[ 2012-05-04 ]

Bawumia’s analysis full of inaccuracies and distortions - MoF
The Ministry of Finance and Economic Planning has
reacted to the “State of the Economy” address by
the NPP vice presidential candidate, Dr. Mahamudu
Bawumia, saying it was full of “inaccuracies and
distortions.”

The statement claimed that the former deputy
Governor of the Bank of Ghana mixed “the rebased
GDP series with that of the old series thereby
drawing invalid conclusions” hence making a rather
weak analysis.

Below is the full statement:


1. The attention of the Ministry of Finance has
been drawn to a presentation made by Dr. Mahamudu
Bawumia, the Vice Presidential Candidate of the
NPP on the state of the economy on the 2nd of May,
2012.
2. Among many other inaccuracies and distortions;
Dr. Bawumiah claimed that the NPP government
implemented a large number of policy reforms and
structural interventions between 2001 and 2008. He
strangely asserted that the NPP Government
constructed a stadium at Cape Coast when this does
not exist. Similarly he claimed the NPP built
universities when the facts show that the NPP did
not establish a single university. Additionally,
Dr. Bawumia strangely takes credit for the Single
Spine Pay Policy which the NPP did not implement.
The LEAP and Millennium Challenge Account cannot
also be presented as NPP interventions. The World
Bank and the US Government respectively would not
be enthused by such misrepresentation.

3. Another major weakness in Dr. Bawumia’s
analysis is that he mixes the rebased GDP series
with that of the old series thereby drawing
invalid conclusions. For example,

a. The statement that the growth rate of the
economy has increased from 3.7% to 8.4% from 2000
to 2008 is misleading as the 3.7% is based on the
old GDP series (1993=100) and the 8.4% is based on
the rebased GDP series (2006=100).

b. That the economy expanded six fold between 2000
and 2008 is not factually correct. This is because
the GDP of US$16,496 million (old series) in 2008
is only a multiple of 3.3 of the GDP of US$4,983
million (old series) in 2000.

4. The growth rates of 7.4%, 15.1% and 8% for
Agriculture, Industry, and Services sectors
respectively for 2008 based on the new series does
not tell the story. However, in 2007, the
Agriculture Sector grew by negative 1.7%. In
addition the Industry Sector which grew by 15.1%
in 2008 was mainly due to the growth in the
electricity subsector of 19.4%. This was up from a
negative growth of 17.2% in 2007. Such deliberate
concealment of the facts undermines the integrity
of Dr Bawumia, if any.

5. Dr. Bawumiah rather strangely disputes the
fiscal deficit of 14.5% of GDP (old series) the
NPP government left behind in 2008. It should be
noted that the fiscal deficit of 6.5% of GDP he
quoted for 2008 is based on the new series and
includes divestiture receipts. If divestiture
receipts are excluded, the fiscal deficit for 2008
was 8.5% of GDP (new series) which is equivalent
to the 14.5% (old series) quoted in the 2009
budget.

6. Dr. Bawumiah also states that the debt to GDP
ratio reduced from 189% in 2000 to 29% by 2008.
The 189% debt to GDP ratio is based on the old
series whilst the 29% ratio is based on the new
series. The statistics, however, show that the
debt to GDP ratio in 2000 is 181% (old series) and
49% in 2008 (old series). Again, it is
intellectually dishonest to deliberately confuse
the ratios based on the old and new series.

7. Dr. Bawumiah questions the credibility and
independence of the Ghana Statistical Service
(GSS) in producing credible inflation figures.
However, he gives credit to the NPP government for
“transforming the economy from a low HIPC economy
to a lower middle income economy in 8 years”. One
may ask about the data he used in assessing
Ghana’s lower middle income status: answer? The
same GSS data. When the data suits him, he uses it
but when it doesn’t he condemns it.

8. Dr. Bawumiah paints the picture as though Ghana
should fully benefit from the oil price increase
of 13% between 2009 and 2011 but forgets that the
country started exporting oil only in 2011. Indeed
the entire oil revenue is not available to the
country as the country’s carried and participating
interest in the Jubilee Fields is limited to only
13.5%. For example in 2011 the state only realized
revenue of US$444 million equivalent to 1% of GDP.


9. Dr. Bawumia prides his administration for
prudent management of the economy in spite of high
oil prices of US$147 per barrel in 2008. This is
very misleading as the average oil price in 2008
was US$102 per barrel compared to a more difficult
situation today when Government is currently
paying an average of US$112 per barrel for oil
imports.

10. On the real sector, Dr. Bawumiah uses
selective statistics to describe the performance
of the agriculture sector. He claims that rather
than expanding, the agriculture Sector saw steady
decline from growth rates of 7.4% in 2008 to 0.8%
by 2011. It should be pointed out that the
agriculture Sector’s growth was negative 1.7% in
2007, a situation which never occurred during
2009-2011 period. In 2007, all the subsectors in
agriculture showed negative growth rates except
Livestock. Crops, Cocoa, Forestry & Logging and
Fishing grew by negative 1.4%, 8.2%, 4.1%, and
7.2% respectively. One wonders why Dr. Bawumiah
conveniently concealed these facts. He also
excludes cocoa in his analysis of the crop
subsector for reasons best known to him.

11. The fishing sub-sector has for years witnessed
fluctuations. For example in 2007, the sub-sector
posted a negative growth of 7.2% but rebounded to
17.4% in 2008 before contracting again to 5.7% in
2009.

12. The analysis of the industrial sector
performance also left out the negative growth of
the Electricity sub-sector in 2007 by 17.2% which
was much worse than the contraction of 0.8% in
2011.

13. He also alleges that there is no policy
framework targeted at supporting the private
sector to become competitive globally. Is Dr.
Bawumiah not aware of the Private Sector
Development Strategy II, which is currently being
implemented to support private sector
competitiveness? In fact in addition to creating
the enabling environment for the private sector,
government has supported the sector directly
through such means as the provision of government
guarantees and direct borrowing for some private
sector operators. Similarly, government has
formulated a PPP policy to enable the private
sector partner the public sector to engage in
mutually beneficial economic activities. If this
is not private sector support then what is it?

14. On unemployment, Dr. Bawumiah asserts that the
growth of the economy is jobless without reference
to any employment survey. One wonders the source
of his evidence for his claim of jobless growth of
the economy. This is unbecoming of a person touted
by the NPP as an economic guru.

15. Dr. Bawumia amply demonstrated his lack of
understanding of the computation of the inflation.
He compares the price of six selected items in
three years to make a case that the increases in
those prices are not consistent with single-digit
inflation figures. The calculation of inflation as
exhibited in the table on page 16 of his speech
violates any inflation formula. Inflation is
calculated as a monthly change, point-to-point
(year-on-year), and annual average by the Ghana
Statistical Service. None of these inflation rates
mentioned above conforms to the calculations in
the table on page 16. Nowhere in the world is
inflation calculated the way Dr. Bawumiah
calculated it. The argument presented in that
table constitutes what is usually called the “rate
of change fallacy” or the "Politicians Error". The
rate of change fallacy occurs when comparing rates
of change in two numbers that start out at
different levels. What Dr. Bawumiah calculated is
a cumulative price change and not inflation. What
any first year student of Economics would do would
be to collect the prices of those items in April
2011 and compare them with that of April 2012 and
not December 2008. While dabbling in this
intellectual dishonesty, Dr Bawumia failed to
explain to the people of Ghana that the price
increases he was lamenting pale into
insignificance when set against astronomical
increases in prices of consumer items between 2001
and 2008 under his NPP government.
16. In addition the basket of goods and services
used in measuring inflation by the Ghana
Statistical Service is much more representative
than the paltry six commodities he selected.
Indeed, there are 242 commodities in the basket
the GSS uses. There is, therefore, no rational
basis for debunking the single digit inflation
figures as he did. Dr. Bawumia’s analysis of
inflation confuses price, value and quantity and
refuses to acknowledge that the items talked about
have differing weights in the basket.

17. The data presented on prices of six selected
items is quite misleading. Right after the
redenomination exercise in July 2007, there was
some rounding up of prices in the economy and as a
result, prices of items like sachet water moved up
from 3Gp to 5Gp. It will be recalled that upon
implementation of the redenomination, the pure
water price of 2.5Gp was adjusted upwards to 3Gp
by the end of 2007. By the end of 2008 when the
NPP Government was leaving office the price of
sachet water was 5Gp. On that basis the percentage
change of 233 quoted for sachet water from end
2008 - April 2012 in his presentation is wrong.
Dr. Bawumiah who was then the Deputy Governor when
the redenomination exercise was executed and took
credit for its implementation failed to recognize
the impact of redenomination on prices.

18. As a former Deputy Governor of the Central
Bank, Dr Bawumia ought to have been fully aware
from his engagement at the Bank of Ghana that the
price of cement does not feature in the
calculation of CPI inflation.

19. The paper also talked about the fact that
there was a high probability that monetary policy
might be reacting to false inflation numbers and
that might have informed the Bank of Ghana to set
loose monetary policy. The fact remains that there
is only one institution in the country responsible
for generating inflation numbers and that is the
Ghana Statistical Service. This is the only
inflation numbers available to any policy maker
engaged in policy. If Dr Bawumia feels that
inflation in the country is of another dimension,
triple digit as he suggests, he is free to present
it for an assessment of his methodology for
calculating such numbers.

20. He rubbishes the achievement of single digit
inflation and bases his doubts on single-digit
inflation on the alleged inconsistency of the
inflation with economic fundamentals such as
interest rates and exchange rates. He failed to
realize that the economy of Ghana like any
developing country has market imperfections and
may not exhibit a theoretical relationship between
inflation, exchange rate, and interest rate as he
expects. In addition, historical data shows that
the current correlation among inflation, exchange
rate, and interest rates is not peculiar to the
period 2009-2011 but also 2000-2008.

21. Dr. Bawumia’s interest rate analysis compares
development in an 8 year period with a three year
period. What the analysis failed to talk about was
the inertia in rates that had built up following
the macroeconomic imbalances that characterised
the economy in 2008. After observing interest
rates decline to 27 percent within the 8 years
from 2001 to 2008, the rates increased to 33
percent in 2009 due to the fiscal slippages and
macroeconomic imbalances of 2008. Since then
lending rates have declined 800 basis points to 26
percent. Thus, Dr. Bawumia’s assertion that
interest rates have declined by 1 percent is a
misrepresentation of the facts. In line with the
declining trend in inflation, the rate on the
91-day Treasury bill instrument also declined
significantly from 25 percent in December 2008 to
10.3 percent in December 2011. In line with the
increase in the monetary policy rate in 2012, the
rates had risen to 12 percent as at March 2012.
Similarly, the interbank lending rates, the rates
at which the banks lend to themselves, have also
declined from 19 percent to 11 percent.

22. The Exchange rate has depreciated by about 11
percent since the beginning of the year and the
impact has not been fully passed on to inflation.
Studies conducted by Dr Bawumia and his colleagues
whilst he was at the Bank of Ghana showed that the
pass through of exchange rate depreciation to
inflation is about 0.3 percent. Per his analysis,
the 11 percent should be adding an extra 3 percent
to inflation. In that same study he seems to
suggest that the pass through could take as long
as 6 months. The question that we must be asking
is that why is Dr. Bawumia forcing this
pass-through at this stage when he himself attests
to the fact that the maximum lag impact is
6-months? One must also not forget that the
economy is undergoing transformation all the time
and the way the economy responds to such mild
shocks might be changing. The maximum lag impact
could be getting longer at this stage. It was also
highly irresponsible on Dr. Bawumia’s part to have
engaged in wild speculation that the market
already expects a further depreciation of the cedi
to reach GH¢2 to USD1 soon.


23. On fiscal developments and public debt, Dr.
Bawumia argues as though government borrows
without due cognizance to debt sustainability. The
borrowing policy of Government is premised on debt
sustainability. The main issue about borrowing is
not the amount of money borrowed but what the
money is used for and whether the borrowed amount
can be serviced sustainably. Our debt indicators
clearly show that as at the end of 2011, our total
debt to GDP ratio stood at 40.35% which is
significantly below the debt threshold of 60% for
lower middle income countries. In addition Debt
Sustainability Analysis (DSA) undertaken by the
World Bank and the Ministry of Finance and
Economic Planning in 2011 showed that Ghana’s debt
is sustainable.

24. Dr. Bawumiah should also note that if the
quantum of money borrowed is used on productive
ventures, the benefit of the loan would far
outweigh the cost. In fact a sizeable number of
the projects which are financed by the loan
contracted are self-financing. For example, the
US$850 million out of the US$3billion Chinese loan
facility would be used for the provision of gas
infrastructure for the production of gas.

25. On corruption, Dr. Bawumia claims that
corruption in Ghana is on the increase and
references the Corruption Perception Index
published by Transparency International without
quoting any figures. From 2002 to date, per the
corruption index statistics by the Transparency
International, Ghana achieved the best performance
in 2010 when it recorded an index of 4.1. In 2011
the index dropped to 3.9. Dr. Bawumiah should know
that our worst performance in 2011 happens to be
the NPP’s best performance achieved in 2008. Dr.
Bawumia also claims that there is increasing
resort to single-source procurement which
compromises the transparency of the procurement
process. The data from the National Procurement
Authority puts the percentage of single-source
procurement at 8.85% in 2010 which is not
significantly different from the 8.58% recorded in
2007 when Dr. Bawumia’s Party was in power.

26. Dr. Bawumiah also claims that fiscal policy is
more expansionary than it appears. In 2008, Dr.
Bawumia’s government left a fiscal deficit
(excluding divestiture receipts) of 8.5% of GDP
(new series) and by end 2011 the NDC government
had reduced the deficit to a low of 4% of GDP. Is
this what Dr. Bawumia refers to as expansionary?

27. Gross International Reserves (GIR) which was
at US$2.8 billion at the end of 2007 declined
significantly to US$2.0 billion at the end of
2008. During that period, import cover of reserves
declined to 2.1 months. Under prudent management,
the country’s gross international reserves have
moved up consistently to US$4.7 billion
(equivalent to 3.7 months of import cover). At the
end of December 2011, GIR stood at US$5.4 billion,
the highest ever in the history of the country.
Due to the phenomenal growth in imports of goods
and services to support the 14.4 percent growth in
GDP, this provided 3.2 months of import cover and
this is higher that the import cover of below 2.5
that was recorded for the period 2006-2008. In
March 2012, the import cover of reserves is 2.6,
and not 2.4 as stated by Dr. Bawumia. GIR also
stands at US$4.6 billion, in spite of the enormous
support that have been provided to cover high
import growth in 2012.

28. We wish to set the records straight on why
lending rates were relatively low prior to 2009.
In cataloguing their achievements (refer to bullet
point 29 under Policy Reforms and Interventions)
he talks about the abolition of secondary reserve
requirements as one of the prime achievements and
this was done in 2006. The fact of the matter is
that the abolition of the secondary reserves in
2006 resulted in the banks being awash with excess
funds. Simple economics teaches us that when there
is excess supply of funds, the price falls. The
price of loans fell in the event. The fact that
proper economic management resulted in banks
chasing customers for loans is incorrect and the
facts must be made clear to all. Also the banking
dynamics in the past two years have changed
considerably. With the coming on stream of the oil
sector, numerous investment opportunities have
emerged and banks now have several areas to invest
and therefore are not rushing to lend to hitherto
unproductive areas which will result in the
accumulation of Non-Performing Loans (NPL).

29. In order to reinforce earlier monetary policy
actions, the Central Bank announced new measures
which were aimed at ensuring stability in the
foreign exchange market. These measures include
requiring all banks to keep a mandatory 9 percent
cedi cover for their domestic and foreign currency
deposits in order to free up all foreign deposits
held by them for their transactions purposes. The
Bank of Ghana has also reintroduced the BOG
treasury bills in tenors of 30-days, 60-days and
270-days with to enhance the mop-up of excess
liquidity.

30. Contrary to Dr. Bawumia’s assertion that the
NHIS is in a state of disrepair and at the verge
of collapse, it is refreshing to put on record
that the NHIS is not in a state of disrepair and
it is also not at the verge of collapse.
Previously, there was high level of indebtedness
and delays in claims payment to healthcare
providers. Indeed, as at the beginning of 2009,
the NHIS was heavily indebted to healthcare
providers by an average of seven months’ claims.
Currently, through combined initiatives such as
the establishment of an ultra-modern claims
processing centre, improved commitment by
government to release NHIS funds on time and
improved financial management, claims processing
and payments to healthcare providers have reduced
to a little over two months. In fact, the
subscriber base which stood at 14 million in 2008
now stands at 22.4 million as at the end of 2011.

31. The Ministry condemns in the strongest
possible terms, Dr. Bawumia’s penchant for
discrediting state institutions including those he
has been privileged to work with. The Ghana
Statistical Service and the Bank of Ghana do not
deserve this reward from a former member of staff
and somebody who seeks the mandate of Ghanaians to
supervise these institutions. Such disregard for
institutions whose figures he selectively agrees
with when they suit him must not be countenanced.

32. It is curious to observe that Dr. Bawumia’s
paper which is being touted as an academic
exercise violated basic principles of academic
presentations as it failed to provide relevant
sources for all the data he churned out.

33. Despite deliberate efforts to downplay the
achievements of H.E. President John Evans Atta
Mills and his government, there has been ample
commendation for what has been achieved for this
country since January 2009 from objective
observers both home and abroad. The President and
his team will remain committed to the Better Ghana
Agenda.

ISSUED BY
ABDUL HAKIM AHMED
MEDIA LAISON OFFICER
MINISTRY OF FINANCE AND ECONOMIC PLANNING

Source - Citifmonline

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