By News Desk
The Vice President, Dr. Mahamudu Bawumia, has acknowledged that Ghanaians are going through hard times and asserted that the country’s future is safer and brighter when in the hands of a New Patriotic Party (NPP) government.
Delivering a lecture on the economy at a National Tertiary Students Confederacy (TESCON) Training and Orientation Conference at Kasoa in the Central Region yesterday, Dr. Bawumia said “the economy is what we feel in our pockets. I acknowledge that we are going through challenging times.”
He added that “This is the reality countries and economies throughout the world are experiencing severe challenges following the COVID-19 pandemic and the more recent Russia-Ukraine war. The pandemic which started early in 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 have resulted in the prices of fuel going up across the globe.”
The head of the government’s economic management team however blamed the woes of the cedi largely on negative credit ratings, challenges in getting the 2022 budget passed, and the refusal of investors to roll over their monies in Ghana’s economy, among others.
Fuel prices on the international market, as well as the Russia-Ukraine war, according to Dr. Bawumia, also contributed to the challenges of the Ghanaian currency.
Data from the Bank of Ghana show that, the cedi depreciated by about 14.6% to the US dollar within the first quarter of 2022, while Bloomberg described the Ghana cedi as the worst-performing currency on the global market.
Ghanaians, especially, social commentators, had put pressure on the Vice President to break his silence on the free fall of the cedi against major trading currencies.
The vice president said “The financial markets’ assessments of the 2022 budget, unfortunately, concluded that our projected 40% increase in revenue which underpinned the 2022 budget was not likely to materialize and therefore, our deficit will increase. The chaotic battle in Parliament over the budget and the passage of the budget did not also help matters. This created uncertainty and signal to the market that government may not be able to get most of its programmes passed in a tightly balanced Parliament. This further reinforced the lack of confidence by investors in the budget.”
“Furthermore, delays in implementing major tax reforms…appeared to support the assessment that the market will have difficulties in passing its programmes. To add to these negative market sentiments, there was a sovereign credit rating downgrade by Fitch and Moody’s as a result of concerns about fiscal and debt sustainability.”
The vice president said these issues resulted in an unwillingness of foreign investors to roll over their holdings of Ghana’s foreign bonds.
He added that Ghana’s announcement that it would not issue a sovereign bond in 2022 also worried investors, and thus sent a negative signal about the adequacy of Ghana’s foreign exchange reserves.
“So, they [investors] wanted to get a hold of the foreign exchange now, and this led to the demand for the US dollar on the market. The increases in interest rates in the US and other economies also made the cedi unattractive. And in February we had the conflict between Russia and Ukraine. Associated fuel price increases also put pressure on the local foreign exchange market.”
Dr. Bawumia said the combination of these resulted in the sharp depreciation of the cedi within the first quarter of 2022.
He said the government and the Bank of Ghana subsequently introduced a number of measures to boost the cedi’s strength, including the strategic injection of $2 billion dollars into the economy as well as expenditure cuts.
He posited that the economy would have fared better without these unexpected events.
“It should be noted that without the 15.1 billion of the exceptional items – the financial sector, and Covid, Ghana’s debt to GDP would have been about 68 percent instead of the current 80 percent,” the economic whiz kid said.
The Vice President indicated that some loans have gone into infrastructural projects.
“The projects that we have undertaken from the loans over the years, you will see that we borrowed to build the University of Environment Science and Sustainable Development, that is part of the debt, the Pokuase Interchange is part of the debts, the Tema-Mpakadan Railway is part of our debt, the Kumasi Airport Phase 2 is part of our debt, Tamale Airport is part of our debt.”
The COVID-19 pandemic adversely affected Ghana’s economy, resulting in a surge in the government’s expenditure by US$1.7 billion.
Although a few analysts have recommended that the government turns to external donors to facilitate the country’s recovery from a difficult financial situation, the government wants to raise revenue domestically to service Ghana’s debt.
The Vice President also acknowledged the negative impact the pandemic had on Ghana’s inflation rate.
“Inflation had declined from an average of 17.5% in 2016 to an average of 7.2% in 2020. Since the pandemic, inflation has increased to an average of 10% in 2021.”
He however indicated that interest rates are currently at a lower rate than they were in the 2013 -2016 period.
“Before COVID-19, the steady disinflation process provided scope for significant monetary policy easing. The Bank of Ghana’s Monetary Policy Rate (MPR) was cut by a cumulative 11% between January 2017 and January 2021.”
Ghana’s debt to GDP ratio currently stands at 78%.