The Ghanaian News
May 2014
41
Frankly Speaking Borrowing till Thy Kingdom come By: Dr. Michael Baffoe, Winnipeg, MB
Once upon a time there was a country called Ghana which was under the colonial control of Her majesty’s Kingdom, Britain. This country called Ghana decided in 1957 that she had reached the age of maturity and could manage her own affairs. She therefore asked Her Majesty and her agents to pack off. Her Majesty granted Ghana what is called independence. As at the time that Her Majesty and her agents were leaving Ghana, they left the Treasury of Ghana lots of money. Our first political leaders used and misused the financial legacy; some for the positive development of the country and but a greater part was misused to develop the personal “stomachs” of our political leaders through eating and drinking well, and stashing some of the money away in local and foreign private banks. No wonder from the time of independence till now, men with big stomachs in Ghana are associated with good living and wealth. This misusing of the c o u n t r y ’s r e s o u r c e s intensified throughout G h a n a ’s l i f e a s a n “independent” country. The stealing got worse especially between 1972 and 1979, and again between 1982 and 2000 during which periods a bunch of restless military guys forcibly took over power in Ghana and looted the country’s finances with their eyes closed. The greatest culprit in this slash and loot business was the company led by Jerry John Rawlings who ruled the country for close to twenty years. Therefore as at the end of the year 2000 when the rule of Jerry Rawlings ended with the election of the government of John Agyekum Kufour, Ghana’s economy had totally collapsed. In the process we had borrowed so much money from other countries to the levels at which the money we were using to pay interests on our debts was more than the total GDP (the total revenues and good produced in the country). Ghana was therefore admitted as a member of a shameful League of Irresponsible Economy Man ag er s k n o w n as Heavily-Indebted Poor Countries (HIPC).
When the Kufuor administration took over power in 2001, t h e c r ed i t o r s , t h o s e countries to whom Ghana owed so much money offered us a way out of the financial mess and crisis. We were given the opportunity to confess with our own mouths that we were indeed irresponsible debtors and in return our financial sins will be forgiven. This order was taken out of the Western Creditors Big Book, Chapter One verse one which read: “If thou shall confess with thy mouth that thou art a heavily-indebted debtor and agree to become a members of the League of irresponsible financial economy managers, thy economic sins shall be forgiven. In return thou shall commit to henceforth use the money that you were previously required to pay to us to undertake development projects in your country. Thou shall also commit thyself never to fall again into such irresponsible behavior and heavy debts”. After painstaking soulsearching and agonizing months of thinking and re-thinking, President Kufour and his Finance Min siter Yaw Osaf o Marfo decided that Ghana will accept the above edict of agreeing to join
the HIPC League. So Ghana’s financial sins were cleanly forgiven and as at the end of the 2001, almost ALL our debts owed to foreign countries were wiped out. The expectation therefore was that Ghana’s economy and finances were from then going to be soundly and responsibility managed. We did well for a while but after a few years, we forgot about our shameful admission to the HIPC League. We started borrowing again toward the end of Kufour’s regime in 2007 and 2008. The borrowing spree intensified under the government of John Attah Mills from 2009 and has reached frightening proportions under the government of John Mahama from J u l y 2 0 12 t i l l n o w. Up to 30 low-income sub-Saharan African countries had their debts reduced under the IMF and World Bank’s Highly Indebted Poor Countries (HIPC) initiative, which was later supplemented by the Multilateral Debt Relief Initiative (MDRI). An estimated $100 billion of debt was wiped out, easing countries’ onerous debt burdens, often the result of loans taken on by corrupt regimes. These had meant more being spent on debt service payments than on health and education combined. A recent report by the World Bank shows that the debts of many Africa countries including Ghana are creeping up again, which could undermine the region’s growth boom. As African states line up to join the growing club of dollar bond issuers, economists and analysts warn of a slide back into
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indebtedness that could undo recent economic gains and create a “Eurobond curse” to match the distorting “resource curse”. In 2007, Ghana became the first African beneficiary of debt relief to tap international capital, issuing a $750 million 10-year Eurobond. In Ghana, Uganda, Mozambique, Senegal, Niger, Malawi, Benin and Sao Tome and Principe, debt levels are creeping back up. If all continue to borrow and grow at current rates their debt indicators could be back to pre-relief levels within a decade . Ghana, which sold a new $750 million Eurobond and bought back a portion of the 2017 issue last year, shows how growing debt levels can threaten countries’ fiscal dynamics. Ghana’s stability and roaring economic growth, reaching 14.5 percent in 2011, have made it an investor favourite. But the government’s inability to tame widening fiscal deficits has led to a deterioration in its debt ratios. Its debt now represents just over half of its GDP, from 32 percent in 2008. An expanding current account gap has hit the cedi currency, which has weakened more than 9 percent against the dollar this year, after a 24 percent slide in 2013. In a sign of waning market confidence, yields on Ghana’s sovereign debt are higher than for any other African country with an actively traded international bond, at around 9 percent for its 2023 Eurobond
and over 20 percent for domestic debt. This disturbing situation led to a very impressive analysis of the state of Ghana’s economy by the former Deputy Governor of the Bank of Ghana, Dr Mahamudu Bawumia on Tuesday March 25, 2014. Dr Mahamudu Bawumia, an eminent economist slammed the John Mahama government for the country’s spiralling debt situation and high interest payments on them. He maintained that the country’s debt situation has contributed to the cedi’s depreciation. His lecture titled “Restoring the Value of the Cedi” lecture at the Central University College Miotso Campus on Tuesday, revealed the country’s 9.5 billion Ghana cedis debt stock at 2008 had ballooned to 49.9 billion, representing an increase of over 40 billion in five years. Dr Bawumia also warned that the country’s economic “crisis” could soon land Ghana at the doorstep o f th e I n ter n a tio n a l Monetary Fund (IMF) for a bailout. Further cr u nch ing d o wn th e numbers, Dr. Bawumia said the current debt stock represents 57.7 per cent of GDP, and predicted that: “Our debt stock will be 60 per cent to GDP ratio by the end of this year.” This is a very grave situation. In present day Ghana however, one does not even need the brilliant and expert analysis of Dr. Bawumia to see and understand that our economy is in deep crisis. However, instead of embracing these expert analysis and do something
about the state of the economy, officials of the Mahama administration have only resorted to insults on Dr. Bawumia. They have called him all kinds of names. It is very disturbing to always see President mahama and his officials refusing to admit the simple fact that every Ghanaian has a right to comment on significant issues affecting the nation. President John Mahama himself jumped shamefully into the fray on Wednesday March 26 when he addressed the Chiefs and people of Akyem Abuakwa at Kyebi. The president s a i d , “ We d i d n o t borrow to drink or to eat; we borrowed to bring facilities such as electricity and water to the people of Ghana”. He added that currently 75 percent of Ghanaians had access to electricity, an achievement that was chalked through borrowing. On a more serious note, President Mahama said: “Don’t let anyone deceive you. Th i s co u n tr y is n o t retrogressing. We are moving forward and we will stay on that course”, he assured the gathering at the durbar. To that ex ten t th er ef o re th e President sees no dangers and nothing wrong with continuous borrowing to increase our debt ratios even if that comes at the risk of economic collapse. This is serious indeed and Ghanaians should watch out for the total collapse of the economy if the current carefree attitude of President Mahama and his government on the economy continues.
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