Dr. Mahamudu Bawumia, Vice-Presidential Candidate of the NPP, has said that President John Mahama needs proper briefing on the true state of the borrowing that has occurred in the last 7 years.
This comes as a direct response to recent comments from the President underestimating the true extent of the NDC government’s borrowing and the fact 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.
“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 the President needs a bit more briefing about Ghana’s public debt stock.
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 of 2015! What is clear is that 90% (i.e. GHC89.5 billion) of Ghana’s total debt since independence has been accumulated under this NDC government between 2009-2015 i.e. the last seven years,” he said.
Dr. Mahamudu Bawumia made these comments while addressing students of the Jasikan College of Education on Tuesday.
“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 His Excellency was properly briefed, he would not subject himself to such embarrassment”, he added.
Dr. Mahamudu Bawumia, a former Deputy Governor of the Bank of Ghana, recalled the President’s comments months ago when he claimed that 41% of Ghana’s current external debt was accumulated under the NPP administration, a clear untruth.
“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.
“The truth is 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,” he noted.
Dr. Bawumia then touched on the President’s comments on Monday on the unprecedented borrowing the government has undertaken in the last 7 years.
“The President’s false data on the debt situation suggests either 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.”
In proceeding to educate the President on the true value of the borrowing that has occurred under the NDC, Dr. Bawumia used a simple analogy to explain why the NDC has indeed taken an equivalent of $37billion in loans.
“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,” he indicated.
The Running Mate to NPP flagbearer, Nana Akufo-Addo, noted that while the President can be forgiven for his faulty data on the debt situation, it is mindboggling that his economic advisors also seem confused about the point.
“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 billion.”
Dr. Bawumia in concluding his comments expressed sadness that such simple issues were not understood at the highest levels of government and queried how the government can manage such resources well when it does not even seem to appreciate the magnitude of what it has had.
“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, 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,” he said.
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