish is for Ghana to be successful; we cannot wish otherwise.

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