How Kufuor Destroyed Ghana's Economy

Since the introduction of the new Ghana cedi by the past NPP government; the cedi has witnessed a significant depreciation in its value"- Dr. Kwabena Duffuor

Billions of dollars spent to prop up the Ghana cedi between July 2007 and December 2008, yet the currency lost 31% of its value

"The currency had depreciated significantly long before the advent of the NDC Government,"- Finance Minister.

By William Sarpong

The past New Patriotic Party (NPP) Administration has been accused for being responsible for the ongoing depreciation of the cedi in the country through the replacement of the old cedi with the new Ghana cedi.

Again, NPP government takes the blame for destroying the currency they introduced themselves by liberalizing the country's capital market to foreigners.

This came to light during a press briefing organized by the Ministry of Information to highlight the achievement of the 100 days promises made in the manifesto of the ruling NDC.

The Minister of Finance and Economic Planning, Dr. Kwabena Duffuor, who disclosed this, said all these were inherited by the NDC Government, and therefore one cannot attribute the depreciation of the cedi to a government that has been in power for only 100 days.

Explaining the reasons for the Depreciation of the Cedi, Dr. Kwabena Duffuor pointed out that since the introduction of the new Ghana cedi by the past NPP government; the cedi has witnessed a significant depreciation in its value. Dr. Duffuor disclosed that, before its introduction, the economic fundamentals that were necessary to support the value of the cedi at its appropriate level were all very weak, adding that the broad money supply (M2) and total liquidity (M2+) were all growing at very high levels; headline inflation was at two digit level; and the government finances were showing a downward trend. The composite index of economic activity was also showing significant negative growth, likewise the developments at the external front also disturbing. The trade balance was in deficit and increasing as the overall balance of payments had deteriorated, while Gross foreign reserves had also declined to about two and a half months of import cover for goods and services.

The Finance and Economic Planning further revealed that, notwithstanding the macroeconomic imbalances at that time, the new Ghana cedi was introduced and fixed at GH¢0.9200=USD1. According to him, the Central Bank then tried to hold the currency from serious depreciation by intervening in the foreign exchange market to sell the county's hard earned dollars to support it.

He indicated that, between July 2007 and December 2007, the Central Bank sold USD288 million to prop up the currency, saying despite this, the year 2007 ended with the new Ghana cedi having depreciated by 5.1% against the dollar, even though it was being circulated alongside with the old cedi.

Dr. Kwabena Duffour added that the year 2008 was characterized by a continuous sharp depreciation and currency propping by the central bank. He revealed that throughout 2008, USD918 million was used by the Central Bank to prop up the cedi, saying due to the weak economic fundamentals, namely high spending by the NPP government and the associated growing fiscal deficit, surging monetary growth, rising inflation, and declining foreign reserves that continued to exist in the economy, the cedi depreciated by 25.3% against the dollar in 2008. Dr. Duffour stated that the Central Bank spent over USD1.2 billion to prop up the Ghana cedi between July 2007 and December 2008, yet the currency lost 31% of its value.

'Ghanaians should therefore know that the currency had depreciated significantly long before the advent of the NDC Government,' the Finance Minister told.

Hon. Dr. Kwabena Duffour again revealed that, beginning in 2006, the Central Bank allowed non-residents to invest in government securities, explaining that the result of it was that by December 2008, foreign investors were holding 46% of Government of Ghana 3-year fixed bond and 87% of 5-year fixed bonds. According to the Finance Minister, the risk associated with foreign investors participating in the capital market was that, when they sell their bonds to local participants, it has serious foreign exchange obligations for the local investor, which tend to put pressure on the value of the domestic currency. Hon. Dr. Kwabena Duffour said despite this current situation, confidence in the country's economy continues to be strong, due to the austerity budget being implemented by the NDC Government.

He stated that government after recognizing the risks associated with the macroeconomic imbalances in the country which have the potential to seriously undermine the country's efforts to become a middle-income country by the year 2020, is therefore giving top priority to the challenge of pulling back from the expansionary fiscal stance.

Dr. Duffour indicated that the fiscal policy would carry the brunt of the medium term adjustment. These, he said, include the weeding out of wasteful and fruitless public spending, and enhancing government revenue through significant improvement in tax policy and tax administration.

He also hinted that the Government is working towards adopting a comprehensive debt management framework and utilizing fully the country's concessionary financing possibilities that still exist.

Dr. Kwabena Duffour again said the confidence is strongly anchored in the NDC Government's approach to governance and the country's economic resource base.

"It is our firm belief that the fiscal adjustment measures we are currently implementing will help to restore macroeconomic stability, debt sustainability, and create further room for sustained private sector growth. These outcomes, together with the fundamentals of the economy, will combine to strengthen the confidence and credibility in the economy and Government of the country," he emphasized.