Rebasing of the Ghanaian economy

In every economy, the national accounting system needs periodic updates to revalue and reconcile estimates, and in order to reflect changes over time.

Ghana like many other countries periodically rebase the national account estimates to account for changes in the volume of production and price in the economy. The overall economic activities of a country are measured by the Gross Domestic Product (GDP).

This is the monetary value of the production of goods and services carried out in a country in a specific period, usually a year. Of the two main price measures (either in current prices or constant prices) in computing GDP of an economy, the variations in output are best estimated by the constant prices approach.

This is because it accounts for changes in price while providing accurate estimates for the volume of production activities in the economy. It uses the relative prices of a base year to weight the total volume of production activities.

Meanwhile, the current price approach (nominal) provides the GDP estimate by measuring the value of goods and services at the current price without accounting for relative price differences making it highly unrepresentative in real terms. Therefore, there has been a conscious effort by countries to rebase their GDP estimates at least every five years as provided by the United Nations Statistical Commission (UNSC), to complement the adoption of the constant price regime.

Rebasing can be referred to as the replacement of an existing base year with a new one in the computation of GDP estimates using the constant price approach. Rebasing plays a significant role in accounting for structural economic and price changes.

This enables policymakers and investors to work with a precise economic dataset that reflects more accurate picture of the economy. It also offers a platform for managers of the economy to discover potential growth activities that otherwise would have been omitted from the accounting estimates.

Ultimately, it will provide managers of the economy with in-depth knowledge about the structure of the economy to plan accordingly in response to overall economic growth, infrastructure development, and job creation. Rebasing by itself cannot be a panacea to the above-stated expected better outcomes unless it is backed by appropriate fiscal and growth consolidating policies.

On the other hand, rebasing can be a curse by paving way for the outflow of Official Development Assistance (ODA) and loss of certain development assistance when the new statistics show the migration of an economy from low to medium income status.

Also, when the economy is rebased in order to increase the borrowing denominator or reduce the debt-to-GDP ratio the government turns to raise loans excessively outweighing the essence of the rebasing.

So far, the government of Ghana under the fourth Republican constitution has rebased the economy twice that from the base year of 1993 to 2006 in 2010 and then from 2006 to 2013 in 2018. This raised up our GDP from GHC204 billion (US$42 billion) in 2017 to GHC257 billion (US$53 billion) for the same time being, an increase of about 26%.The rebasing was necessary on account of the rise in the growth of new sectors in the economy, particularly to accurately reflect new developments in the communication technology, petroleum, and construction sectors.

Very interesting to note is the rise in the contribution of the agriculture sector to GDP from 18% (before the rebasing) to 27% (after the rebasing).

Another issue of great concern is the fall in the contribution of services to GDP from 57% to 41% (can be attributed to banking sector crisis) with industry surging from 25% from 36% (on account of the huge revenue from the oil and gas sectors). The inability of the Ghana Statistical Service (GSS) and the current government to account for the growth of some emerging sectors raises questions on the credibility of 2018 rebasing of the GDP estimates.

The government failed to account for the 22.6% expansion in the health and social works sub-sectors and the 22.3% expansion in mining and quarrying sub-sectors. On the other hand, the government was unable to tell Ghanaians the contractions in the following sub-sectors: real estate (–6.5%); finance and insurance (–8.2%); water supply, sewerage, waste management and remediation sub-sectors (–3.6%); and fishing sub-sector (-6.8%).

Furthermore, the government’s economic management and its appetite for loans confirm the suggestion that the rebasing of an economy gives a government the roadmap to inflate borrowing instead of a great credit ranking on account of declining debt-to-GDP ratio. Before the rebasing, the country’s debt-to-GDP ratio stood at 73.4% in 2016 but dips to 57% in 2017 and started rising signaling escalations in government borrowing (see Table 1 below).

Indeed, the current government has borrowed more than any other regime in the fourth Republic. This regime has brought Ghana’s debt stock to GHC236 billion in less than three and a half years (January 2017 – March 2020) from GHC122 billion in 2016 making the current government the most excessive borrower in the past 28 years.

Equally worrying is the continuous decline in consumer inflation after the rebase from 11% in 2017 to 9.4% and 7.8% in 2018 and 2019 respectively (see Table 1 below). This picture contrasts the situation between 2010 and 2013 when the GDP was rebased from the 1993 base years to the 2006 base year.

In fact, although consumer inflation dropped from 10.7% in 2010 to 8.7% in 2011 and rose to 9.2% in 2012 and then to 11.4%. Another issue of concern is the strange sharp fall in the value of the Ghana Cedi after the rebasingeven when the Chairman of Ghana’s economic management team H. E Dr. Mahamudu Bawumia claimed to have arrested it and given “the key to the IGP.” The Ghana Cedi to US Dollar exchange rate has risen from GHC4.4 in 2017 to GHC5.89 in June 2020 accounting for about –18.5% depreciation of the former resulting in the formation of a 40-member committee to investigate its free fall.

With the inability to consolidate the gains associated with the 2018 rebasing, the government decided to consistently and persistently report different sets of external macroeconomic statistics to Ghanaians and the international institutions.

For instance, in case of the country’s internationalreservesthe government in 2017,sagaciously presented gross and net international reserves of US$5.8 billion and US$5.5 billion respectively to the World Bank on one side and US$5.5 billion and US$4.5 billion respectively to Ghanaians (see Table 2 below). The same be said of 2018 and 2019.

More recently, the government’s submission was again sharply objectedto by some economists including the member of parliament for Bolgatanga Central, Honourable Isaac Adongo and a data scientist and economist, David Yaw Mordey, when they turn to present another set of different statistics to the International Monetary Fund (IMF) for the US$1 Billion Rapid Credit Facility (RCF) in the fight against Covid-19. The governmentin 2018 submitted –3.9% fiscal deficit to Ghanaians and chose to give IMF –7% with a primary balance of 2.3% to Ghanaians and –1.4% to the IMF.

Similarly, for 2019, they presented –4.5% fiscal deficit to Ghanaians and decided to feed IMF with –7.5%. The foregoing statistics suggest that the NPP government is in the business of massaging figures to keep their election-winning dreams on one side while hoodwinking the international financial institutions on the other side.

They feed every stakeholder with different sets of estimates violating the principle of intellectual honesty, transparency, and integrity.

The Nana Akuffo Addo and Dr Mahamudu Bawumia led government’s constant use of rebased economic indicators as a measure of the strength of the Ghanaian economic performance and resilienceas a true picture of the economyhas been badly exposed by the COVID-19 pandemic ravaging across the world.

The government has constantly used the rebased economic indicators as benchmark achievement to compare to the era of the immediate past John Mahama led NDC government. This looks synonymous to an unintelligent student trying hard to convince his lecturer to accept an orange for an apple simply because they are both fruits.

Ghana needs more than GDP rebasing to measure the resilience of our economy and stimulate the growth of same. While it is important to have statistical updates, this will not, of its own lead to improved economic prosperity or change the reality of the people on the ground. It's like a farmer who breeds animals but had not properly counted his animals in the past.

He has just discovered that he has more than he thought because he previously left out some new species that have now fully developed. Feeling richer than his neighbours, he wanted to throw a party to celebrate his new status (like the Hon. Ken OforiAttah, Minister of Finance of Ghana did with the Kenkey/Waakye party) but reminded by the NDC finance team that he still lives in poverty, unable to pay his children’s school fees and so on. The statistics may have changed but the reality remains the same because of other conveniently ignored facts.

Taxation, immensely important to national development,is a key source of sustainable revenue and an indicator of economic wellbeing. When compared to other sources of revenue, tax revenues can be relatively predictable and governments are able to plan with a greater amount of certainty than when relying majorly on natural resources widely known for their volatility.

While some may have doubts about the veracity of the rebased GDP figure, tax revenue is verifiable evidence and an indisputable fact. The tax to GDP ratio compares the amount of tax collection to the nominal GDP.

Ghana’s tax revenue of 13.1% to GDP is still the lowest in sub-Saharan Africa. This appears to be depriving the nation of the much-needed revenue to drive infrastructural development despite the rebased GDP figures been touted.

The nation needs not less than US$1.5 billion annually to bridge the domestic revenue gap even though the Ghana Revenue Authority (GRA) exceeded its revenue target of GHS43 billion for 2019. This position poses key questions: What kind of target do we set for GRA in an economy if productivity is high (as posited by the managers)? Again, Ghana’s tax efforts are still one of the lowest in sub-Saharan Africa. How resilient and buoyant is Ghana’s economy? Ghana can do far better because Ghana is growing far below its potential?

The Ghana Revenue Authority (GRA) has been tasked to grow the contribution of tax revenue to the national economy from the 13.1% to 15% in 2020. Can this be achieved despite the rebasing? The answer is a big NO. Politicians must learn that the inadequate and inaccurate statistical data are the main reasons why the rebasing of the economies of developing nations becomes significant but not necessarily theywe are growing significantly or they are good managers of the economy.

Finally, the GSS rebased the GDP estimates of Ghana without reconciling relative price changes making it intellectually curious to compare the non-rebased figures with the rebased figures.

Rebasing the constant price estimates provides a platform for the government statistician to reconcile the current price series in line with the existing estimates, yet that was not done, for reasons unknown.

The time series implication is that price changes prior the base year will cause the relative price of the base year to be very useless. Hence, it does not make economic sense to compare the inflation estimates for periods before 2017 and thereafter.

Politicians, must, therefore, desist from such spurious comparative time series analysis.

Going forward, future governments should consider structural fundamentals of the Ghanaian economy before carrying out such a lucrative policy experiment.

The constant price series should rigorously be utilized to the core in order to have relative price changes reconciled and accuracy delivered in the supreme interest to gaining fully from such exercise.

In the meantime, the current government should curtail borrowing and avoid reporting contradictory estimates on the economy of Ghana. Finally, politicians should be prevented from comparing the non-rebased figures with that of the rebased estimates.

Yakubu A. Yakubu (PhD), is an Economist, Statistician and a research fellow.