Our President, His Excellency John Dramani Mahama, has recently made
statements about Ghana’s public debt stock, the most recent being
yesterday. Those statements clearly show that President needs a bit more
briefing about Ghana’s public debt stock.
By the end of 2008, following the adoption and implementation of the HIPC initiative and the Government’s policy framework of fiscal discipline, the country’s debt stood at GHC 9.5 billion.
However, in the last seven years alone under this NDC government Ghana’s total debt has ballooned from GH¢9.5billion to a projected GH¢99billion by the end 0f 20151 billion) of Ghana’s total debt since independence has been accumulated under this NDC government between 2009-2015 i.e. the last seven years.
! What is clear is that 90% (i.e. GHC89.5 What is most shocking (and also a clear manifestation of a problem in economic management) is that His Excellency President Mahama clearly does not know the value of exactly how much this NDC government has borrowed in the last eight years. It is so sad that this has even become an issue for debate.. Sadly, the two public comments President Mahama has recently made on Ghana’s public debt are patently false and I am sure if It is incredible that 3 months after the end of 2015 the government has still not released the end 2015 debt stock.
If His Excellency was properly briefed, he would not subject himself to such embarrassment..
A few months ago, the President Mahama, stated in Ho that 41% of Ghana’s external debt of $14 billion was accumulated by the NPP government between 2001 and 2008. This is clearly a falsehood, as Table
1 shows.
It can be seen that as a result of the HIPC initiative and prudent borrowing, Ghana’s external debt stock actually declined from $6.1 billion in 2000 to $3.8 billion by 2008 (the first time in history). The debt has since increased by $10.2 to $14 billion in 2015. So how is what the President said in Ho possible? The facts therefore show that 72% of Ghana’s external debt stock and 90% of Ghana’s total debt stock was accumulated during the last seven years.
The President’s false data on the debt situation, suggests either an unwillingness on his part to be honest with the Ghanaian people on the reckless borrowing and where it has landed us or the possibility that his economic advisors do not tell him the whole truth and thus, he does not appreciate the true scale of the mess.
Secondly, President Mahama said yesterday that it was mathematically impossible for this NDC government to borrow $37 billion since Ghana’s debt stock was $24 billion. Again, he is so very wrong. I have noted on many occasions that the actual value of the debt in dollar terms estimated at the dollar value of the debt at the time of borrowing is some $37 billion.
This simple fact seems completely lost on President Mahama. What President Mahama needs to appreciate is that there is a big difference between the value of the debt in dollar terms at the time you borrowed the money and its book value several years later when currency depreciation is factored in.
I will provide a simple example to explain this point. Assume that the exchange rate of the cedi to the dollar today is 1:1 (ie. One cedi equals one dollar). If the government of Ghana borrows GhC 100 today then the dollar equivalent of the additional debt stock would be $100. Therefore if the government wants to undertake projects with the loan, it can do $100 worth of projects.
Assume that four years down the road the exchange rate depreciates to 4 cedis to one dollar. This will mean that the GHC 100 that was on the books will now be valued as $25 dollars. This will be the book value of the debt in dollar terms. Notwithstanding the impact of depreciation of the cedi on the dollar value of the debt, it does not mean that four years ago the government did not borrow the equivalent of $100.
It is a clear demonstration of the fundamental lack of understanding of this concept that has led President Mahama into thinking that the book value of Ghana’s debt at current exchange rates represents the actual dollar equivalent of the amount that was borrowed at the time of borrowing. One can forgive the President for not grasping this point but his economic advisors really should have no excuse. Using current exchange rates in determining the equivalent amount borrowed in the past is misleading because it would underestimate the value of the borrowing because of exchange rate depreciation.
I repeat again that if you look at the dollar value of the debt accumulated by this NDC government at the time of borrowing, the total value is some $37 billon as is shown in Table 2.
A government that clearly does not understand the value of the borrowing it has undertaken cannot be expected to manage those resources prudently as we have witnessed in the case of this NDC government over the last 8 years. I feel so sad for Ghana because such basic and elementary matters are not even understood at the level of the Presidency.
So Mr. President, as I have shown by the simple arithmetic in Table 2, it is not mathematically impossible that your government actually borrowed a sum equivalent to some $37 billion even if the book value today is some $25 billion because of exchange rate depreciation. It only becomes mathematically impossible if you don’t know how to do the math.
By the end of 2008, following the adoption and implementation of the HIPC initiative and the Government’s policy framework of fiscal discipline, the country’s debt stood at GHC 9.5 billion.
However, in the last seven years alone under this NDC government Ghana’s total debt has ballooned from GH¢9.5billion to a projected GH¢99billion by the end 0f 20151 billion) of Ghana’s total debt since independence has been accumulated under this NDC government between 2009-2015 i.e. the last seven years.
! What is clear is that 90% (i.e. GHC89.5 What is most shocking (and also a clear manifestation of a problem in economic management) is that His Excellency President Mahama clearly does not know the value of exactly how much this NDC government has borrowed in the last eight years. It is so sad that this has even become an issue for debate.. Sadly, the two public comments President Mahama has recently made on Ghana’s public debt are patently false and I am sure if It is incredible that 3 months after the end of 2015 the government has still not released the end 2015 debt stock.
If His Excellency was properly briefed, he would not subject himself to such embarrassment..
A few months ago, the President Mahama, stated in Ho that 41% of Ghana’s external debt of $14 billion was accumulated by the NPP government between 2001 and 2008. This is clearly a falsehood, as Table
1 shows.
It can be seen that as a result of the HIPC initiative and prudent borrowing, Ghana’s external debt stock actually declined from $6.1 billion in 2000 to $3.8 billion by 2008 (the first time in history). The debt has since increased by $10.2 to $14 billion in 2015. So how is what the President said in Ho possible? The facts therefore show that 72% of Ghana’s external debt stock and 90% of Ghana’s total debt stock was accumulated during the last seven years.
The President’s false data on the debt situation, suggests either an unwillingness on his part to be honest with the Ghanaian people on the reckless borrowing and where it has landed us or the possibility that his economic advisors do not tell him the whole truth and thus, he does not appreciate the true scale of the mess.
Secondly, President Mahama said yesterday that it was mathematically impossible for this NDC government to borrow $37 billion since Ghana’s debt stock was $24 billion. Again, he is so very wrong. I have noted on many occasions that the actual value of the debt in dollar terms estimated at the dollar value of the debt at the time of borrowing is some $37 billion.
This simple fact seems completely lost on President Mahama. What President Mahama needs to appreciate is that there is a big difference between the value of the debt in dollar terms at the time you borrowed the money and its book value several years later when currency depreciation is factored in.
I will provide a simple example to explain this point. Assume that the exchange rate of the cedi to the dollar today is 1:1 (ie. One cedi equals one dollar). If the government of Ghana borrows GhC 100 today then the dollar equivalent of the additional debt stock would be $100. Therefore if the government wants to undertake projects with the loan, it can do $100 worth of projects.
Assume that four years down the road the exchange rate depreciates to 4 cedis to one dollar. This will mean that the GHC 100 that was on the books will now be valued as $25 dollars. This will be the book value of the debt in dollar terms. Notwithstanding the impact of depreciation of the cedi on the dollar value of the debt, it does not mean that four years ago the government did not borrow the equivalent of $100.
It is a clear demonstration of the fundamental lack of understanding of this concept that has led President Mahama into thinking that the book value of Ghana’s debt at current exchange rates represents the actual dollar equivalent of the amount that was borrowed at the time of borrowing. One can forgive the President for not grasping this point but his economic advisors really should have no excuse. Using current exchange rates in determining the equivalent amount borrowed in the past is misleading because it would underestimate the value of the borrowing because of exchange rate depreciation.
I repeat again that if you look at the dollar value of the debt accumulated by this NDC government at the time of borrowing, the total value is some $37 billon as is shown in Table 2.
A government that clearly does not understand the value of the borrowing it has undertaken cannot be expected to manage those resources prudently as we have witnessed in the case of this NDC government over the last 8 years. I feel so sad for Ghana because such basic and elementary matters are not even understood at the level of the Presidency.
So Mr. President, as I have shown by the simple arithmetic in Table 2, it is not mathematically impossible that your government actually borrowed a sum equivalent to some $37 billion even if the book value today is some $25 billion because of exchange rate depreciation. It only becomes mathematically impossible if you don’t know how to do the math.
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