This column continues with an analysis of Dr. Bawumia’s speech on April 7, 2022, in which he partly blamed Ghana’s economic and financial difficulties on the conduct of Ghana’s parliament. In his speech, the Vice President contended that the “chaotic battle in parliament over the budget created economic uncertainty and signalled to the global markets that government may be unable to get most of its programmes passed in a tightly balanced parliament”.
Financial consequences
According to Dr. Bawumia, the battle in parliament over passage of the E-levy among others reinforced the lack of confidence foreign investors had in the economy. “The assessment of the 2022 Budget by financial markets concluded that the projected 40% increase in revenue underpinning it would likely not materialize, and therefore the deficit would be higher than projected,” he noted.
Furthermore, he argued that the delays in implementing major tax reforms – such as the benchmark policy reversal, tax exemptions bill, common platform for property tax, and the review of fees and charges – appeared to support the global market’s assessment that government would have difficulty in getting its economic programmes through parliament.
According to him, several factors culminated in depreciation of the cedi and the economy between January and March 2022. Firstly, government’s announcement that it would not issue a sovereign bond in 2022 alerted investors about the adequacy of Ghana’s foreign exchange reserves and import cover.
Consequently, foreign investors expressed unwillingness to rollover holdings of domestic debt and demanded foreign exchange to repatriate their investments. The demand for foreign exchange in dollars or the original currency of investment was one of the major causes of the cedi’s fast depreciation against the United States dollar, Dr. Bawumia explained.
Secondly, foreign investors wanted to get a hold of foreign exchange now – and this led to an increase in demand for US dollars on the market. Thirdly, the increases in interest rates by the US Federal Reserve and central banks in Europe also made the cedi assets less attractive and led to disinvestments of cedi holdings.
Finally, there was also speculative demand for US dollars as panic set in. The combination of these factors resulted in a sharp depreciation of the cedi exchange rate in the first quarter. He explained that the cedi’s depreciation was fundamentally about the market’s assessment of government’s fiscal stance and its implications for fiscal and debt sustainability.
Financial oversight
Given the above scenarios, Dr. Bawumia’s assertion that parliamentary misconduct had economic consequences for Ghana should not be taken lightly. For this reason, the electorate and taxpayer whose toil is financing our parliamentary democracy must exercise their right to demand the highest level of ethical conduct from our ‘honourable’ Members of Parliament.
My ordinary understanding of the legislature’s function is that it should work to protect the local and global image of Ghana, even if a government is underperforming. Under article 93(2) of the Constitution, the legislative power of Ghana is vested in parliament and is exercised in accordance with the Constitution.
No person or body other than parliament has the power to pass any measure with the force of law except by or under the authority conferred by an Act of Parliament. The legislative function consists of passing bills and scrutinising statutory instruments and deciding whether to annul them or allow them to lose effect by the effluxion of time.
Also, Chapter 13 of the 1992 Constitution variously vests the control of all public funds (power of the public purse) in parliament. In specific terms, Chapter 13 of the Constitution states that: No tax can be imposed without the authority of Parliament (Art. 174). In other words, apart from monies charged directly on the Consolidated Fund by the Constitution, no monies can be withdrawn from the Fund without the authority of parliament (Art. 178). Moreover, parliament has the power and duty to monitor the expenditure of public funds to ensure that the monies it has authorised are used for the purposes for which they are intended, by taking appropriate action on the Auditor-General’s Reports.
In effect, the Constitution mandates the Executive to propose various expenditure levels and how revenue should be raised to meet them. Parliament is however empowered to control the expenditure of public funds. Therefore, many well-meaning Ghanaians were baffled by the brawl in parliament over the E-levy; not for anything, perhaps, but political gain. It is worth repeating that the general conduct of parliament between January and March 2022 damaged the brand of Ghana locally and globally.
Little wonder, then, that the global financial markets reacted negatively… perhaps to joy of those who dragged Ghana’s name in the mud. Going forward, parliament should publish its code of conduct, if any, or immediately develop one to enable the public to use it as a measuring rod for ethical conduct. The electorate and taxpayer deserve returns on investment from our parliamentarians.
Life and death
In his speech, Dr. Bawumia alluded to the conflict between Russia and Ukraine as an emerging threat to the recovery of Ghana’s economy, which like many poor economies was slowed down by COVID-19. Russia’s invasion of Ukraine is largely to blame for the soaring crude oil prices on the global market, and its impact on overall cost of living globally. The ongoing war has also resulted in higher demand for US dollars by foreign investors, oil importers (BDCs), as well as other importers on the local foreign exchange market. So, in my view, the assertion of some politicians that the Russia-Ukraine war has not impacted Ghana’s economy negatively is illogical.
The United Nations has reckoned that the Russia-Ukraine war is fast becoming a matter of life and death for vulnerable people around the world. “We have all seen the tragedy unfolding inside Ukraine: cities flattened; people suffering and dying in their homes and in the streets; the fastest displacement crisis in Europe since the Second World War,” says the UN Secretary-General, Mr. António Guterres.
International media reports indicate that beyond Ukraine’s borders, and far beyond the media spotlight, the war has launched a silent assault on the developing world. The UN has estimated that the crisis could throw up to 1.7 billion people (over one-fifth of humanity) into poverty, destitution and hunger on a scale unseen in decades.
Many reasons account for the UN making this projection. Firstly, Ukraine and Russia provide 30 percent of the world’s wheat and barley, one-fifth of its maize, and over half of its sunflower oil. Together, their grain feeds the poorest and most vulnerable people, providing more than one-third of the wheat imported by 45 African and least-developed countries.
Regrettably, since the start of 2022 wheat and maize prices have increased by 30 percent. Currently, the war is preventing farmers of both Russia and Ukraine from tending their crops, while closing ports, ending grain exports, disrupting supply chains and sending prices skyrocketing. Only God knows what lies ahead if Russia continues its aggression on Ukraine.
Oil and gas exports
Besides, Russia is the world’s top natural gas exporter and second-largest oil exporter. Consequently, Brent oil prices have risen more than 60 percent over the last year, while natural gas and fertiliser prices have more than doubled. At the time of writing this article, Russia has cut gas supplies to three European countries and is justifiably or unjustifiably demanding all importers of is oil to pay in its currency, the Ruble.
The UN admits that the Russia-Ukraine war is ongoing at a time many developing countries are struggling to recover from effects of the COVID-19 pandemic, coupled with historic debt burdens and soaring inflation. With this background, those who think that COVID-19 has had no negative impact on Ghana’s economy are either insincere or hallucinating.
The World Food Programme (WFP) has warned that it faces the impossible choice of taking from the hungry to feed the starving. It urgently needs US$8billion to support its operations in Yemen, Chad and Niger. According to the UN, some countries are already sliding from vulnerability to crisis and serious social unrest. This is because the roots of many conflicts are directly correlated to poverty, inequality, under-development and hopelessness.
Sadly, while many developed countries have stepped-up in solidarity with the people of Ukraine, there is no sign of the same support for the 1.7 billion other potential victims of this war. “We have a clear moral duty to support them, everywhere. This is not the time for protectionism. There is enough food for every country to get through this crisis if we act together,” says António Guterres.
The UN is urging all countries to stop hoarding food and to keep markets open, relax unjustified and unnecessary export restrictions, and make reserves available to countries at the highest risk of hunger and famine. Therefore, humanitarian appeals for the World Food Programme (WFP) must be fully funded. “We simply cannot allow people to starve in the twenty-first century,” says the WFP in a statement.
Strategic response
On energy, the UN states that the use of strategic stockpiles and additional reserves could help to ease this energy crisis in the short-term. However, the only medium- and long-term solution is to accelerate the deployment of renewable energy – which is not impacted by market fluctuations. This will allow the progressive phase-out of coal and all other fossil fuels.
On finance, the G20 and international financial institutions must find ways to increase liquidity and fiscal space to enable governments in developing countries to invest in the poorest and most vulnerable. Social protection, including cash transfers and liquidity support, will be essential to support desperate families through this crisis.
This should be a first step toward deep reforms in the unfair global financial system that makes the rich richer and the poor poorer. “We cannot stand by and watch as developing countries are forced to choose between investing in their people and servicing their debt.”
The only lasting solution to the war in Ukraine and its assault on the poorest and most vulnerable people in the world is peace. “We call on the global community to speak with one voice and support our plea for peace,” António Guterres appeals.
Reference
UN Africa Renewal, 2022. Impact of Russia-Ukraine Conflict.
