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One of the lectures that many Ghanaians remember is Dr. Bawumia’s speech at the Ferdinand O. Ayim Memorial Lecture on May 2, 2012, on the topic “The State of Our Economy.”
What most people remember from this lecture is that Dr. Bawumia clearly made the point that the National Democratic Congress government had destroyed all the economic gains made by the John Agyekum Kufuor-led NPP government.
“When in doubt, observe the exchange rate. The lesson from history for governments is that you cannot manage the economy with propaganda. In fact, you can engage in all the propaganda you want, but if the macroeconomic fundamentals are weak, the exchange rate will expose you.
“The type of free fall that we are seeing with the cedi exchange rate is a vote of no confidence by market players in the management of the economy.
“The scary part of this is that we are only just past the first quarter and we have three more quarters to go, and the situation could therefore get much worse. This is not fair to the private sector and to Ghanaians as a whole,” Dr Bawumia’s famous words from his 2012 lecture.
At the time Bawumia made these statements, Ghana’s currency (the Ghana cedi) was trading at less than GHC2 to the US dollar. As of November 2022, the Ghana cedi was trading at almost GHC 14 to the dollar.
Now, let us take a look at some economic variables (the economic fundamentals) at the time of the vice president’s speech in 2012 and what they are today. Hopefully, this will explain the cedi’s depreciation and prove Bawumia’s theories, including, “when the fundamentals are weak, the exchange rate will expose you.”
Inflation
Inflation in March 2012, before Dr. Bawumia’s speech in May 2012, was 8.8 percent. But what did the vice president say about single digit inflation? “This is not the first time in our history that we have had inflation in single digits.”
He even went ahead to doubt whether Ghana was truly experiencing single-digit inflation, saying, “Do we really have single-digit inflation in Ghana today?” and said that the Ghana Statistical Service needs more resources and independence to do a better job.
Well, today the Ghana Statistical Service is so independent and resourced that it has properly captured the inflation rate of 40.4 percent as of the end of October 2022.
GDP growth rate
When it came to Gross Domestic Product (GDP), Dr. Bawumia said that “with all the favourable resource and external sector developments, GDP growth for 2011 is actually 8.7 percent.”
Well, today, due to external factors such as the COVID-19 pandemic and the Russia-Ukraine War, Ghana’s economy grew by 3.5 percent as of the third quarter of 2022.
Debt stance
Ghana’s total external debt was $7.1 billion as of the end of 2011, which Dr. Bawumia said was alarming since it had increased by 82 percent from the $3.9 billion record as of 2008.
The external debt of Ghana was US$28.1 billion as of June 2022.
“Ghana’s total public debt has increased from GHC9.6 billion in 2008 to GHC25.3 billion as of 2011 (an increase of 164% in just three years)!” Bawumia said.
Today, Ghana’s total public debt as of June 2022 is GHC393 billion as of June 2022.
From the above, we see that Dr Bawumia was right after all, “you cannot manage the economy with propaganda”, if you do “the exchange rate will …”. Maybe, just maybe, the Russia-Ukraine war and the COVID-19 pandemic helped prove the vice president’s theory right.
