“Bawumiah asks Mills: Why the fall in exchange rates if economy has grown?” (My Joy, May 2, 2012). Seriously? Really? Are you kidding me?
If someone told me that question would come from Dr. Mamudu Bawumiah, I would yell “it’s a lie”. Bawumia is undoubtedly one of Ghana’s finest and most redoubtable economists. He has a great and enviable track record, which make many (including me) respect him. But when questions like the one above come from our very revered people who know (or at least should know) better, we can’t help but feel disappointed.
Let me proceed by first presenting some facts on the Ghanaian economy. The data surveyed is from the World Bank’s World Development Indicators and Global Development Finance, with supplementary data from Ghana Statistical Service. And yes, I know that the World Bank is not a “BIBLE”, but their data will help drive home my argument.
From 1992 to 2000 when JJ Rawlings was President, average GDP growth rate was 4.19%, GDP per capita averaged US $372.44, average GDP per capita growth rate was 1.56%, average annual inflation rate stood at 27.34%, and Cedi depreciated against the US $ by 32.48% for the period average.
Between 2001 and 2008 when J.A Kufuor was President, average GDP growth rate was 5.81%, GDP per capita averaged US $636.55, average GDP per capita growth rate was 3.28%, average annual inflation rate stood at 17.54%, and the Cedi depreciated against the US $ by 9.22% for the period average.
From 2009 to 2011 under President J. E. A Mills, GDP growth rate averaged 8.70%, GDP per capita averaged US $1,207.51 for 2009-2010, average GDP per capita growth rate was 3.39% again for 2009 and 2010, average annual inflation rate was about 13.32% from 2009-2011, and Cedi depreciated against the US $ by 13.34% on average from 2009 to 2011. Note that the data was already adjusted by the World Bank to take care of the “Cedi redenomination”.
What jumps at you from looking at the facts presented is this: the economy has improved overtime. Of all the statistics shown above, only the exchange rate (currency depreciation) defies this observation. Average depreciation rate was lower in Kufuor’s regime than both Rawlings and Mills’ regimes. The rest of the statistics have been better over all across regimes.
Going back to Bawumia’s question, it is an undeniable fact that the Cedi has been depreciating. But does that nullify the fact that that the economy has grown (and continues to grow)? Why would an estimable economist like Dr. Bawumia use currency depreciation as a basis to question rather palpable economic growth?
Let me digress again a little. Take a look at how the US Dollar performed against some major currencies here (http://fx.sauder.ubc.ca/etc/USDpages.pdf). Between 2001 and 2007 before the most recent recession, the Dollar lost value to the German Mark, the British Pound, French Franc, Canadian Dollar, Swiss Franc, etc. Within the same period, GDP grew until 2005 and began to decline.
Do we need more facts? It is common knowledge that China has kept the Renminbi artificially low to boost exports whilst dampening imports. We all know of China’s economic growth over the last decade. Just because a country’s currency is depreciating does not mean its economy is not growing. The two are not mutually exclusive. In fact, currency depreciation is good for a country that is a net exporter. As in the Chinese case, depreciation increases exports and reduces imports, which grows the economy over all, all else remaining the same. Depreciation is bad for a net importer for the reverse reasons. We import nearly everything in Ghana. That is why we feel the repercussions of a depreciating cedi. Among the known causes of currency depreciation are inflation, money supply and trade deficit. Of course, I am not trying to justify the depreciation of the cedi, but if we’re interested in the causes, one big culprit would be our ever-growing trade deficit; we import far much more than we export. Am I blaming Dr. Bawumia for failing to tell us the truth about the state of the Ghanaian economy? No. The day he accepted partisan politics was the day he lost his credibility as an objective economist on our economic issues. He is no longer the disinterested, unbiased, and objective economist he used to be due to conflict of interest. Imagine he mounts a platform, and begins to commend the Mills administration for achieving higher growth rates, disinflating the economy, inter alia, of what use would he be to the NPP? So he can go on putting his integrity and credibility on the line for political gain. That is perfectly fine. After all, Adam Smith’s invisible hand teaches us that self interest is not bad. God bless us all, and God bless our homeland Ghana!!
Iddisah Sulemana The author can be reached at iddisah@gmail.com.
