The politics of macroeconomic fundamentals

The term ‘Macroeconomic fundamentals’ rose to both the media and public agendas during the 2016 general elections, when then-Vice-Presidential aspirant Dr. Mahamudu Bawumia famously declared: “when your economic fundamentals are weak, the exchange rate will expose you”.

To many ordinary people (including yours truly), this statement didn’t make sense initially; until the cedi, began to swiftly depreciate against the major foreign currencies, especially the United States dollar, in 2016. Worryingly, demand for the dollar exerted enormous pressure on the cedi – a trend that has continued in 2019.

Since 1992, various governments have had to battle with rapid depreciation of the cedi against foreign currencies. From 1984 when our economy was forced into the economic recovery programme, Ghanaians had gotten used to depreciation of the cedi – to the point that ‘weak economic fundamentals’ still would have meant little to many Ghanaians but for the term’s recent rise into political and economic discourse.

On assuming office in January 2017, now Vice-President, Dr. Bawumia naturally became head of government’s Economic Management Team (EMT) – charged with the responsibility of steering the economy out of the woods and arresting the cedi’s rapid decline.

As the cedi’s value continued to plummet, members of the opposition National Democratic Congress (NDC) started playing back Dr. Bawumia’s words in a bid to prove that “talk is cheap, but action is sacrosanct”. The notion among Dr. Bawumia’s critics was that he appeared to have fallen on his dagger, as the very words he uttered about the economy and the cedi in 2016 were being practically manifested under his supervision.

Quite expectedly, the cedi’s depreciation over the last few months brought enormous pressure on the learned economist and his EMT to translate their words into action.  Some pressure groups, perhaps politically-inclined, gave government a two-week ultimatum to arrest the cedi’s free-fall or face public action. Following the threat of public action and the outcry by some traders, it was just a matter time before government responded.

So, on April 3rd, the EMT descended from the comfort of Jubilee House to the College of Physicians’ auditorium, where it interacted with a cross-section of Ghanaians. A formal response or ‘rejoinder’ on the cedi’s performance and macroeconomic fundamentals was read by Dr. Bawumia.

Undoubtedly, the highlight of Dr. Bawumia’s response was his insistence that the weak fundamentals in 2014 was what compelled the NDC government to beg the IMF for a bailout.  To the contrary, Dr. Bawumia said, the strength of Ghana’s fundamentals now was confirmed on March 16, 2019 by Standard and Poor’s (S&P) Global – which affirmed Ghana’s sovereign rating as B with a stable outlook after upgrading Ghana’s sovereign credit rating from B- to B last year. This was the first upgrade by S&P for Ghana in 10 years, he stressed.

So, what is the implication of macroeconomics and depreciation of the cedi to the average Ghanaian? In other words, what is macroeconomics to the market woman or farmer? According to the Economic Times, macroeconomics focuses on aggregate changes in the economy: such as unemployment, growth-rate, gross domestic product and inflation. It is a common practice for governments and corporations to use macroeconomic models to help in formulating economic policies and strategies.

Dr. Bawumia, emphasised that macroeconomic stability is very important. “It is like fresh air that you can easily take for granted until the air is fouled.” But it is generally accepted that macroeconomic stability alone is not sufficient to make a meaningful impact on ordinary persons.

“It must translate into the well-being of Ghanaians in their everyday living: safe drinking water, good roads, jobs, access to good healthcare, stable and affordable electricity, and good education among others,” says Dr. Bawumia. In my view, if indeed strong  macroeconomic fundamentals usually translate into safe drinking water, jobs, good roads, health, stable energy, then that could be a sound basis for retaining a government in power or ousting it though the ballot box.

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Why then have governments failed to maintain stable macroeconomic environments over the years? My layman’s answer to this question stems from our governments’ perennial failure to transform the structure of our economy from agrarian to an industrial or manufacturing one, leaving Ghana as a net importer since independence. Both government and opposition agree on this; but the average Ghanaian is always left in the dark as to who is telling the truth.

Public Finances

The Vice-President disclosed that at the heart of Ghana’s current economic difficulties has been the prudent management of public finances, especially during election years, and the challenges in cleaning up the post-election fiscal mess. He argued that Ghana’s public financial management and fiscal excesses in the run-up to the 2012 elections were very damaging to an economy that was trying to bounce back.

“The economy ended 2012 with a fiscal deficit of 12.2% of GDP, 11.7% in 2013, 11.9% in 2014 before falling to 6.7% in 2015 – but rose to 9.3% in 2016. We recorded for the first time in Ghana’s history double-digit fiscal deficits in three consecutive years, and plunged into a deep fiscal hole. Debt pile-up began, debt service became burdensome on the budget, inflation soared, external trade balances worsened, and the economy became more and more vulnerable to external shocks.” In his view, this poor state of public finances, weak policy implementation and lack of policy credibility resulted in Ghana requesting an IMF bailout in August 2014, with its economic and social ramifications.


He explained further that by the end of 2016, fundamentals of the economy were generally weak – leaving the economy with the following features:
o    Real GDP growth (Our ability to produce goods and services in the economy) declined from 9.1% in 2008 to 3.4% in 2016.
   Growth in agriculture was declining.
o    Industry growth was in the negative.
o    Rising public debt had pushed debt-to-GDP beyond the 70% threshold for comparable economies to 73.1%, making Ghana a high-risk country.

   Interest rates were high.
o    The Unemployed graduates’ association became the new unenviable club in town.

The NDC has however disputed all statistics Dr. Bamumia revealed about the economy from 2012 to 2016. A statement by its General Secretary, Johnson Asiedu Nketia, accused the Vice-President of distorting the facts about the Ghanaian economy. “In a manner reminiscent of the utterances during the 2016 general election campaign, Dr. Bawumia’s lecture was full of misleading facts and patent misstatements, laced with the usual populist rhetoric rather than a fact-based presentation on the economy,” the statement said.

In a counter-economic lecture on Thursday, April 4, Member of Parliament for Bolgatanga Central, Isaac Adongo, buttressed Nketia’s stance that most of the figures given by the Vice-President were outdated.

Macroeconomic stability
The Vice-President had earlier assured Ghanaians that government is bent on restoring and sustaining macroeconomic stability as the anchor for economic growth and enhanced private sector investment.

He argued that the economy’s ability to produce goods and services measured by real GDP growth is increasing. For instance, growth for 2017 was 8.1%, significantly exceeding the average sub-Saharan African (SSA) growth of 2.7 percent – while GDP growth remained robust in 2018, almost double the average growth in SSA.


Besides, non-oil growth has increased from 4.6% in 2016 to 5.8% in 2018, which translates into a steady rise for the share of every Ghanaian in national output. This output is currently estimated at GH¢9,864 – 30% higher than in 2016.

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In his view, the recent growth performance is being mainly driven by the industry and agriculture sectors. The positive growth of agriculture, for instance, was the result of policy interventions in the sector – especially the planting for food and jobs. This has resulted in an increase of agric sector growth from 2.9% in 2016 to 6.8% by 2018, largely driven by crop production.

The industrial sector also contributed significantly to GDP growth, according to Dr. Bawumia. He said growth in the sector was underpinned by petro-carbon production initially, and increasing investment in the manufacturing sector. If indeed government’s attempt to address Ghana’s overreliance on imports through investments in agric and industry are to be taken seriously, that could be the medium- to long-term strategy to save the cedi and stabilise the economy.

Cedi depreciation

Without doubt, depreciation of the cedi remains one of the main challenges confronting the current government, especially since it was a big campaign issue in 2016. Dr. Bawumia explained that, simply, the exchange rate is influenced by the relative demand and supply for foreign currency – mainly for imports. Factors such as the inflation rate, the balance of trade, fiscal balance, money supply (the fundamentals) influence the exchange rate. But speculation and expectations about these fundamentals, external shocks such as oil price increases, can also have powerful short-term impacts on the exchange rate.

“Ladies and Gentlemen, you will recall that I stated in 2014 that if the fundamentals are weak, the exchange rate will expose you. That was true then and will always be true. It is 100% correct. But it is warped logic to jump from that to a conclusion that if there is a depreciation of your exchange rate, then the fundamentals must be weak. That defies logic.  There could be other external factors causing the exchange rate depreciation.

“For example, if I tell you that if your leg is broken you will be unable to walk, it does not mean if someone comes to tell me that you are unable to walk, I can then conclude your leg must be broken. There can be other reasons why you are unable to walk. But the NDC logic will insist in the face of contrary evidence that since you cannot walk, then it must mean your leg is broken.”

At the NDC lecture, Mr. Isaac Adongo countered that Ghana’s economy is now being held by about three foreign investors, arguing: “What it means is that only a few people are now holding Ghana’s external debts.  Ghana’s destiny is tied to Franklin Templeton and two or three other investors”. This situation, he argued, not only compromises the independence of Ghana’s policy decision-making, but also increases our vulnerability risks. In his view, Ghana’s monetary policy decisions cannot be taken in isolation of the interest of these investors and foreign constituents, as is being held by the Bank of Ghana Governor.

“If they [the investors] decide that their interest is now better served in south-east Asia and they come to take their money ,the cedi will disappear. This is the state of our Ghanaian economy, and it is not something to be celebrating,” he warned Dr. Bawumia.

To the contrary, Dr. Bawumia maintains that Ghana’s future is bright and the prospects of growth are promising. “We are implementing a plan to change the economy’s structure.” Meanwhile, it is anticipated that the debate on macroeconomic fundamentals could rage on into the 2020 general elections.

(***The writer is a Development and Communications Management Specialist and a Social Justice campaigner.  All views expressed in this article are my personal views and do not in any represent those of any organisation(s). (Email:

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