JP Morgan, IMF, Fitch & StanChart corroborate Bawumia

Less than a week after his much acclaimed lecture on the topic “Restoring the Value of the Cedi”, Dr. Mahamudu Bawumia’s analysis and conclusions on the state of the Ghanaian Economy and the real causes of the cedi depreciation, have been corroborated by several reputable global institutions in sharp contrast to the attacks of the government and its propagandists.

Dr. Mahamudu Bawumia, former Deputy Governor of the Bank of Ghana and Vice – Presidential candidate for the New Patriotic Party (NPP) last week Tuesday in his lecture at the Central University college exposed to the hearing of millions of Ghanaians, the true state of the nation’s finances and used empirical data and rational arguments to prove that contrary to several claims, the cedi’s rapid depreciation boiled down to the weak fundamentals of the economy arising out of incompetent management of the economy.

The analysis of the economy and the predictions he made, for which he was described as clueless and a theoretician by NDC propagandists, have now received numerous endorsements from among others the IMF, international credit ratings agency Fitch, Standard Chartered Bank (International) with the latest endorsements coming from JP Morgan and Professor J. Atsu Amegashie, a leading economist with the University of Guelph in Canada.

An assessment of the fundamentals of the economy by Dr. Bawumia showed that the primary cause of the cedi’s depreciation was due to the chiefly among them, the double digit fiscal deficit in two consecutive years (2012 & 2013), large and increase central bank financing of government (printing of money), declining real GDP growth, increasing inflation, double digit current account deficits two years in a row, the over 400% increase in public debts in just 5 years which has meant that the government is now spending 40% of its revenues on debt servicing, the precarious level of the net international reserves, governments inability to meet statutory payments and declining investor and consumer confidence in the economy and the cedi.

The renowned economist warned that if urgent steps were not taken to strengthen the fundamentals, the cedi could depreciate further and the country may have to approach the IMF for a bailout before the end of the year.

Three days after the lecture, JP Morgan, one of the Global leaders in investment banking on Friday, corroborated the analysis of Dr. Bawumia when in a statement on the Ghanaian economy, it predicted that the Ghana cedi could depreciate a further 20% this year as a result of the low international reserves and the rising inflation.

Increased risk of outflows from the “heavily” foreign-owned local bonds, uncertainty around commodity prices and fewer signs of a “real turnaround in the country’s fiscal situation” add to the cedi’s weaker outlook, Giulia Pellegrini, sub-Saharan Africa economist at JPMorgan, said in a report.

This is also a corroboration of Dr. Bawumia’s statement in his lecture in which he said “21% of Ghana’s domestic debt stock (some GH¢5.7 billion) is held by foreign residents in the form of three year bonds. This is the equivalent of $2.2 billion. Maturities in 2014 and 2015 alone amount to $1.3 billion. In the present circumstance of declining investor confidence in the economy, this level of holdings of domestic debt by foreign residents increases Ghana’s vulnerability to further exchange rate depreciation.”

That same day, Ghanaian economist currently with the University of Guelph, Canada in an article titled “”Further Thoughts on Dollarization and the Cedi”, agreed with Dr. Bawumia’s analysis of the dollarization argument and his conclusion that dollarization was not the cause of the cedi depreciation but an effect of the depreciation as a result of the loss of confidence and the weak fundamentals.

In the long article in which he backed his case with examples from across the world and cited various academic publications, he said “I cannot confirm Bawumia's claim that "the cedi has been depreciating at similar rates against these currencies as it has been against the US dollar" because I have not looked at the data. However, according to the Daily Graphic, the cedi's depreciation from January 2013 to January 2014 " ... shows a 21.96 per cent depreciation of the cedi against the dollar; 28.88 per cent against the pound sterling; 23.98 per cent against the euro and 25.54 per cent against the Swiss franc.": Bawumia's general point is valid; the cedi has been depreciating against the Chinese yuan although the yuan is not a medium of exchange, a unit of account, or a store of value in Ghana. The Ghanaian economy is not yuanized. Dollarization is not the cause of the cedi's depreciation.”

He also agreed with Dr. Bawumia that the Bank of Ghana should review its foreign exchange controls and concluded by saying “The BoG must review its forex policies. They are, in my opinion, counter-productive.”

These endorsements of Dr. Bawumia’s position comes after the IMF Country Director, Samir Jahjah on Thursday also in a similar fashion, called on the Bank of Ghana to review its foreign exchange measures in light of the reaction from the business community and investors. Fitch, the international credit ratings agency also on Friday raised further concerns about Ghana’s debt servicing sustainability when it lowered its outlook on Ghana’s debt to negative from stable citing the rise in Ghana’s debt stock to 61.8% of GDP per their calculations and above budget double digit deficits in the last two years.

International banker, Standard Chartered also in a statement on Ghana’s economy predicted grave financial distress in the short term as a result of the high debt burden on the economy. The Bank also called for a review of the Bank of Ghana’s measures aimed at controlling the foreign exchange market.

Interestingly, the government propagandists and officials including the President who responded to Dr. Bawumia’s lecture have remained mute on these corroborations and statements from the listed global firms and institutions.