A new opinion poll conducted by Global InfoAnalytics in July 2022, indicates that 76% of Ghanaians believe the country is headed in the wrong direction compared to 16% who believe it is headed in the right direction.
The latest numbers represent a significant deterioration compared to the April 2022 poll when 67% thought it was headed in the wrong direction compared to 26%.
The poll finds the president sinking further, as only 23% of voters approve of the way he is performing his job as president with 72% disapproving of his performance (net favourability rating of negative 49% (April 2022, negative 40%).
The country is facing harsh economic conditions, forcing the government to seek a bailout from the International Monetary Fund.
Explaining why the government has run to the Bretton Wood institution for help, Vice-President Dr Mahamudu Bawumia said the inherited banking sector crisis, which caused the Akufo-Addo government to use GHS25 billion to clean up the sector, coupled with the payment of GHS17 billion for excess energy capacity – another inherited liability from the Mahama administration, are partly to blame for the current government’s resort to the IMF for a bailout.
Speaking at the launch of two new high-level information technology programmes at the Accra Business School today, Thursday, 14 July 2022, Dr Bawumia said the two inherited crises were part of a “quadruple whammy” – the others being the COVID-19 pandemic and the Russia-Ukraine war, which forced the government to resort to the Bretton Wood institution for help.
“Before I conclude, I would like to use this opportunity to make some comments on an issue on the minds of many Ghanaians: the decision by the government to opt for an IMF programme to stabilise the economy in the midst of global crises (the COVID-19 pandemic and the Russia Ukraine War)”.
Dr Bawumia said these crises have “visited untold hardships on Ghanaians with rising prices of virtually everything from fuel to bread, tomatoes, building materials and so on”.
He said in the midst of this global crisis, “Ghana’s fiscal and debt sustainability has worsened”, adding: “Some commentators and analysts have argued that COVID-19 expenditures alone could not be the reason for the large increase in the fiscal deficit and the debt stock. In fact, they are right. COVID-19 expenditures alone were not the reason for the large increase in Ghana’s debt stock by the end of 2021”.
“In fact”, the Vice-President noted, “As I stated in my April 7th lecture, in addition to COVID-19, there were two major items of expenditure that are critical to understanding the evolution of the fiscal deficit and the debt stock: the Banking Sector Clean up (GHC 25 billion) and the Energy Sector Excess Capacity payments (GHC 17 billion)”.
The excess capacity payments of GHC 17 billion, he explained, “relate to a legacy of take-or-pay contracts that saddled our economy with annual excess capacity charges of close to $1 billion”.
“These were, basically, contracts to supply energy to Ghana way in excess of our requirements, but we were obligated to pay for the power whether we use it or not”, Dr Bawumia noted.
The excess capacity payments, he pointed out, “include GHC 7 billion of payments for gas resulting from the previous government signing an offtake agreement for a fixed quantity of gas with ENI Sankofa on a take or pay basis which was way in excess of what was needed at the time. Not keeping up with the excess capacity payments would have meant throwing the country back into a new bout of dumsor”.
Additionally, he said: “We were also confronted with a banking crisis as a result of the mismanagement of the banking sector. Ghana’s banking system was on the verge of collapse and not dealing decisively with it would have meant disaster for the economy with millions of people losing their savings”.
Also, he said, “direct COVID-19 expenditure amounted to GHC 12.0 billion, made up of GHC8.1 billion in 2020 and GHC 3.9billion in 2021”.
The data, Dr Bawumia explained, “shows that the three items of expenditure cumulatively amounted to GHC 54.0 billion (the equivalent of some $7.0 billion), which was borrowed. The Ministry of Finance estimates that the interest payment on this borrowing for the three items amounts to GHC 8.5 billion annually”.
“This is some 23% of Ghana’s annual interest payments of GHC 37 billion. To put the expenditure on these three items in perspective, it is important to juxtapose it against the total expenditure (releases) on some of the government’s key flagship projects, including Free SHS, one district one factory, planting for food and jobs, Development Authorities, Ghanacard, Zongo Development Fund, NABCO, and teacher and nursing trainee allowances”.
“The data shows that the expenditure on these key flagship programmes over the five-year period between 2017 and 2021 amounted to GHC15.62 billion compared to the GHC 54.0 billion expenditure on the three exceptional items”, the Vice-President computed, stressing: “The expenditure on the three exceptional items amounted to more than three times the expenditure on the flagship programmes over five years”.
“In fact, the annual interest cost of borrowing the GHC54.0 billion for the three exceptional items would pay for double the annual cost of all the flagship programmes referred to”.
“It should be noted that without the GHC 54.0 billion debt for the three exceptional items (COVID-19, Financial Sector and Energy), Ghana’s debt to GDP would be within the sustainability threshold of some 68% instead of the 76.6% at the end of 2021”, he added.
Dr Bawumia said following the Russia-Ukraine war, “energy and food prices skyrocketed globally!”
He said for many advanced economies, inflation reached between 30- and 40-year highs as referenced below:
• Inflation in Ghana increased to 29.8% in June 2022.
• Global supply chains were disrupted and shipping costs increased by over 1000%
• Economic growth slowed down
• Higher Revenue projections in the 2022 budget (based on tax exemptions, property rates and the e-levy) did not materialise.
The debt sustainability analysis continued to place Ghana at a high risk of debt distress
• There was a Credit Ratings downgrade by international credit rating agencies
• Before COVID-19, Ghana was borrowing $3 billion annually from the international capital market.
• Following COVID-19, the international capital markets have been largely inaccessible by emerging market countries like Ghana.
• Furthermore, as a result of increases in interest rates in developed economies and increased perceived risk of emerging market economies, investors have pulled $50 billion from emerging market bond funds in 2022 alone.
• Non-resident holders of bonds in Ghana were not rolling over maturities resulting in a decline in foreign exchange reserves as repatriations increased.
• With the challenges in accessing the international capital market, balance of payments support was needed to bridge the financing gap, stabilise the economy and create space to implement structural reforms and restore debt sustainability.
• Hence decision to seek IMF support
“I should note, again, that Ghana has been hit by a quadruple whammy in the last few years: energy sector excess capacity payments, banking sector clean-up, COVID-19, and the Russia- Ukraine war”.
“If you take out the fiscal impact of this quadruple whammy, Ghana will not be going to the IMF for support because our fiscal, debt and balance of payments outlook would be sustainable. Of the four factors, two (COVID-19 and the Russia-Ukraine war) were external and the other two (the banking sector clean-up and the excess capacity payments) were the result of policies of the previous government”, he clarified.
He said: “Today, all over the world, fuel prices are rising in virtually every country, food prices are rising, inflation is at a high for many years, currencies are falling in value, fiscal deficits are increasing, debt levels are increasing, etc. This tells us that what we are dealing with is a global phenomenon”.
“Let me give you an analogy to make my point. If you ask a carpenter to roof your house and suddenly the roof collapses without any wind or rainfall, will you not blame the carpenter who did the roofing? But if a carpenter roofs your house and the roof collapses because of a tornado and a storm which has also blown away the roofs, windows and walls of many houses, will you blame the carpenter?”