While “dumsor” rages and I am in a battle to restore my health, others are insulting individuals and labeling them with all kinds of names. Others are threatening to eliminate judges and yet others are doing their best to lie about their achievements and asking voters to give them yet another term to mismanage our resources and priorities and teach Ghanaians yet another lesson in how to vote for the wrong persons to enter Parliament and also to lead us down a path of deterioration.
We are all in a battle, uneasily surviving our incompetence.
I don’t have any particular fondness for Charlotte Osei and her fellow Commissioners at the Electoral Commission. I believe that had they been sincere from the start and had they truly wanted to do for Ghana what would have been the best initial block of entrenching our democracy, they would have heeded the calls of well-intentioned Ghanaians and scrapped the current register, built a new one and once and for all, create a standard for voters desperately trapped in this inertia of muteness and accepting all the pending fights we see looming ahead and yet ineffectively sitting back and hoping some “big” foolhardy dedicated citizens will rise to the fore and martyr themselves in the name of “Ghana, the only country we have.”
Trundling this journey, fighting to survive the misery of “load shedding”, brought about by the incompetence of persons who are pretending to, but mismanaging our society, you can’t help but wonder how to reach out to thinking Ghanaians, but I found someone who is giving our economic analysis a load of thought. So let me digress a little.
Kwame Ofori Asomaning has provided some original thought for how we should measure and monitor economic indicators and has challenged the orthodoxy in a series of articles, this one on the Debt to GDP ratio, which has become a lock-in for all those who subscribe to IMF policy and which in his opinion, and I agree with him, should be thrown into the gutter and a better and more creative, thought provoking analysis should re-define and better interpret and manage developing economies, ours at the top of the list What we accept from the IMF is redundant and makes no sense when you think through this supposed key indicator of sustaining our debt portfolio.
Here is a brief excerpt from one of his articles.
“Last week, the IMF released Ghana’s debt-to-GDP figures, which showed the ratio to be about 74%. This ratio, which measures the amount of money a government has borrowed from both international and domestic sources as a percentage of GDP, is perhaps one of the most cited metrics on a country’s economy. The debt-to-GDP ratio is a measure of a country’s debt compared to its economic output. Some politicians, media analysts as well as some economists, who dominate the airwaves sometimes, become obsessed with this particular debt-to-GDP ratio. What’s more, because the ratio is being promoted by the IMF (the Apostles of Austerity), most people do not question such a concept and accept it as wholly true. Our work is to explain the meaning of this debt-to-GDP ratio and its inherent flaws, and then criticize it as a misleading and to some extent meaningless ratio in calculating a country’s debt sustainability.
The debt-to-GDP ratio is the total debt obligation a country has accumulated in relation to GDP. Put differently, the ratio compares what the country owes to what it produces or earns as income. The essence of this metric is to ascertain a country’s ability to pay back or service its debts. The ratio can also be interpreted as the number of years needed to pay back debt if GDP is dedicated entirely to debt repayment. In other words, it is generally viewed as a sign of whether or not a country’s finances are sound, or whether its debt burden is reaching dangerous levels. Thus, when the debt-to-GDP ratio is increasing over time, it suggests that a country is becoming less fiscally sustainable, while a decreasing ratio implies it is fiscally sustainable. Consequently, the higher the debt-to-GDP ratio, the less likely a country will be able to pay its debt and therefore, the higher its risk of default.
Even though economists have not set a specific ratio, the lower the ratio below 50%, the healthier the country’s fiscal outlook, and therefore the better. Thus, the 74% IMF published last week for Ghana, suggests that the country will not be able to service its debt, and therefore has a high probability of default; a situation which some politicians have already described as HIPC.
To put this discussion in a proper perspective, we would like to focus on Ghana and analyse the extent to which this 74% debt-to-GDP ratio is a concern. First, we need to understand that there are two types of debt that the Ghana government owes namely; domestic cedi debt and external or foreign currency denominated debt. These two sources of debt have completely different characteristics, and as such adding them together to obtain single ratio of 74% debt-to-GDP, to measure the country’s ability to pay its debt, and its probability of default, is perhaps, misleading.
In fact, we cannot find any good convincing argument on why we apply this ratio when considering a country’s domestic debt situation. Hence, applying the debt-to-GDP ratio to measure Ghana’s domestic debt sustainability and probability of default is wrong. We can understand that when an individual borrows three times more than his income, he can feel some financial stress with regards to the repayments, which can possibly result in a default. This is because his income or revenue to debt cannot support those repayments. Some economists have tried to apply this concept to government domestic debt. However, applying this analogy to domestic debt is not accurate, because the government does not run its finances like an individual or a business entity.
Thus, this debt-to-GDP metric is one of those austerity tools developed by the apostles of austerity to impose unnecessary austerity and hardship on economies. The austerity apostles will prescribe to countries to run a primary fiscal surplus in a recession, but following such a program will make the recession even worse, raising the debt-to-GDP ratio and increasing the risk of sovereign default. Running a primary fiscal surplus when growth is poor and the private sector is highly indebted is likely to cause a recession and may lead to financial crisis. Therefore running a sustained absolute surplus robs the private sector of its savings. We believe that it is time to reassess this orthodox debt-to-GDP ratio, and help prevent the untold suffering that it normally brings on countries, and thereby individuals”
Without too much econometrics, this is the kind of thinking that this country needs. Citizens who can look at situations with lateral side thinking and prescribe solutions. Indigenous solutions that we can use to govern and apply to our internal problems.
And instead of doing this and raising our heads above the fray, we accuse leaders of infidelity and others come forth to threaten to eliminate well-intentioned Ghanaians at the helm of justice.
Where is the CID, BNI and National Security apparatus to arrest persons like these?
Ghana wants to survive and has to do so by creating original thought and modifying away from policies that we have tested for most of our lives and yet still are trapped in this frozen state of ineptitude.
We have a few more months to go with our destiny. Let’s see which way we blunder again.
Ghana, Aha a y? din papa. Alius atrox week advenio. Another terrible week to come!
Sydney Casely-Hayford, sydney@bizghana.com