Why NDC Lost Part 1

Why the NDC lost the Election. Since the declaration of the 2016 election results, I have heard so many arguments about why the sitting president and the ruling government lost the election. Now I will explain why the NDC was trounced at the pools. The meat of the problem is the Economy, Yes the economy. It doesn’t lie, the party embarked on this massive infrastructure which is good except that it was financed with debt. With our external debt pilling up we had to run to the IMF which imposed their favorite tool on us, austerity – increase revenue through tax and other means, full cost recovery for public utilities, reduce spending including freeze on public sector employment etc. Government was also borrowing locally through the issuance of treasury bills and banks were rather comfortable with the T-Bill rate they were not interested in taking any risk by lending to businesses except to those sectors that could turn such loans around quickly unfortunately these sectors are the import sectors. So things that could have been produced locally end up being imported. So very few jobs were created if any at all. In an attempt to reduce expenditure, promoted nurses and teachers were not being paid their due, if it finally comes mostly after one year, they are paid three months. Plus, the freeze on employment of newly trained nurses and teachers. To cap it the government decided to abolish the allowances paid to trainee teachers and nurses. Some of these students settled for these institutions because they assumed that employment is guaranteed for them after competition. So if you are a student in these institutions, you are denied your allowance and you chance of getting employment after completing is reducing by the day, so if someone comes promising to restore your allowance and ensure employment for you, what would you do? The NDC lost that constituency plus their parents and siblings. Hundreds of thousands of young professionals are being churned out of both the public and private institutions with no job openings to absorb them. These are people with high hopes. Businesses were being overtaxed in addition to their inability to get affordable credit, there was no way they could grow and create jobs. Throw in the high profile corruption scandals such as the bus branding, Woyome, GYEEDA SADA which the NPP hyped as much as they could and you have a fertile ground for the NPP to plant their change message. In addition to all these the party decided to run a flamboyant campaign which rather angered most of the youth. Of course with only one message which is the infrastructure, it was more convenient to spend more money to propagate their message which they had very little to begin with. It was therefore not surprising that the second defacto message then became the attack on the NPP’s candidate. Running an economy is balancing game more like dealing with a hydra headed monster, if you focus on one you will be killed by the others and that is what happened to the NDC. I will pause hear, but I would be back to explain why the NPP did not win but rather it was the NDC that lost, watch out.

The Ghana Heritage Fund; Hurting the future with good intentions

It has been six years since Ghana started commercial production of crude oil, in the run-up to commencement of production a lot of preparations were made including the enactment of the relevant legislation to ensure prudent management of the resource. To avoid the pitfall that have befallen other countries that have found the “black gold”, the Petroleum Revenue Management Act 2011 (Act 815) was promulgated. Act 815 adopted the Norwegian model which splits petroleum revenues into pools with substantial parts invested offshore. In Ghana Act 815 established the petroleum holding fund into which all revenue from the resource are lodged. This funds are then allocated to three main accounts based on a formula to be determined by parliament, these accounts are the budget, heritage and stabilization funds. Act 815 was designed to remove those pitfalls associated with the commercial oil production in other countries. These pitfalls include the Dutch disease, inflation (overheating of the economy), increased risk of corruption and investment into projects with low economic returns. According to a Bank of Ghana (BoG) semiannual report for Jan-Jun 2016, the total revenue that have accrued to the country is US $3,285,248,838.84 out of which 43.22% (US$1,420,140,861.30) have been allocated to the Annual Budget Funding Amount (ABFA), 30.18% (US$991,575,834.69) have been allocated to GNPC the whiles 18.81%(US$617,816,104.68) was disbursed to the Ghana Stabilization fund (GSF) and a paltry 7.78% (US$255,716038.17) was disbursed to the heritage fund. The Heritage fund which is to ensure inter generational equity in the benefits of the finite resource and the GSF are supposed to be saved offshore. These are to ensure a steady flow of dollars into the economy to prevent the cedi from becoming too strong and hurting the country’s exports of other commodities. It will also allow the smoothing of expenditure across the business cycle. For all intent and purposes, this should have been a good law but in reality it is not and I will explain why. During the first half year of 2015 the yield on the heritage and the stabilization funds were -0.54% and 0.33% respectively and 0.74% and -0.01% for the second half year of 2015. This means that Ghana was paying the fund managers for keeping the heritage fund in the first half year of 2015 and the stabilization fund for the second half year of 2015. In 2016 the yield was somehow better it was 4.93% and 0.33% for the heritage fund and the stabilization fund respectively for the first half year https://www.bog.gov.gh/privatecontent/Public_Notices/Semi%20Annual%20Report%201st%20half%202016%20FinalV1.1.pdf What makes it bizarre is the fact that whiles we were paying the fund managers for keeping our fund in 2015, the very same government was borrowing by issuing sovereign bonds at a coupon rate of 10.75%. Does it really make sense to put the heritage and stabilization fund outside the economy knowing very well its potential impact on the local currency which is declining? Again in 2016 the government have issued another sovereign bond at a coupon rate of 9.25% for another 750 million USD. http://citifmonline.com/2016/09/08/ghana-issues-fifth-eurobond-at-9-25/ The rationale behind Act 815 was to prevent Politicians from pursuing their short term political interest at the expense of the long term development needs of the country by preventing disruptions in the business cycle and the economy as well as ensuring inter generational equity such that future generations after the resource have been depleted would also have their fair share of the resource. The question now is with the rate at which government is borrowing would these objective be achieved? The very generations we are paying fund managers to keep the money for are the same generations we are busily accruing loans for them to come and pay. To add salt to injury we are accruing more debt and at steep interest rate than we are saving for them. This defeat all forms of logic and common sense. Unless we are able to enact a law that puts a ceiling on government borrowings, the very mischief Act 815 was enacted to cure will be our lot.