Wednesday, January 06, 2010
2009 has seen many notable events and, judging by the pile of “unfinished business”, 2010 shall undoubtedly witness its fair share of episodes with long-lasting effects too. Nevertheless, our own focus as an organisation and the constraints of space compel us to select only a few of the most interesting developments for comment, starting with general remarks before bunkering down to specifics.
In this article, IMANI and AfricanLiberty.org
General Economic Management Front
The early months of 2009 were marked by serious economic upheaval as an expansionary fiscal philosophy was abruptly replaced with an austerity regime. A wholesale switch in mindset occurred, leaving business observers quaking in their boots.
People who had stocked up on the NPP wisdom of “growing out of tight fiscal corners” – perhaps by reading their Bawumias, Atta-Mensahs and Abradu-Otoos – all of a sudden had to confront a new epoch where monetary discipline wasn’t all-encompassing, fiscal imbalances didn’t peter out on their own accord over the medium-term, and inflation wasn’t merely a hidden tax on savings. Naturally folks were going to shriek, and they did. But the NDC stood its ground.
As far as we can tell, there was some merit to that steadfastness and consistency on the part of the government. Inflows from “donor partners” have been steady, the IMF program appears to be on course, official FDI (foreign Direct Investment) has performed creditably, and inflation is responding to policy objectives.
In fact, government feels bold enough to promise its stakeholders, through its medium-term expenditure framework (MTEF), an end to the austerity framework next year. They have called 2009 a stabilisation year in order to justify a pledge to spend a nominal 40% more in 2010 (projected outturn in the 2010 budget), while keeping average headline inflation to less than 10%.
Furthermore, we have been told, the cedi shall remain stable against the other currencies and may even rise respectably over the course of 2010. In effect, we shall be looking at nothing less than 30% real growth in government spending on year-on-year basis, with revenue intake matching pace, even as the fiscal deficit is kept confined to 6% (down from the more than 20% in 2008, as mentioned in the 2009 mid-year review).
To appreciate the full momentum of the promised switch in government spending patterns within the economy next year, one needs to bear in mind that between 2008 and 2009 payment outturns actually shrunk by about 20%, contributing significantly to the almost miraculous fall in the fiscal deficit to just a little over 6% by third quarter.
The boldness with which the Administration implemented the austerity regime, which included such painful measures as a near-total freeze on recruitment into the public sector, eliminates some of the doubts people may understandably hold about the promised return to expansionary spending. If for nothing at all, the NDC economic management team has succeeded in demonstrating their capacity for operational stubbornness.
The problem though is that one is at a bit of a loss about the assumptions underlying the massive expected spike in revenue inflows in 2010. The Classification of Central Government Revenue (CGR) in the Medium Term Expenditure Framework 2008 – 2010 (MTEF 08/10) suggests a 50% hike in the so-called mobile phone “talk tax” (accommodating the standard trend in subscriber growth, which is slowing), and then promptly jumps from there to an inexplicable nominal 150% increase in non-tax revenue. Wisely though, perhaps advised by recent experience, projected donor inflows are expected to only track inflation.
Indeed, this same cheery optimism pervades the entire medium term economic outlook of the Administration. Without any notes on assumptions, projections of oil revenue have been pegged at nearly a billion dollars per annum from 2011, with direct taxes expected to amount to somewhere around $600 million. Since 2011 is beyond the horizon of this brief article we simply do not have the space to delve into this puzzle. We can say however that if the expected $900 million in government revenue expected in 2011 from oil also accommodates the massive amortisation costs that the oil companies are supposed to incur over the first five years of production, then the anticipated output from jubilee is far in excess of what we have been told, and it is certainly worthwhile for government to share with Ghanaians why they believe that is the case.
The last point seems like the perfect launch-pad for our treatment of our few selected specifics.
PETROLEUM POLICY (or rather “transparency” generally)
If any action or inaction has detracted from the current NDC Administration’s economic governance credentials, it is the way policy and
policy information about the oil find and petroleum supply have been managed. One suspects that a part of this state of affairs can be attributed to the marginalisation of the Gobind Nankani – led Presidential Advisory body, formed with the intent of setting strategic decision making on a new pedestal in Ghana. Much like the Kuffuor – era advisory body, government has woefully failed to provide the highly revered thinkers serving on this body with the necessary influence in the design of strategy. We sent an enquiry to Dr. Cadman Mills to inquire when the body last met and what issues they deliberated. We are still waiting for a response.
Many civil society actors are bemoaning the opacity surrounding key decisions in both aspects of the country’s energy situation.
Regarding petroleum supply, it is somewhat disappointing that senior management time is still being expended on so-called government-to-government arrangements, when we as a country could achieve far more by simply deregulating the sector and allowing private traders to compete with each other by making strategic investments in storage, distribution and procurement, areas of the energy sector these actors have shunned because of uncertainty in government policy direction, particularly regarding commitment to deregulation.
We must single out the ongoing ExxonMobil-Kosmos-GNPC impasse as indicative of the lack of transparency that has attended the management of Ghana’s entry into oil production status. If GNPC is indeed raising $4billion on the international capital markets as a counteroffer to the ExxonMobil bid then, notwithstanding the technical saliency or otherwise of the move, a broad and detailed discussion of the socioeconomic and political dimensions of this decision ought to be undertaken.
It is not enough that Morgan Stanley, Goldman Sachs and Freshlands have been mentioned as advisors to the government in respect of these matters, particularly when the terms of reference of these western multinationals remain undisclosed. Depending on whether these companies are advising government on the merits of different bids, fund raising, the appropriateness of that investment in particular, or alternative strategies for the utilisation of the oil resource generally, it cannot be assumed: 1. that the primary focus of these companies are Ghana’s national interest properly defined and 2. that the full range of social, economic and political concerns are being considered.
Indeed, if their terms of reference are limited to capital raising then there is the possibility that they might restrict themselves to obtaining on behalf of Ghana the best available market rates. Given GNPC’s credit risk, these rates are still likely to be high. Less likely, but still feasible, is the possibility that ExxonMobil and its corporate allies could exert negative influence in some of the more quality capital markets, undermining Ghana’s quest. The field itself, which is yet to be fully appraised, may contain closer to the lower estimate of yield (say, somewhere around 500 million barrels rather than the 2 billion some have optimistically speculated), in which case it would be overvalued in “net present value” terms, especially when the proposed $4billion investment is benchmarked against other risk-free investments. Could GNPC deploy said amount in its own exploration activity at equivalent risk? After all, it shall still remain a minority partner, albeit a more vocal one, even should it succeed in snatching the Kosmos stakes from the powerful jaws of ExxonMobil.
Simply put, the considerations are too many for government not to open this matter up for national discussion.
A related issue, albeit in a completely different sector, is the recent agreement between government of Ghana and STX of South Korea to build 200,000 units of housing in Ghana. Here too, the publicly available information raises more questions than it answers. For starters, the essentials of the deal were announced differently by the two parties – government and STX. At $50,000 apiece (not including land costs), commentators are right to see the proposed buildings in the Ghanaian context as prime real estate rather than “affordable housing”. Should government be directly involved in such an enterprise? STX has reported that government of Ghana shall raise $4.5billion to front-invest in the scheme (buy 45% of houses upfront). The same questions as above apply. At any rate, HFC, the cited Ghanaian private sector participant, definitely does not possess the credit rating to raise that kind of money. The Koreans expect free land as well. Has government that extent of ‘’viable’’ holdings? Since, after all, the kind of housing we are discussing here would be out of place in the Afram plains or Northern Savannah Scrubs.
Once again, some transparency would help. Confidential commercial information can be sanitised prior to the release of relevant documents into the public domain. The World Bank, for instance, does it all the time, and no private entity has ever sued it for breach of confidentiality.
Data Fidelity
At the beginning of this year things came to a head with vital national statistics. The incoming Administration nearly dismissed the key macroeconomic findings of the Statistical Service outright. This show of scepticism perhaps reflects the surprisingly widely held belief that these statistics are meaningless “on the streets”.
We say “widely held” because the scepticism appears to transcend class lines. Banks ignore the benchmark policy rate when setting interest rates (the persistent gap can be explained by other factors but not the asynchronicity in movement), while inflation expectations amongst our “Dubai trotters” remain persistently high in defiance of any secular trends.
Moving into 2010, when government will be expecting macroeconomic trends (which are largely communicated through these statistical indicators) to feed into improvements in the micro-economy, greater attention clearly ought to be paid to the capacity of the Statistical Service, National Development Planning Commission, Revenue Agencies, and other key actors to improve upon the quality of our “vital national statistics”.
Take inflation for instance. The last time the basket of goods and services used to track changes in the general price level of the economy was extensively reviewed was in 1997. The 242 goods and services are largely unreflective of significant shifts in living standards and lifestyles over the past decade. Secondly, the basket lacks sufficient detail and variety. Perhaps the compilers might consider using point of sale terminal information from the malls and supermarkets springing up in addition to the sentinel surveys. Whatever happens, significant disaggregation needs to occur to better reflect the ever-widening array of choices, of differing levels of quality, now available to the Ghanaian consumer. The weighting methodology is plain obsolete. Indeed when between 2003 and 2006, an internationally funded but locally implemented program was active in measuring inflation in Ghana, there was consistent divergence between the international measure, which used 740 basket items, and the official Consumer Price Index (and hence the inflation rate).
The bigger point being made here is that social welfare economics, over the 2009 – 2010 period under discussion here, has been entering an unprecedented phase of contestation by political parties, pressure groups, and civil society institutions. Rigour is the name of the new game.
2010 is almost here, anyway, so perhaps time will tell.
Courtesy of IMANI Center for Policy & Education & AfricanLiberty.org