In the face of tightening economic conditions flowing from disruptions caused by the emergence of COVID-19 as well as the ongoing Russia-Ukraine war, Vice President Dr. Mahamudu Bawumia has expressed optimism that the economy will emerge stronger from the current downturn.
Despite conceding that current conditions are far from ideal, he stated that fundamentals of the economy remain robust and the external factors will ease, as government’s self-administered policies bear fruit.
“Today, our economy is witnessing rising prices of fuel, and virtually all commodities like bread, rice, sugar, sachet water, cement, iron rods and so on… it is important to note that this global crisis would have hit us irrespective of which government is in office.
“However, how well we come out of it depends on which government is in office and its track record of delivery. Our government has achieved a lot, and as a country we have come a long way.
“We are on the right path. With sound policies to enhance growth, fiscal and monetary discipline… we are bouncing back better and stronger. We will weather the storm. We will turn this tide. We will continue to work tirelessly for the good of the nation. There is no doubt that the future of Ghana is brighter and safer under our management of the economy,” he said.
He made this assertion during the National TESCON Training and Orientation Conference organised by the National Youth Wing of the New Patriotic Party (NPP) in collaboration with the Danquah Institute, dubbed ‘Bawumia Speaks on Economy’.
According to Dr. Bawumia, COVID-19-related expenditure, coupled with costs of the financial sector clean-up and payments for excess capacity in the energy sector, have accounted for the rising stock of public debt as well as the fiscal deficit.
A breakdown of the figures, he said, shows that the cumulative expenditure on the three items amounted to GH¢50.1billion (US$7billion) and was financed primarily through borrowing.
“The Ministry of Finance estimates that the interest payment on this borrowing for the three items amounts to GH¢8.5billion annually. This is about 23 percent of Ghana’s annual interest payments of GH¢37billion,” the Vice-President added.
He indicated that the sum of these exceptional items was more than three times the total expenditure of some of government’s flagship programmes from 2017 to 2021, which reached GH¢15.62billion.
They include Free SHS, GH¢5.3billion; One District, One Factory, GH¢472million;
Planting for Food and Jobs, GH¢2.95billion; Development Authorities (IPEP), GH¢1.9billion; Nation Builders Corps (NABCO) GH¢2.1billion; and the Zongo Development Fund, GH¢170million.
The rest are the Ghana Card, GH¢1.1billion; Teacher Trainee Allowance, GH¢770million; and Nursing Trainee Allowance, GH¢860million.
Cedi and public debt
Addressing concerns over the nation’s total debt stock, which has increased from GH¢122.2billion in 2016 to GH¢351.8billion in 2022 – an increase of GH¢229.6billion, Dr. Bawumai said without the aforementioned exceptional items, the debt-to-GDP ratio would be less than 70 percent.
“It should be noted that without the GH¢50.1billion debt for the three exceptional items – COVID-19, Financial Sector and Energy – Ghana’s debt to GDP would be about 68 percent instead of the current 80 percent. Because of COVID-19, GDP growth was virtually zero in 2020 – and this is also bound to increase the debt to GDP ratio, other things being equal, with a lower base,” he said.
On the cedi’s rapid depreciation in the first quarter, Dr. Bawumia said a number of factors – including but not limited to uncertainty about passage of the budget – snowballed into mostly sentiment-driven reactions. He added that the recently-announced measures are expected to reverse the trend.
“We needed to cut expenditure and increase revenues of the magnitudes to allow us to be on the path of fiscal and debt sustainability. Our assessment is that it is not a financing problem. So, cedi more borrowing will not solve the problem unless it provides fiscal space to undertake critical reforms on the expenditure and revenue sides of the budget as well as increasing economic growth,” he explained.
Fruits of digitalisation
The Vice President also noted that digitisation of the Driver Vehicle and Licencing Authority’s (DVLA) two traditional services – Driver Licencing and Vehicle Registration related services – enhanced operations while saving the public some cost in accessing the services.
“With the digitalisation of the drivers’ licences in 2019, the DVLA experienced an increase in service by 109 percent in 2020,” he stated.
He said the average cost at the DVLA is GH₵500 and GH₵550 for vehicle and driver licencing services, compared to the cost of between GH₵2,000 and GH₵3,000 that hitherto existed under the ‘goro’ market.
Against this background, he stated that digitisation has reduced for DVLA customers the cost of vehicle services by 200 percent and driver’s licences services by 264 percent, at the minimum.
Furthermore, he disclosed that the DVLA generated an average revenue of GH₵71.5million in the four years (2013-2016) prior to digitisation as compared to the average revenue of GH₵168.4 in the four years (2017-2020) with digitisation.