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Some members of the governing National Democratic Congress (NDC) have expressed disagreement with the speech delivered by Dr Mahamadu Bawumia on the fragile state of the Ghanaian economy Personalities like Dr Nii Moi Thompson, economic advisor to the president, Fiifi Fiavi Kwetey, Minister of state at the presidency and Allotey Jacobs reacted strongly against Dr Bawumia�s lecture on the state of the economy describing it as misleading. Reacting to the statement, Dr. Nii Moi Thompson described the former Deputy Governor of the Bank of Ghana, Dr Mahamadu Bawumia�s lecture on the state of the economy as questionable, dismissing his claims that Ghana is heading back to the unsustainable debt regime. According to Dr. Thompson, Dr. Bawumia�s solutions outlined in his speech are already being implemented by the John Mahama government and stressed �Some of the issues raised are quite familiar, they are not new, they have been around, long before the government came into office,�. Responding to Dr. Bawumia�s declaration that measures outlined by the Bank of Ghana in checking the depreciation of the cedi will not work, Dr Thompson downplayed his claims saying �the Bank of Ghana indicated clearly that the measures they introduced were only medium term to save the depreciation of the cedi.� He further explained that the �Bank of Ghana is independent institution that is separate from the government carrying out its own independent actions.� With regard to the single spine pay policy Dr. Nii Moi Thompson dismissed the issues raised adding that Dr. Bawumia only focused on one aspect of the policy. �There are two main components of the Single Spine Salary Structure but unfortunately he focused on only one aspect of it- the wage bill component, and therefore his conclusion is questionable,� he explained. Dr. Mahamudu Bawumia in his speech on Tuesday at the central University Miotso campus called for serious action and right decisions to salvage Ghana�s troubled economy since anything apart from that would likely see the country returning to the International Monetary Fund for a bail out before the end of the year. The lecture was on the theme �Restoring the Value of the Cedi�. �The sad fact is that Ghana�s economy is in crisis. I do not use the term �crisis� lightly. This is not some short term blip that will just pass over if we can just muddle through. The problem we have is that there appears to be an unwillingness to face the truth and admit that we are in a crisis. In fact, we appear to be in a state of denial. At this rate, one should expect much more depreciation of the cedi this year�, he said. Dr. Bawumia began his analysis on the weakening fundamentals of the economy by looking at the Real GDP Growth numbers. �At the heart of any effort to transform the economy is accelerated and broad-based growth. The reality however is that, real GDP growth in Ghana, notwithstanding the onset of oil production, has declined significantly since 2011. Data from the Ghana Statistical Service shows that from a real GDP growth of 8.4 percent (without oil) in 2008, real GDP growth reached 15.0 percent in the year 2011 (amongst the highest in the world that year) as a result of oil production. Since 2011 however, real GDP growth has slowed down to 7.9 percent in 2012 and further down to a projected growth of around 5.0 percent for 2013. Mr. Chairman, the data for non-oil growth shows that real GDP growth has declined from 9.4 percent in 2011 to 3.9 percent in 2013. This means that Ghana�s economy (excluding oil) is growing at the same growth rate as the year 2000 and half the rate of economic growth in 2008.�, he said. Touching on fiscal developments, Dr. Bawumia observed that there was deterioration in the state of public finances with government unable to meet most of its statutory payments and payment to contractors in huge arrears and noted that the current situation had arisen because of the huge increases in government expenditure though revenues had not seen commensurate increases and remained largely constant. He said, �While government tax revenue stayed constant at some 17.7% of GDP between 2011 and 2013, government expenditures increased by a whopping 6.6% of GDP from 20.1% of GDP in 2011 to 26.7% of GDP at the end of 2013. The bulk of the increase in government expenditure (94%) was in the area of recurrent expenditure. This has resulted in double digit fiscal deficits (12.0 percent in 2012 and 10.9 percent in 2013) over the last two years. This is the first time in the history of Ghana that we have we have had double digit fiscal deficits two years in a row. With the current fiscal policy stance, it looks most likely that we would record a double digit fiscal deficit by the end of 2014 to make it three successive years in a row, notwithstanding measures such as the removal of petroleum and electricity subsidies, and an increase in the VAT and other taxes. This is an indication that the fiscal quagmire in which the economy finds itself is not short-term one.� Dr. Bawumia continued by looking at the continuous excess injection of liquidity (printing of money by the Bank of Ghana) to finance government expenditure. According to him �Excessive fiscal expansion creates problems in many developing countries because it tends to be largely monetized and the excess injection of liquidity results in exchange rate depreciation. This has been Ghana�s experience during this latest period of exchange rate depreciation. There has been a dramatic increase in central bank financing of government recently (i.e. equivalent to the printing of money), in addition to borrowing to finance the fiscal deficit. Central bank financing has increased from GH�1,448 million in 2008 to GH�11,327 million by 2013, a 700% increase. An expansionary fiscal policy accommodated by increased central bank financing of government is a sure recipe for increased inflation and exchange rate depreciation.�, he noted. The former Deputy Governor then focused on the state of Ghana�s Debt which has increased from GH�9.5billion (33% of GDP) in 2008 to GH�49.9 billion (57.7% of GDP) at the end of 2013; an increase in the debt stock by 426% (GH�40.4 billion) in a period of five years. The renowned economist then proceeded to show the effects of the huge increase in the stock of debt on the economy. �The increase in Ghana�s debt has placed a major burden on public finances with regard to interest payments on the debt. Interest payments on domestic and external debt declined from 7.5% of GDP in 2000 to 2.3 percent by the end of 2008. Since then, interest payment has increased to 5.1% of GDP in 2013 and would reach 6.5% of GDP by the end of 2014 (an increase of 2.8% of GDP)� �Debt service alone absorbed 36.3 percent of total government revenue in 2013. With declining economic growth, the increase in interest payments has taken up the fiscal space or cushion that previously existed. We are in a very tight corner. He stated�, Turning his attention to the Foreign Exchange reserves of the country, Dr. Bawumia told the audience that that the reserves are held to provide a buffer against severe external shocks and to enhance confidence in a country�s economic management and its ability to meet its international payment obligations and as such was a very important indicator to investors and all interested in accessing the state of the country�s economy. He noted that Ghana�s gross international reserves increased from $2.03 billion in 2008 (equivalent to 2.1 months of import cover) to some $5.6 billion (equivalent 3.3 months of import cover including) at the end of December 2013 but had declined to $4.8billion by February 2014 equivalent to some 2.5 months of import cover. �An examination of the more important net international reserves (NIR) position tells a more worrying story. The NIR is gross foreign reserves less outstanding short-term liabilities of the central bank and any credit advanced by the International Monetary Fund. It is a measure of what a country�s central bank effectively has available to make external payments. This is the measure that is of most concern to international investors. He informed that Ghana�s net international reserves have declined from a peak of $4.4 billion in 2011 (equivalent to 3.1 months of import cover to some $1.5 billion in February 2014 (equivalent to some 0.6 months or about two weeks of import cover). In terms of months of import cover, this is the lowest import cover for the NIR since 2000 and the lowest for any middle income or oil producing country in the world. �, he explained. After analyzing the state of the economy and its fundamentals, Dr. Bawumia noted, �, the question we should all ask ourselves is how can any country expect its currency to be stable after this economic outcome? The depreciation of the cedi that we are observing is the result of the weakening fundamentals of the economy. There is no mystery here. At the heart of the problem is the lack of fiscal and monetary discipline. In fact virtually all the episodes of cedi depreciation since independence can be traced to this issue of fiscal and monetary indiscipline.� In his recommendations, Dr Bawumia urged government to admit that the economy is in crisis to help convince Ghanaians to rally behind it implement the tough remedial measures to salvage the situation. He also urged government to commit to serious fiscal discipline to ensure value for money in the award of government contracts; reduction of revenue leakages; expanding the tax net through the formalization of the economy; dealing effectively with corruption in the management of public finances; taking measures to restore the confidence of investors and the Ghanaian public that large fiscal excesses. He indicated that passing a Fiscal Responsibility Act unlike the current Financial Administration Act would be effective in enforcing fiscal discipline and have sanctions for governments that fail to commit to discipline. He also advised government to reduce import duties on certain imports to stimulate and boost production and reduce borrowing. Meanwhile the former Executive Director of Danquah Institute, Gabby Asare Otchere Darko On a post on his facebook wall said he has enjoyed reading the lecture given by Dr. Bawumia, regarding it has comprehensive, outstanding, illuminating and logical.He advised the New Patriotic Party to put the lecture in a simple language that the ordinary person on the street (Naa Adjeley and Promise Dzakpasu) can understand. He identified the key areas in the lecture as �1We are the architects of our economic destiny. The decline of the cedi is not due to any global conspiracy against us but rather due to choices that we have made. Fiscal indiscipline has predictable consequences. The country, like any family, will get into trouble if we keep spending more than we earn, especially if the spending is primarily on election paraphernalia and judgment debts. We cannot continue to tax importers to fund our unproductive habits. Gabby noted that the statement that �Monetary indiscipline has predictable consequences. We cannot continue to borrow to fund our bad habits. Soon debt servicing will become a major drag on our economy and we will be headed towards bankruptcy. The Bank of Ghana must follow its own rules on lending to government (aka printing money). He said he enjoyed the quote in the presentation that said �The Presidential Honesty Deficit (PHD) is costly. The President's empty promises affect investor confidence and this affects bond yields, investment patterns, etc. It is time for serious campaign finance reform. �We cannot simply point out cycle after cycle that government diverts too much funds into electioneering and yet appear to have no ability to do anything about it. As Jones Ofori Atta taught us, price controls are effective only when they are unnecessary. Government cannot control the price of foreign exchange. Nor can government tell us not to think about its indiscipline. People dollarize not just to dollarize but because of perceived and actual government indiscipline. To get out of our current quagmire requires hard choices. �We must prioritize our spending. We must end the era of corruption. We must invest in the productive sectors. The decline in the cedi does not boost exports because of structural problems facing our exporters. The cedi can decline all it wants but you cannot be productive when you have to sleep in darkness! Elections have consequences. You get what you vote for, he added