DECEITFUL BAWUMIA MUST STOP MISLEADING CLAIMS ABOUT CEDI DEPRECIATION

I have read some statement posted by Vice President Bawumia in which he sought to defend
his poor handling of the exchange rate of the cedi leading to a free fall of the local currency.

Vice President Bawumia has gained notoriety over the years for abusing public trust in his
supposed credentials to peddle outrageous untruths about the Ghanaian economy. While he
may have gotten away with it in opposition, the bar is significantly higher in government and he
will be held to strict proof based on documented facts.

Rather than focusing on “arresting the cedi” and attending to the legitimate concerns of
businesses, Dr. Bawumia has again swung into propaganda mode in reaction to a simple tweet
by Former President Mahama that only sought to remind him gently about his own past views
on the depreciation of the cedi.

In a release on Sunday June 17, 2018, Dr. Bawumia, in typical haughty and conceited fashion,
described the Former President’s genuine reminder as a lack of understanding of key aspects of
the economy. The tweet was simply about whether he has been able to “arrest the cedi” as he
declared, and whether the macroeconomic fundamentals were indeed supportive of a stable
currency.

Instead of a straight forward answer to this question, he purported to delve into a historical
account of the depreciation of the cedi as if that was the answer to the suffering of businesses
and Ghanaians as a whole,in the wake of the current nose-dive of the local currency. In case he
was unaware, the rapid fall of the cedi has led to upward adjustments in fuel prices and is
leading to general increases in the price of goods and services. The obviously distorted
historical account does not answer these pressing issues for Ghanaians.

Regarding that historical account, it will be obvious to all who know about the exchange rate
that Dr Bawumia’s calculation of the cedi’s depreciation over the 8 years of successive
governments is fatally inaccurate. While it is known that the use of false methodologies is very
typical of the Vice President, he could have consulted the Bank of Ghana who would confirm
that the rate of change formula is not what is used to calculate exchange rate depreciation.

To determine the accurate rate of depreciation or appreciation, the current rate is subtracted
from the previous rate and the answer divided by the current rate which is the multiplied by
100 [(Previous Rate-Current Rate)/Current Rate] x 100.

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If Dr Bawumia was minded to do an accurate and honest calculation, the respective percentage
of depreciation would have been 41.6 percent under President Kufour; 71.4% under
Mills/Mahama; and 6.6% for the 15 months of the Akufo Addo/Bawumia government.These
figures are significantly lower than the 72%,247% and 7% quoted by Dr Bawumia in his
statement.

Only pedestrian propaganda could have informed the Vice President’s decision to compare
15months of the government he is part of and 8 years of previous governments. Suffice it to say
that at least since the early 2000s Dr Bawumia had part of the Bank of Ghana team whose duty
it was to ensure stability in the currency.

While it is well documented that the Mill/Mahama administration was the victim of severe
exogenous shocks, the Akufo Addo Bawumia government in comparison, has been the
beneficiary of additional forex flows from increased crude supplies from the SANKOFA and TEN
fields—against the background of recoveries in crude oil prices and across-the-board global
growth for the first time since 2008—as well as flows from dubious loans.

In any case, it bears reminding Dr. Bawumia that comparing the first year of successive
governments and drawing inferences based on exchange rate depreciation as he has done, is
utterly ridiculous for a self-styled astute Economist. First of all, basic economics explains the
role of policy lags in economic policy making. This simply means that policies implemented in a
particular year would have its full effect in the subsequent year(s). In the case of SANKOFA and
TEN, he was vociferous in publishing policies that are helping the government today.

In other words, it is wrong to expect a strict contemporaneous relationship between policy

actions and their impacts, especially where policy lags are involved. Hence, the so-called lower
depreciation in the first years of NPP governments (as Dr. Bawumia is claiming), is actually due
to the good policy measures that were adopted in the preceding year by the former NDC
government. Similarly, the fact that the first year of successive NDC governments witnessed
pronounced depreciation was simply because of the reckless policies by the preceding NPP
government.

As noted, an example is the Single Spine Salary Structure that was introduced by the NPP
government under Former President Kufour for implementation in 2009. A contrasting example
was the performance of the Cedi in 2017, which was largely due to policy measures under the
IMF Enhanced Credit Facility that started under the NDC government in 2015. Indeed, there

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was stability in the forex market for the most part of 2016, and which continued in 2017 after
the election related uncertainties waned.

We wish to remind the self-styled astute economist that, unlike some major SSA countries,
Ghana was able to avoid a recession, giving the current administration a head-start.

It is obvious from the foregoing that it is rather Dr. Bawumia who has shown a lack of
understanding about the factors that cause volatility in the forex markets. Otherwise, he would
not have made the statement that he had arrested the cedi in the inchoate stages of this
government.

It is universally known that forex market stability in Ghana to a large extent depends on
exogenous factors (and of course other endogenous factors) such as commodity price shocks,
uncertainty in the financial markets, global financing conditions, energy shocks and its impact
on crude oil imports, as well as other fiscal pressures.

Thus, in years such as 2008, 2013, and 2014 when such exogenous factors were pronounced,
the forex market became volatile and unstable. The solution therefore is to work on our
resilience to such shocks and to build the necessary buffers to absorb such shocks (as we did
with substantive measures that he opposed), not through borrowing or through issuance of
sovereign bonds that are channeled into consumption, not investments!

Allowing the exchange rate some more flexibility is often part of a good strategy to stem the
impact of some of these exogenous shocks, especially where the shocks are persistent.

For the sake of clarity, it would be recalled that during the period before the 2008 elections,
there was a sudden global surge in commodity prices as well as fiscal pressures associated with
the run up to the 2008 elections that impacted adversely on the macroeconomic situation. The
meltdown gave rise to the onset of the global financial crises that we aluded to earlier.

Upon assumption of office by the NDC in 2009, the government had to sign on to the IMF
Extended Credit Facility (ECF) to restore macroeconomic stability from 2009-2011. The program
achieved its aims as inflation for example was reduced from 20% in 2009 to 8% in 2011, the
forex market was stable and interest rates declined to near single digits.

Unfortunately, the impact of the significant wage adjustments as well as other exogenous
factors impacted the economy adversely from 2012.On the global front, uncertainties in the

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financial markets and weak commodity prices impacted adversely, whilst the main domestic
challenges included political uncertainty arising from the election petition, pressures in the
fiscal and external sectors, and the severe energy crisis that confronted the country. Pressures
continued to mount due to pass-through effects of petroleum and utility tariff adjustments as
well as fiscal and exchange rate pressures.

In 2014, unfavourable global developments such as softening commodity prices, and volatility
in financial markets and reduced FDI flows continued to impact adversely. The decline in
commodity prices continued to support the rapid depreciation of the domestic currency. On the
domestic front, the main challenges were the continued energy supply constraints, pressures in
the foreign exchange market and fiscal imbalances.

In 2015, Ghana eventually signed a three-year Enhanced Credit Facility programme with the
IMF to restore macroeconomic stability. The key tenets of the program included fiscal
consolidation, enhanced monetary policy implementation and structural reforms, especially in
the public sector. The policy measures contributed significantly to reducing excessive exchange
rate volatility and a trend decline in inflation from the second half of the year.

In 2016, the implementation of policy measures was continued despite difficult global and
domestic conditions that posed challenges for the macro environment. These included lower
commodity prices for all three exports (gold, crude oil and cocoa) and tighter external financing
conditions. There were also domestic factors such as petroleum production bottlenecks, weak
private sector credit growth as well as negative business and consumer sentiments relating to
the general elections in December which also affected general economic outcomes. These
notwithstanding, there was stability in the foreign exchange market for most part of 2016.

The Vice President cuts the figure of a man who talks more than he delivers and who when
found out chooses bluster over sobriety and reflection. His claims to better fundamentals
expose his lack of candour.

The growth rates he likes to tout is well known to be due to an 80.4% increase in oil production
in 2017 as compared to 2016.His other claim of a lower debt to GDP ratio is yet more
manifestation of a deceptive mindset that seeks to conceal the true state of governments
borrowing.

Just as the exchange rate has exposed him as more of a talkative than a doer, the astronomical
borrowing of this government has belied his claims about borrowing while in opposition. He is

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on record to have disparaged borrowing by the previous government and claimed that a
government that he is part of will harness domestic resources to develop the country.

In government, Dr Bawumia and his boss, President Akufo Addo have developed a voracious
appetite for borrowing and have added a staggering GHS 40 billion to the public debt. Dr
Bawumia however shamelessly is superintending the deliberate concealment of this fact by
constantly understating the debt by several months’ borrowing and deceptively manipulating
the country’s GDP to give the semblance of a lower debt to GDP ratio.

To achieve this, he connives with the Bank of Ghana to hold the public debt constant at
February rates while dividing it over a so-called projected GDP which is yet to be realized. After
this, he compares the fictitious debt to GDP ratio to the actual outturn for 2016.

It may interest Dr Bawumia that the IMF under whose auspices he presides over the Economic
Management Team, are not fooled by this gambit. They peg our debt to GDP ratio at 71%

Finally, it may serve as a useful exercise for Dr Bawumia to check the macro-economic indices
between 2010 and 2012 when Former President Mahama was Vice President and Head of the
Economic Management Team. Ghana had the highest ever growth rate, the longest sustained
period of single digit inflation (31 months) among other stable indicators. It is a record he has
not and will, in all likelihood, be unable to match. Those indices completely dwarfs the meagre
offerings he seeks to tout today.

It therefore would help him greatly if he cut back on the haughtiness and focused on reining in
the cedi which is in free fall at the moment and stem the anxiety and anguish of businesses and
Ghanaians who are reeling under severe hardships at the moment.

CASSIEL ATO FORSON

RANKING MEMBER FINANCE COMMITTEE AND MINORITY SPOKESPERSON ON FINANCE.

18TH JUNE,2018

ACCRA