discipline in economic management: the key to sustainable growth and prosperity

8/14/2019 DISCIPLINE IN ECONOMIC MANAGEMENT: THE KEY TO SUSTAINABLE GROWTH AND PROSPERITY

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DISCIPLINE IN ECONOMIC MANAGEMENT: THE KEY TO

SUSTAINABLE GROWTHAND PROSPERITY

Speech Delivered by:

Dr. Mahamudu Bawumia

At the:

ALHAJI ALIU MAHAMA MEMORIAL LECTURE

NOVEMBER 13, 2013

ACCRA


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Mr. Chairman, H.E. John Agyekum Kufuor, Former President of the Republic of Ghana

Honourable Ministers of State

Honourable Members of Parliament

Chiefs and Traditional Leaders

Members of the Diplomatic Corps

Representatives of other Political Parties

Members of the Media

Distinguished Invited Guests

Fellow Ghanaians

Ladies and Gentlemen

Assalamu Alailkum and Good evening!

I would like to thank all of you for making the time from your busy schedules to be

present at this inaugural Alhaji Aliu Mahama Memorial Lecture. I am very humbled to

have been asked by the Foundation to deliver this first lecture. In fact, when the request

came, I thought there must have been some mistake as I felt someone else more

qualified, perhaps a statesman like our Chairman, should be the one giving this lecture.

I am truly honoured for the opportunity.

I would like to thank the Aliu Mahama Foundation and the family for organizing the

anniversary celebrations to honour our former Vice-President who was also a humble,

generous and decent human being. I had a very personal relationship with Alhaji and

he treated me like a son. He was determined to do all he could to support me as he had

done for numerous others. We campaigned together in the 2012 presidential election

campaign until he was taken ill. He was a first class gentleman and all who met him

would attest to that. He also had a good sense of humour.

Mr. Chairman, distinguished ladies and gentlemen, tonight I will be talking about an

issue that was very close to the heart of H.E. Alhaji Aliu Mahama, the issue of discipline.


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Discipline can be defined as the practice of training people to obey rules or a code of

behavior or using punishment to correct disobedience. For Alhaji Aliu Mahama, a

society without discipline is doomed to failure. He always lamented about how we as a

people are always so inclined not to follow laid down rules or codes of conduct. In the

area of sanitation for example he often wondered how long it would take us to have as

clean an environment as in many advanced countries when the practice of open

littering, urination, defecation and occurred with such regularity without public

disapproval.

For Alhaji Aliu Mahama, it was clear that the discipline that we seek would require a

change in attitudes through public education, investment in infrastructure, rigorous

enforcement of planning regulations, and a National Identification database to assist inplanning and law enforcement.

Mr. Chairman, I now want to turn my attention to the issue of discipline in economic

management. Discipline in economic management has three elements:

having a clear vision of what a government or a leader wants to do

the discipline to follow through on implementing the vision and

the fiscal and monetary discipline to manage the implementation of the vision

Fiscal discipline basically means spending within your means over a period of time. We

know that any individual who consistently spends above his or her means would end up

in trouble, like the infamous Abankaba. It is no different for a country. Monetary

discipline on the other hand involves the central bank matching the money supply with

the level of production or foreign exchange reserves in a country. Excess printing of

money results in inflation. Going back into history, so important was maintaining

monetary discipline in England that by 1121, 900 years ago, when there was a

noticeable decline in the quality of Englands silver, all the Mint Masters in England

(those who minted the money, equivalent to central bank governors) were assembled

and punished by having their right hands cut off!. This was a rather draconian method of


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monetary control but it speaks to the historic importance attached to monetary discipline

in some countries.

Mr. Chairman, developing countries have huge gaps in sectors such as roads, water,

energy, education, health, agriculture, etc. The problem that governments face is one of

insufficient financial, institutional and human capital resources to solve these problems.

Governments therefore have the onerous responsibility to manage the resources of the

country to meet the aspirations of its current citizens as well as future generations.

While it is clear that accomplishing these goals require fiscal and monetary discipline,

the lesson from history is that the temptation to abandon discipline for political

expediency is very high.

1957-1966

Mr. Chairman, at independence, the Convention Peoples Party (CPP) under the

leadership of President Kwame Nkrumah espoused and pursued an ideology of

socialism, advocating the collective or governmental ownership and administration ofthe means of production and distribution of goods. The CPP inherited from the British, a

healthy amount of foreign exchange reserves of $273 million, (the equivalent of $2.275

billion today). In addition, there was virtually no external or domestic debt and Ghanas

population was only 6.5 million. To put this in perspective, in 2008, Ghanas gross

international reserves were $2.03 billion, with a total debt stock of GH9.5 billion

($8billion) and a population of some 23.0 million. The CPP did not therefore face the

typical economic pressures faced by all other Ghanaian governments upon assuming

government. I think the CPP is the only government in our history that has not said The

country is broke when they came to power. They had no reason to.

The CPP quickly set about implementing Nkrumahs vision of state-led industrialization.

Fiscal policy was therefore expansionary. Expenditure on education, health, and


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physical infrastructure such as schools, roads, dams, hospitals, electrification and so on

dramatically increased from their colonial levels. The inherited foreign exchange

resources financed development projects such as:

Tema Harbour

Cape Coast University

Kwame Nkrumah University of Science and Technology,

Accra-Tema Motorway,

Akosombo dam,

Black Star Line,

construction of numerous schools and hospitals,

Ghana Medical School

Okomfo Anokye Hospital

Ghana Atomic Energy Commission

State-owned enterprises like Ghana Airways, Tema Food Complex, GIHOC,

GNTC, State Hotels etc

State farms

Nkrumahs development plans soon confronted the strict arrangements for monetary

discipline contained in the West African Currency Board. Mr. Chairman, at

independence, the Gold Coast was operating with the colonial international economic

arrangements. The British West African Currency Board (WACB) was constituted in

1912 to control the supply of currency to the British West African Colonies. The

exchange rate of the West African Pound to sterling was fixed. Under this regime,

government could not just print money without backing it with an increase in foreign

reserves. This framework kept inflation barely noticeable. In fact, at the time of

independence in 1957, Ghanas inflation was less than 1 percent and a year later was

zero. There was no exchange rate depreciation to worry about against the pound

sterling.


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Nkrumah however wanted a banking system that would complement the CPPs

government-led development strategy. It should be noted that the Bank of Ghana was

established in 1957 when the Bank of Ghana Ordinance was passed by the British

Parliament. The Ordinance was designed to protect the central bank from political

interference and prevent the use of the Banks and the countrys resources

indiscriminately. The Central Bank in 1957 was designed to enforce monetary discipline

in a manner akin to the WACB arrangements.

By 1960, the Convention Peoples Party was becoming increasingly frustrated with the

apparent autonomy of the Bank of Ghana. In fact, this frustration became more strident

as Government finances were coming under severe pressure and the foreign exchange

reserves were declining. The Government deficits were rising and unlike the earlier

years when foreign exchange reserves were relatively plentiful, by 1960, the option of

using foreign reserves to finance the deficit was limited. Government also exhausted its

bank balances and started borrowing from the banking system. The Government of

Ghana began to issue Treasury Bills in 1960. Exchange controls and import licensing

were introduced in 1961 under the Exchange Control Act to limit further loss of foreign

exchange reserves.

A Bank of Ghana Act of 1963 was passed to break from the monetary discipline that

was imposed by the WACB arrangements. Dr. Nkrumah wanted it all. He wanted a

central bank that could print money as needed but at the same time he wanted to have

a fixed exchange rate for the cedi. He was basically defying the laws of economics and

it was only a matter of time before the center could not hold.

Nkrumahs ambitious development program took its toll on the economy. Many of the

state-owned enterprises were operating at a loss and adversely impacting public

finances. The fiscal position also deteriorated as Government spending increased from

9.5 percent in 1957 of GDP to 25.8 percent of GDP by 1965. The government budget

balance deteriorated from a surplus of 14.5 percent of GDP in 1954 to a deficit of 6.4

percent of GDP by 1965.


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military to work. The devaluation and economic difficulties provided the pretext for a

coup detat on 13th January 1972 by the National Redemption Council in 1972 under

Colonel I.K. Acheampong.

1972-1983

Mr. Chairman, For Ghanas economy, the period between 1972 and 1983 under the

NRC, SMC, AFRC and PNP governments was characterized by a dramatic economic

decline underpinned by indiscipline in economic management. This entailed a decline in

GDP per capita by more than 3 percent a year. The main foundation of the economy,

cocoa, was on the decline. Central government revenues which amounted to 21 percent

of GDP in 1970 fell to only 5 percent of a smaller GDP in 1983. The revenue collapse

increased the reliance on the banking system to finance expenditures. Between 1974

and 1983 the monetary base expanded from 697 million to 11,440 million cedis. The

loss of monetary discipline accelerated inflation, which increased from 6.5 percent in

1969 to 116.5 percent by 1977 and 122 percent by 1983, all in the midst of a regime of

controlled prices.

In the meantime, successive governments continued the policy of overvaluing the cedi

by maintaining a fixed exchange rate in the face of high inflation. Governments

responded with import controls which fell disproportionately on consumer goods. A

kalabule or informal economy evolved and the black market thrived. It is not surprising

that this decade, 1972-1983, represents the worst economic performance in Ghanas

history.

The Supreme Military Council was overthrown by another coup detat in 1979 by the

Armed Forces Revolutionary Council (AFRC) under the leadership of Flt. Lt. Jerry John

Rawlings. After four months in office, the AFRC handed over power to a democratically

elected government of the Peoples National Party (PNP) under the leadership of Dr.

Hilla Limann. Dr. Limann inherited very difficult economic circumstances. The country

was once again broke. Attempts to resuscitate the economy included negotiations for an

IMF loan. The IMF insisted that the government devalue the cedi. Cognizant of what

had happened to the Busia government, the PNP refused to devalue the cedi. For the


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IMF, a refusal to devalue equaled a lack of commitment to fiscal and monetary

discipline and the IMF also refused to grant the much needed loan. The economy

deteriorated amidst internal power struggles within the PNP. The PNP government was

overthrown in another coup detat, by Flt. Lt. Jerry John Rawlings in December 1981,

this time under the banner of the Provisional National Defence Council (PNDC). The

PNDC accused the PNP of economic mismanagement and corruption.

Mr. Chairman, between January 1982 and November 1983 the PNDC was

characterized by socialist revolutionary policies. The business community, large scale

farmers and professionals were the regimes declared enemies. Economic policy was

interventionist and anti foreign capital. Price controls, import duties and tariffs were

imposed on a wide range of goods.

Citizens Vetting Committees (CVCs) were empowered to investigate people whose

lifestyle and expenditure substantially exceeded their known incomes. Specifically,

anyone with more than 50,000 ($1,250 at the prevailing black market exchange rate of

some 50/$) had to appear before the CVC to explain how they acquired it. The wealthy

became the targets of a vindictive Public Tribunal system.

Notwithstanding all these supposed anti-corruption measures, the economy turned for

the worse and it soon became obvious that the populist socialist policies were not

sufficient to stabilize a monetary system or grow an economy. Inflation reached 122.8%

at the end of 1982 as more money was printed to finance government budget deficits.

Fiscal indiscipline and bad policies were again adversely affecting the economy.

1983-2000

In its 1983 Budget, the PNDC moved Ghana away from Kwame Nkrumahsssocialist

economic philosophy towards Busia and Danquahs capitalist free market philosophy

that the government railed so much against at its inception. The PNDC proceeded to

implement an IMF supported Structural Adjustment Programme (SAP).


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One of the most important reforms of the SAP was to allow a gradual liberalization of

the market for foreign exchange. The official exchange rate was adjusted in stages from

2.75/US$ in 1983 to 90.0/US$ by January 1986. In February 1987, the official

exchange rates were unified at 150/US$. To bridge the gap between parallel and

official exchange rates, foreign exchange bureaus were established in February 1988,

leading to the virtual absorption of the parallel foreign exchange market. The cedi

exchange rate therefore became market determined.

A major plank of the SAP was the rehabilitation and provision of physical infrastructure

to help improve productivity. The economy responded positively and output increased.

GDP growth, which was negative and declining in the three years before the SAP,

recorded a remarkable recovery to register an average of some 5.0 percent per annum

between 1984 and 1991.

Macroeconomic stability was also restored between 1984 and 1991 and the stability

was not attained at the expense of growth. Inflation declined from some 122 percent in

1983 to 10.0 percent by 1991 reflecting fiscal discipline.

Mr. Chairman, The economy, between 1983 and 1991, benefited from a disciplined

implementation of the governments vision along with the fiscal and monetary discipline

to accompany its implementation. However, the economic policy framework which had

brought about macroeconomic success in the 1983-1991 began to unravel with the

transition from the PNDC to the NDC after the 1992 elections. The economic and

structural reforms slowed just as the gains of the market reforms became evident. Fiscal

and monetary policy were not firm, and the public sectors borrowing led to a large build

up of external as well as domestic debt, with an increased dependence on external

donor inflows. The core problem of the lack of fiscal and monetary discipline in

economic management that had plagued successive governments between 1957 and1983 had reared its ugly head once again.

In the run-up to the 1992 elections, government expenditure increased dramatically as

tax administration weakened. Notwithstanding the decline in government revenue,

government expenditure increased at a rapid pace in the election year. As a result of


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these developments, the overall government budget deficit, which had declined to 1.3

percent of GDP in 1991 increased sharply to 9.4 percent of GDP in 1992.

In the run up to the 1996 elections, fiscal indiscipline reared its head again. As in 1992,

there was significant erosion in the governments revenue base, including a shortfall inpetroleum revenue. The shortfall in petroleum tax was the result of the suspension of

the automatic price adjustment formula as the elections drew closer. Again,

notwithstanding the revenue shortfall, expenditure was maintained at about the same

levels as a percentage of GDP (some 30 percent of GDP) as had been the case since

1993. The fiscal stance in 1996 resulted in an overall budget deficit of 9.5 percent of

GDP (the same as in 1992). In response to the policy slippages, the IMF and World

Bank suspended support to Ghana as they had done in 1992.

The vulnerability of the Ghanaian economy in the face of persistently high fiscal deficits

and declining foreign exchange reserves was to be exposed when after the economy

was hit in 1999/2000 with falling prices for Ghanas two main exports, cocoa and gold

and rising prices for oil. The excessive fiscal expansion in the run-up to the 2000

Presidential and Parliamentary elections tipped the economy into a cycle of inflation and

currency depreciation. In the short span of one year ending December 2000, the cedi,

lost 50 percent of its value vis--vis the US dollar. The countrys gross international

reserves were so depleted that it could not cover a months imports .

The debt burden of the economy increased dramatically during the structural adjustment

period, with external debt/GDP ratio rising from 27 percent of GDP in 1984 to 103

percent of GDP by 1994 and rose further to 182 percent of GDP by 2000. The country

was having difficulty servicing its debts.

It was against this background that the December 2000 Presidential and Parliamentary

elections took place and were won by the New Patriotic Party (NPP) under the

leadership of President John Agyekum Kufuor, ably supported by H.E. Alhaji Aliu

Mahama.


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2001-2008

Mr. Chairman, under the leadership of President Kufuour (2001- 2008), Ghana made

significant strides. Without the benefit of oil production, economic growth increased from3.7% in 2000 to 8.4% in 2008. In the process, the size of Ghanas economy increased

from some $5.1 billion to $28.5 billion, a six-fold increase. Even in the face of a global

economic and financial crisis in 2007/8 (with oil prices reaching a record high of

$147/barrel) economic growth in 2008 rose to 8.4%. Ghana was transformed during the

period of the NPPs tenure (2001-2008) from a low income HIPC economy to a lower

middle income economy on the frontiers of emerging market status. We were ready to

take-off and had left the first gear a long time ago!

The stabilization in most of the macroeconomic indicators between 2001 and 2007 was

achieved by strictly limiting the central governments borrowing requirements. This

involved a lot of discipline on the part of government. The Debt to GDP ratio (thanks to

the successful HIPC completion) was reduced from 182% in 2000 to 32% by 2008.

These developments resulted in a crowding-in of the private sector as bank lending to

the private sector increased together with bank deposits.

Government finances also improved, especially between 2001 and 2005. The

government budget balance as a percent of GDP declined from 8.6 percent of GDP in

2000 to 2.0 percent of GDP by 2005. In Ghanas recent economic history 2004 is the

only election year in which economic discipline and stability was maintained. The fiscal

deficit to GDP was 3.2% in 2004. The budget deficit however increased to 6.5 percent

of rebased GDP in 2008. Fiscal indiscipline had again reared its head in an electionyear. The fiscal slippage in 2008 was the result of government subsidies of utilities,

election year wage increases.


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Exchange rate stability also returned to the foreign exchange market between 2001 and

2007. The exchange rate depreciation vis--vis the US dollar was 4.5 percent over the

year 2003, and 2.2 percent for the year 2004, 0.9 percent in 2005, 1.1 percent in 2006

and 4.8 percent in 2007. Between 2004 and 2007, the cedi depreciated by an average

of 2.25 percent against the U.S. dollar. Placed in the context of the historic instability of

the cedi and the 2000 experience of some 50.0 percent depreciation, this level of

stability of the cedi was remarkable. The period between 2001-2007 recorded the

lowest depreciation of the cedi in any seven year period since exchange rates were

market determined and demonstrates that it is possible to have very stable exchange

rates with disciplined economic management. The deterioration in the fiscal situation

in 2008 resulted in an exchange rate depreciation of 20.1% .

2009-2013

Mr. Chairman, the elections of 2008 brought in a government of the NDC under the

leadership of Prof. J.E.A. Mills. The NDC inherited an economy growing at 8.4% without

the benefit of oil production. With crude oil coming on stream, the economy grew by

some 15% in 2011 as a result of oil production. The non-oil sectors of the economy, in

particular agriculture, industry and services are still growing slower than they did in

2008. In 2012, real GDP growth was 7.9 percent (including oil). It is clear therefore that

notwithstanding the production of oil, the non-oil sectors are experiencing declining

growth. There is a noticeable slowdown in economic activity and both business and

consumer confidence have weakened. The economic slowdown has meant that

unemployment is getting worse. We all know of school leavers and graduates who are

having great difficulty finding a job in this economy. Youth unemployment remains high

and increasing and there has been no better Ghana for our youth in the last five years.Mr. Chairman, this is worrying because we seek fiscal and monetary discipline not for

their own sake but to create an enabling environment for job creation.

Mr. Chairman, at the end of 2012, Ghanas budget deficit was a gargantuan GH8.7

billion, amounting to 12.0% of GDP using the rebased GDP numbers. This is the


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highest recorded budget deficit in Ghanas history. The GH8.7 billion deficit would

have been able to finance seven years of free secondary school education.

From Nkrumah through Acheampong, Rawlings and Kufuor, no government has

incurred this level of budget deficit. The crux of the problem is that government

spending in 2012 increased astronomically to 34.5% of GDP even though government

revenues amounted to 16.1% of GDP (a gap of over 100%) for the year. The

government abandoned all fiscal discipline in an attempt to win the 2012 elections.

Mr. Chairman, this NDC government is the first government in the history of Ghana to

have access to oil revenues and yet is finding it difficult to pay its bills because of the

indiscipline in its management of our public finances. Even meeting statutory payments

like GETFUND, NHIS, DACF as well as salary payments to workers has become

problematic. The cost of doing business has increased and confidence in the Ghanaian

economy has waned with high interest rates, a weakening currency and increased utility

prices. The Free maternal care, school feeding and national health insurance programs

to protect the poor and vulnerable inherited by the NDC government are having major

challenges, to put it mildly.

What is remarkable about this state of the economy is that it is occurring at a time when

the government has had access to more financial resources in terms of tax and non-tax

revenues as well as borrowing more than any other government in Ghanas history.

Mr. Chairman, the rate of growth of public debt is a matter of concern. Ghanas total

public debt has increased from GHC 9.5bn in 2008 to GHC43.9 billion as at August

2013 (an increase of 357% in less than 5 years)! Mr. Chairman, the NDC government

has borrowed the equivalent of $20 billion in just the last five years! What is worrying isthat they tell us that this is only the first gear! Can you see or feel that $20 billion dollars

has been pumped into this economy in the last five years? Where are the projects to

show for the $20 billion? Just imagine the transformational effect if every region were

given $2 billion for development projects.


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Mr. Chairman, what is sad about this situation is that the government appears to have

misunderstood its own capacity to borrow by blindly looking at the debt to GDP ratio

without taking into account the fact the GDP was rebased (i.e. statistically increased by

60% from 2007) without an attendant increase in foreign exchange liquidity. In this

situation, taking comfort from a debt/GDP ratio of less than 60% would be misleading.

For prudence, the government should be applying an adjustment factor to the traditional

debt/GDP measure to take account of the rebasing that took place. Despite warnings in

this regard, the government proceeded to borrow at an alarming rate. Today it is

obvious that the indiscipline of its borrowing is taking a toll on the economy.

With such large scale borrowing, government is crowding out the private sector which is

unable to borrow to grow their business. Risk free Treasury bill rates are around 23%

and bank lending rates are on the rise because of excessive government borrowing.

Lending rates are now some 30 percent. Electricity and water supply have been erratic

and inadequate, shooting up the cost of doing business. It is therefore not surprising

that businesses are having a hard time in Ghana right now.

After being in denial for the last couple of years, the true state of the economy is now

obvious for all to see fiili fiili, as they say in my neck of the woods. The propaganda

has finally given way to reality and it is not a pretty sight.

How did we get here? Ladies and Gentlemen, with regards to government finances, we

recall that at the end of 2008, the government budget deficit to GDP ratio stood at 6.5%

(after the rebasing of GDP). This outcome was described by the NDC as bad fiscal

management. By the end of the election year 2012, the budget deficit had reached

some 12% of GDP (after rebasing of GDP). This is double the deficit in 2008 which the

NDC described as reckless! Interestingly, Mr. Chairman, today the NDC governmentsobjective in the medium term is to get to a budget deficit to GDP ratio of 6.5%, the same

as was the case in 2008, which they called reckless! This is what is called reverse gear,

not first gear.


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Single Spine Salary Implementation and the Economy

Mr. Chairman, the NDC government, in the face of growing labour unrest, has tried to

blame the economic meltdown being experienced on the implementation of the Single

Spine Salary System.

The refrain from Government is that wages and salaries of government workers account

for over 70% of government revenue so workers should endure economic hardships or

pick the next available flight out of the country. What are the facts?

At the end of 2008, the Government wage bill amounted to GHC1.98 billion,

representing 41.3 percent of total domestic revenue of GHC 4.8 billion and 46% of tax

revenue. By the end of 2012, after 99% implementation of the single spine salary

system, the government wage bill jumped by some GHC4.6 billion to GHC6.6 billion.

While the government wage bill increased by some GHC4.6 billion between 2008

and 2012, total government revenue also increased from GHC4.8 billion to

GHC15.5 billion over the same period. The increase in domestic revenue by

GHC10.7 billion was more than twice the increase in the government wage bill.

Indeed, by the end of 2012, the government wage bill following the implementation of

the single spine salary system was 42.9% of total domestic revenues. This is not

significantly different from the 41.3% in 2008. Furthermore, the 2013 budget forecast

that the wage bill in 2013 would represent 35% of total domestic revenue by the close of

the year. The current economic difficulties can therefore not be attributed to the single

spine salary system which had been 99% implement at the end of 2012. In fact, thisgovernment was touting its unprecedented economic achievements, including the

implementation of the single spine salary system only last year.

So when did the problem arise? The acute fiscal difficulties the government is facing is

directly related to the massive deficit of GHC8.7 billion (12% of GDP) incurred in 2012.


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This massive over expenditure has left the government cash strapped and unable to

even finance statutory expenditures. Some workers have not been paid for 22 months!

Mr. Chairman, I also understand five years after you and Alhaji Aliu Mahama left office,

the government has still not paid you your entitlements.

Mr. Chairman, the data available therefore shows quite clearly that the blame for the

current economic difficulties lies squarely in the area of government economic

mismanagement and should not be blamed on the wages of workers. After all, workers

did not decide to distribute V8 land cruisers and other goodies to try to win the 2012

elections, neither did workers decide on an unsustainable path of accumulation of public

debt. Workers did also not make the decisions on GYEEDA, SUBAH, SADA,

ISOTOFON, WAYOME, AAL, etc. In trying to reign in the fiscal deficit, government has

imposed taxes on almost everything, including condoms and cutlasses and I am sure

more taxes are coming in the budget to be read next week. Government has also

increased utility tariffs, water tariffs, petroleum prices etc. Unfortunately, when as a

result of poor economic management workers demand higher salaries, some politicians

conveniently turn around to accuse them of being unpatriotic or greedy. After the

government does the kukrukukru with the economy they do not want the workers to do

the kekrekekreto protect their standard of living!

INDISCIPLINE AND THE PERSISTENT DEPRECIATION OF THE GHANA CEDI

Mr. Chairman, what has been the cost of this persistent fiscal and monetary indiscipline

by successive governments since independence? We can think of this in terms of the

impact on economic growth, employment, interest rates, inflation, etc. I will however

focus on its impact on the exchange rate of the cedi over the years. Mr. Chairman, my

concern looking at the developments in the cedi exchange rate since independence is

that the cedi has been on a continuous one direction slide. The only question is how fast

the depreciation is for different governments! Lets look at some numbers. At

independence, Ghana was part of the West African Currency Board using British

Pounds, shillings and pence. The exchange rate was the equivalent of 73 pesewas to


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the US dollar. By 1965, Dr. Kwame Nkrumah introduced the Cedi. The exchange rate at

this time was 1.04/$. By 1983, the exchange rate was 52.6/$. By 1992, the exchange

rate was 520.8/$.By 2000, the exchange rate was 7047/$. By 2008, the exchange

rate was GH1.19/$ (11,900/$) in 2008. By October 2013, the exchange rate was

GH2.20/$ (22,000/$) with all indications that it could decline further by the end of the

year. At this rate, the exchange rate could be GH4.4/$ in another 4 years.

Table 1. Cedi-US Dollar Exchange Rates (1965-2013)

Year Exchange Rate /$

1957 0.73

1965 1.04

1983 52.6

1992 520.8

2000 7047

2008 11,900(GH1.19)

2013 (October) 22,000 (GH 2.20)

Mr. Chairman, the price of fiscal and monetary indiscipline by successive governments

since independence is that cumulatively, between 1965 when the cedi traded at 1.04/$

and October 2013 when it is trading at GH2.2 (22,000)/$, the U.S. dollar hasappreciated relative to the cedi by some 2,000,000%!. The value of the cedi has

been decimated in the process, losing 99.9999% of its value relative to the US dollar.

For a small open economy like Ghana, this trend is worrying and should be worrying for

all Ghanaians. Our economy is highly import dependent and these massive these


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cycle. Are the politicians willing to abide by this discipline regardless of the impact on

our electoral fortunes? More importantly, are the voters going to demand this discipline

from politicians? The passage and enforcement of a Fiscal Responsibility Act will be

important in this regard if it is supported by political will. A Fiscal Responsibility law will

require governments to declare and commit to a fiscal policy that can be monitored. It

will include fiscal rules (including rules governing election year spending), provisions for

transparency and sanctions ( including sanctions on the Executive). It would mean for

example that governments cannot by law spend above a certain limit relative to

revenues. Fiscal indiscipline and the resulting fiscal excesses are ultimately paid for by

ordinary citizens who have no place at the decision making table of the politicians. It is

therefore important that labour, civil society and all other stakeholders make a push for

the passage of a fiscal responsibility law as soon as possible. In this context

stakeholders can also debate whether the exchange rate regime that we are operating

is optimal or whether we should move towards a currency board arrangement like Hong

Kong and live with the discipline that would entail.

Discipline to Implement the Vision

Mr. Chairman, discipline as the key to economic growth and development also entails a

discipline to pursue a clear vision and the discipline needed to manage the already

inadequate resources honestly. What is interesting is that all the political parties in

Ghana have laid claim to commitments to protecting the poor and vulnerable as part of

their ideologies. To what extent have these commitments been honoured? It is

instructive to examine the record of some democratically elected governments and their

ideologies.

Nkrumah was for example was a socialist. This meant a government led development

strategy. Nkrumahs development plan left a legacy including -

free education,

free medical care,


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State-owned enterprises like Ghana airways, Tema Food Complex, GIHOC,

GNTC, State Hotels, State farms etc.

Workers Brigade

The record shows that there is no doubt about the CPPs socialist credentials.

Mr. Chairman, Ideologically Busia was a believer in market capitalism but wanted to

build a democratic welfare state where each is his brothers keeper.

To realize this vision, a number of initiatives were undertaken by the Busia government.

A new ministry of Social and Rural Development was created to seek the

welfare, training and employment of youth. The National Service Corps, Youth in

Action and a Voluntary Work Camps Association were formed.

A new Ministry of Housing was established to facilitate access to housing by

workers. The Bank of Ghana set up a loan scheme from which workers could

borrow to build their own houses. Contributions of 2.5 percent were made from

salaries of between N4,000 and N6,000 and 5 percent from salaries above

N6,000 to a Social Security Fund for the construction of low cost houses for

people with housing problems. Low-cost houses were built in all the nine regions

in Ghana.

To encourage rural development, the government established a Rural

Development Fund. This was funded through a levy of 40 new pesewas from the

salary of every worker whose salary was 34.00 and above paid into the fund.

This fund was used to provide the rural areas with good drinking water, through

the Ghana Water and Sewerage Corporation, Latrine pits, markets and health

posts.


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6 million worth of underground sewerage pipes project was laid in Accra

towards the proper disposal of sewerage.

Under the Department of Rural Water Development, three major city supply

plants for water were established for Accra, Kumasi, and Sekondi.

secondary schools and clinics were built across the length and breadth of the

country and the administration introduced Experimental Schools on pilot basis,

which is now called Junior High School

free text books in all the schools in the country.

free Achimota sandals to pupils in middle schools.

All this was done in 27 months!

Mr. Chairman, The NPP government just like Busias PP government believed that

there is the constant need in a nation like ours to cushion segments of the society and

ensure that they are carried along in the countrys quest to develop. As a result of the

many interventions and programmes, poverty declined from some 40% of the

population in 2000 to 28% by 2008 along with significant increases in access to

healthcare and education enrollment.

The 2001-2008 period also saw a significant increase in social spending aimed at

protecting the poor and vulnerable in society. This was reflected in initiatives such as

the:


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National Youth Employment Programme

The School Feeding Programme to provide food to pupils in basic schools

Capitation Grant to make education affordable and accessible

The National Health Insurance Scheme (NHIS) to provide accessible healthcare

to the population.

Free maternal care for all pregnant women under the NHIS.

Introduction of a Metro Mass Transit transport service for urban areas to provide

subsidized transport for commuters and a free bus ride for basic school pupils in

Ghana.

Introduction of the Livelihood Empowerment Against Poverty (LEAP) programme

under which welfare grants are paid to the extreme poor.

Mr. Chairman, the NPP inherited a HIPC economy but after 8 years in office it has all of

these concrete accomplishments to show. One cannot help but also notice the irony of

the free-market oriented NPP government implementing policies that were to some

extent more social democratic than the NDC government.

The NDC reinvented itself as a Social Democratic Party in 2003 seeking to marry the

efficiency of the market with the compassion of the state with all efforts geared towards

protecting and supporting the vulnerable, the disadvantaged, and the marginalized and

have-nots in society. Consistent with this philosophy, the NDC promised a Better Ghana

with policies such as:

One-time health insurance premium

Pay licensed teachers a professional allowance of 15% of basic salary

Pay technical-vocational teachers a professional allowance of 10% of basic

salary Pay teachers in deprived areas an additional allowance of 20% of basic salary

Assume water and electricity bills of second cycle schools

Double TORs capacity toward processing Ghanas oil


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To what extent has the NDCs covenant with Ghanaians to deliver on its social

democratic vision been realized over the last five years? Has the NDC had the

discipline to implement its manifesto promises?

The NDC is supposed to be a Social Democratic Party. But what type of socialism is

this that imposes such hardships on workers and ordinary Ghanaians. What type of

socialism is it that oversees the weakening of social safety nets such as the National

Health Insurance Scheme, Free Maternal care, School Feeding, and National Youth

Employment Programme? At least in Nkrumahs socialism one saw a vision that he was

committed to and attempted to implement with free education, healthcare, industries,

workers brigade, state farms etc.

Mr. Chairman, the socialism being practiced by the NDC is more in words than in action.

In action, it can best be described as Akonfem Socialism. Akonfem socialism is this

new brand of socialism where the government officials engage in chopping the meat to

the bone. Rather than focusing on serving the people, our Akonfem socialists focus on

coming up with schemes to steal money from the people. This is why we have the

creation of schemes such as GYEEDA, SADA, SUBAH, WAYOME, WATERVILLE,

ISOTOFON, AAL, where the state has been defrauded of billions of Ghana cedis which

could otherwise have been used for productive development expenditure. This is only

what we know about. This is not what Ghanaians expect from the party of Probity and

Accountability!

The Subah Infosolutions contract where the government is literally giving away hard

earned taxpayers money under very dubious circumstances may just be the tip of the

iceberg. With this level of corruption, the economy will not move and it is not surprising

that after inheriting a legacy of a much stronger economy, the government says it is still

in first gear after five years!

Mr. Chairman, the challenge we face today as a country is how to deal with corruption in

the public sector. As a country we have vetted people by CVCs, tried people by public

tribunals, jailed people, shot people at the firing squad etc. The situation has become so


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dire that a citizen vigilante like Martin Amiduand journalists like Manasseh Azure and

Anas Aremeyaw taking up the fight against corruption rather than government. We

appear to be losing the battle against very powerful forces. So what should we do?

Mr. Chairman, if you look at the canker of corruption, it is clear the over 95% ofcorruption takes place in the areas of award of contracts and the procurement of goods

and services by the public sector. In my humble opinion the surest way to deal with this

problem is to take the responsibility to award contracts and undertake procurement out

of the hands of the public sector and politicians and rather give it to an independent

body with a value for money secretariat (under parliamentary oversight). The

independent body should be made up of reputable professional local and international

procurement institutions and experts (and representatives from civil society). This is the

model that was used in the execution of projects under the Millennium Challenge

Corporation (MCC) such as the N1 Highway. The MDAs or even the Presidency had no

role in the award of contracts for MCC projects. Once this type of model is put in place,

public officials and politicians will focus on policies and service and not on their ability to

make millions of dollars through dubious contracts and procurement. This is an idea that

we can discuss on its merits on a multi-partisan basis and come up with a workable

solution.

Mr. Chairman, in conclusion, the author H. Jackson Brown jnr. has stated that Talent

without discipline is like an octopus on roller skates. There is plenty of movement

but you never know if it is going to be forward backward or sideways . This is

essentially the story of Ghanas economic development. We have been moving like an

octopus on roller skates because of the lack of discipline in our economic management.

As H.E. Alhaji Aliu Mahama would say, It is all about whether we are ready to submit to

discipline or not.

Mr. Chairman, I submit that it is time for us together to do the right thing for our

economy.


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May the soul of H.E. Alhaji Aliu Mahama rest in peace.

Assalamu Alaikum

discipline in economic management: the key to sustainable growth and prosperity

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