Ghana is spending less on infrastructure after oil inflows – Dr. Bawumia

• Posted on March 25, 2015
• by Nana Kwesi Coomson
• Comment

Dr. Mahamudu Bawumia, Visiting Lecturer of Economic Governance at the Central University College and Running Mate to Nana Akufo-Addo for the 2016 Presidential Election disclosed on Tuesday that contrary to all expectations and claims by the government, the current NDC administration was spending about a half , in proportion to GDP, of the spending before it took over.

Dr. Bawumia made this startling revelation while speaking at the 4th Distinguished Speaker Series lecture organized by the Central University College, on the topic: “The IMF Bailout, Will the Anchor Hold”.

Speaking on the 700% increase in the debt stock within the last 6 years as well as the unprecedented resource inflows that have come into the economy within the same time period, including the benefits of oil production, Dr. Bawumia stated “notwithstanding the massive increase in the debt stock, capital expenditure as a percentage (%) of GDP has actually been on the decline from 9.1% of GDP in 2008 to 4.8% by 2014. Capital expenditure as a percentage of GDP averaged 11% for 2001-2008 (without oil) while that for 2009-2014 has averaged 6% (with oil).

“This means that contrary to all the government claims of an increase in infrastructure expenditure on projects all over the country, the reality is that Ghana’s expenditure on infrastructure is declining. The numbers indicate that relative to GDP, this government is investing about half what the previous government invested in infrastructure. It is in fact a travesty that Ghana before the discovery of oil was spending a higher proportion of its income on infrastructure investment than after the discovery of oil and the massive increase in the debt stock.”

Dr. Bawumia explained that the decline in infrastructure spending has partly accounted for the significant decline in GDP growth, which had invariably contributed to the economic malaise the country finds itself in and for which an IMF bailout is needed.

“The 2015 budget shows an economy in decline. Real GDP growth has declined from 15% in 2011 (with the onset of oil production to a projected 3.5% in 2015 (including oil).

“The decline in economic growth is reflected across all sectors (Agriculture, Industry and Services). The 2015 budget is projecting non-oil growth of 2.7% in 2015. These facts are as revealing as they are disturbing. The growth rate in 2015 would be just about what it was in the year 2000 and half the rate of the 8.4% achieved in 2008 without oil! Non-oil growth in 2015 will be below the growth rates attained in 2000.

“This decline in investment in infrastructure runs counter to what one would have expected. Even though the allocation of oil revenues is skewed towards infrastructure, the decline in capital spending means that the infrastructure expenditure from oil revenues is substituting for rather than adding to existing capital expenditure. After all the loans, all the taxes and all the oil, how can investment in infrastructure relative to GDP be at half the level that it was in 2008 (without oil)? This means that if the government had just maintained the 2001-2008 levels, it would be doing twice as much as it is doing now in the areas of roads, water, energy, etc. The sad decline in infrastructure investment partly explains why GDP growth has declined significantly from 15% in 2011 to a projected 3.5% in 2015.”

Dr. Bawumia, cited the case of the one billion dollar Eurobond issued last year, as an example of how resources had not been invested in infrastructure.

“It is therefore clear that most of the increase in the debt stock has not gone into capital expenditure. A case in point is the utilization of $1 billion Eurobond proceeds received in 2014. While the Government sought to convince the public that the sovereign bond monies had been used for infrastructure investment, the evidence shows otherwise. A look at the Bank of Ghana Monetary Accounts for 2014 reveals the true picture, which is that the sovereign bond has rather been used to reduce Government indebtedness to the central bank and not applied for the purpose for which the funds were borrowed. This is why the government cannot seem to be able to answer the simple question as to what the funds were spent on. One wonders why our economic managers can’t just be honest when these issues come up?”

Touching on the general crisis facing the economy, Dr. Bawumia, noted that unlike previously, the current issues, could not be blamed on a shortage in resource inflows as the current government, had had available to it mind boggling resources.

“Mr. Chairman, what is surprising about the current state of public finances is that over the last six years, this government has had available to it more financial resources than any government in the history of Ghana and so unlike previously, the current predicament cannot be blamed on a shortfall in resource inflows. The financial resources that have been available to this government are actually mind boggling.

“In the eight years between 2001 and 2008, the total tax revenue collected was GHC 15.2 billion. In contrast, the government has collected a total of GHC 62 billion in the last six years (2009-2014) in taxes. In the last six years, Ghana’s total debt has increased from GHC9.5 billion in 2008 to GHC76.1 billion at the end of 2014.“

He continued by comparing the amount of gold and cocoa exports witnessed under the last 6 years as compared to the 8 years between 2001 and 2009.

“Ghana’s gold exports between 2001 and 2008 amounted to $9.0 billion dollars. Between 2009 and 2014, total gold exports have amounted to $25 billion dollars. Government has therefore earned significantly more from the revenues associated with these exports in the last six years. Ghana’s cocoa exports between 2001 and 2008 amounted to $7.4 billion dollars. Between 2009 and 2014, total cocoa exports have amounted to $14.5 billion dollars. Government has similarly earned significantly more from the revenues associated with these exports in the last six years.

“Ghana has also become an oil exporter during the period of the NDC government. Ghana has exported $13.7 billion of oil in the last four years and has earned some $3 billion from oil during this period. There were no oil revenues accruing from oil exports during the 2001-2008 period or for that matter in any period of Ghana’s history,” Dr Bawumia added.