The 2012 vice presidential candidate of the New Patriotic Party, Dr Mahamudu Bawumia who is now a lecturer at the Central University College (CUC) is next to take his turn at the CUC Distinguished Speaker series. He is billed to speak on the value of the national currency against major global currencies. Myjoyonline will bring you live update of the lecture. Dr Mahamudu takes the stage. This the lecture is one of business and economics and not of politics. He hopes the lecture will stimulate academic debate on the ailing currency. The Cedi has been depreciating since 1960s. He chronicles the level of depreciation since 1965. 1 In 2013 the cedi depreciated by 13.5% But in the first quarter of 2014 it has increased by over 14% and that is worrying to business men. The Cedi must be looked at against other currencies in the world. Forinstance in 1965 the dollar was 1.59 to 1 pound. In 2013 however, the dollar is now 1.614 to the pound. So over a 48 year period the dollar has depreciated by just 1.5 per cent. However the cedi over the same period has depreciated about 2 million percent against the dollar. How come some of these economies are able to maintain durable stability and our currency is depreciating. How can we stop the depreciation of the cedi? The wrong diagnosis would lead to the depreciation of the cedi. The depreciation has led to people being confused with people proferring many solutions. Some have mentioned Single Spine others have talked about dollarisation. Yet others have talked about dwarfs and high rise buildings. But the problem is to do with the fundamentals of the countrys economy, especially with real GDP growth. Fiscal development There has been the deterioration of the state of the countrys fiscal developments. Arrears in statutory payments and other challenges have come as a result of major increase in government expenditures relative to revenue. There was 17.7 per cent growth in revenue in 2012 however the expenditure for the same period was 20.1 to 26 per cent of GDP. The bulk of increase in government expenditure has been in recurrent expenditure and not in investment expenditure. It is unprecedented in Ghanas history to record a double digit fiscal deficit for two years and it is expected there will be another deficit at the end of this year bringing to three years fiscal deficit in a roll. Public Debt Public debt stock- Ghana was declared HIPC in 2001 because we were unable to service our debt. After Ghana adopted HIPC Ghana public debt in 2008 was 9.5billion cedis which is 33 per cent of GDP. In a period of five years Ghanas public debt now stands at 49.9 billion dollars. It means an amount of about 20 billion dollars was borrowed over the last five years and nothing substantive could be pointed to as investment on this amount borrowed. Without mincing words Ghana will be headed back to HIPC if urgent steps are not taken but the difference is that this time the HIPC debt relief will not be available. External sector The balance of payment has deterioted over a period. Also two years in a roll we have recorded a double digit current account deficit. Foreign reserves provide a buffer against the balance of payments. The assessment of the countrys economic fundamentals show how weak and deteriorating our fundamentals are. The question is that how can any country expect its currency to be stable when these fundamentals are shaky. There is no mystery. The lack of fiscal and monetary discipline is the way to go. Alternative views. The alternative views have to be examined and we need to come to a consensus. The different explanation must not be adhoc. We have had periods where the cedi has be stable. Any adequate explanation must explain in the periods where the cedi was stable Dollarization of the economy. The key function of any currency is to be a store of value. Dollarisation is a replacement of a countrys legal tender with another countrys currency. Dollarisation is a rational reaction by rational business men who cannot trust government to keep the cedi stable. Price and currency controls cannot be the way to go. There is no law that stops business men from thinking in dollars. One can think in dollars and price in cedis. We must ensure that businesses have confidence in the local currency. How come that between 2002 and 2007, the issue of dollarisation did not come up? That was because businesses had confidence in the local currency then and was ready to trade in it. Stopping people from using the dollar will not work. You can stop the use of the dollar in Ghana and yet the cedi would still depreciate against the dollar. For instance, Ghanas economy does not use Chinas currency and yet there is an emperical evidence that the cedi has depreciated against Chinas currency.
Posted on: Tue, 25 Mar 2014 17:53:01 +0000
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