Using GDP ratios prior to rebased economy – a comparative analysis
Last week, Friday November 19, 2010, Deputy Finance Minister Fifi Kwetey ends a discussion with Otchere Darko “Gabby” Asare on Multi TV’s Status Quo in a politically charged debate on the budget.
On Newsfile the following Saturday, Abdul Malik Kweku Baako, calmly points out the foibles of political mis-claims to a panel, which includes Deputy Environment Minister Dr Omari Boamah.
Then on Matters Arising with Fred Chidi, Monday November 22, Deputy Tourism Minister Kobby Acheampong degenerates a civilized argument on the budget to a shouting match, which ends the program.
All these discussions turned on the point where the issue of inherited economic indicators, particularly the current account deficit became a subject of debate.
So here are the facts sourced from the Bank of Ghana, Ministry of Finance and IMF websites.
Overall, there was significant economic growth during the NPP governance. This refers to the total amount of goods and services a country produces and is like a snapshot of the economy at a certain point in time. The NDC grew the nominal GDP to $7.7 billion by 1999 but left with a lesser balance by 2000. The NPP inherited the nominal GDP of $4.9 billion end 2000 and left in 2008 with $16.1billion as a base for growth.
This measure of the number of months the national coffers can carry before it goes into crisis is a fundamental indicator of the cushion of cash retained for imports by government. By 1997 the NDC had raised this to 4.7 months but could not sustain the level and it fell to 1.5 months on handover. The highest level for the NPP was 3.8 months in 2005 but they also followed the downhill and left on 2.1 months by 2008.
Export goods or services are provided to foreign consumers by domestic producers. The NDC government grew exports from $1.1 billion in 1993 to $1.9 billion in 2000. When the NPP left government in 2008 the value of exports had risen to $7.1billion. This indicator must be read in conjunction with the import values in order to appreciate the in and out of foreign trade.
The inflation rate, or the rate at which prices rise is primarily measured in two ways: through the Consumer Price Index (CPI) and the GDP deflator. The CPI gives the current price of a selected basket of goods and services that is updated periodically. The NDC started the period with inflation at 25% peaking in 1995 at 59.5% and left it nearly the same at 25.2%. By 2008 the NPP recorded a drop in inflation to 14.3%.
Consumer Price Index
The consumer price index (CPI) is a measure estimating the average price of consumer goods and services purchased by households. It measures a price change for a constant market basket of goods and services from one period to the next within the same area (city, region, or nation). During the NDC era, the CPI increased from 25% to 40.5%. The NPP reduced the CPI to 17.8% over their 8-year period.
The current account balance is one of two major measures of the nature of a country’s foreign trade (the other being the net capital outflow). A current account surplus increases a country’s net foreign assets and a current account deficit does the reverse. The NDC reduced the current account by $140 million in their term. The NPP however, increased the current deficit from $546 million to $3,110 million.
GDP per capita
Gross Domestic Product (GDP) at purchasing power parity (PPP) per capita, is the value of all final goods and services produced within a nation in a given year divided by the average (or mid-year) population for the same year. PPP figures are estimates rather than hard facts, and should be used with caution. GDP per capita ended in 2000 at $270.5 and was increased by the NPP to $598.
Current account % of GDP
Measured as a % of GDP, this ratio captures the proportion of the balance of payments as it relates to the overall production base of the economy. The NDC marginally controlled the ratio within -9.4% and -8.4%%. In 2002 and 2003, the NPP recorded a decrease in the ratio from -5.3% to -19.3%.
Foreign reserves, ex gold
Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities. These are assets of the central bank held in different reserve currencies, mostly the US dollar, and to a lesser extent the euro, the UK pound, and the Japanese yen, and used to back its liabilities. Throughout the period, the NDC held an average account at $500 million. The NPP grew the balance to $2.2 billion at end 2008.
Total external debt stock
External debt (or foreign debt) is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the IMF and World Bank. The NDC left office with a balance of $8 billion in 2000. The NPP decreased the debt to $4 billion.
This measure counters the exports indicator and is the other component that is the imports into the country of goods not obtained or manufactured in Ghana. NDC imports grew from $1.3 billion to $2.8 billion in the period while the NPP import bill soared to $12.6 billion between 2001 and 2008. The net effect (-$5.5 billion) is the more critical factor here.
The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation’s imports and exports. A favourable balance of trade is known as a trade surplus and consists of exporting more than is imported; an unfavourable balance of trade is known as a trade deficit or, informally, a trade gap. While the NDC left office with a trade gap of -$964 million, the NPP chalked -$5.5 billion as a trade deficit.
Real GDP growth
Real gross domestic product is a measure of the size of an economy adjusted for price changes. Gross domestic product is defined as the market value of all final goods and services produced in a country. That market value depends on two things: the actual quantity of goods and services produced, and their price. Real GDP is GDP with the price factor held constant, so that it reflects only changes in volume. Whereas the NDC left office with 3.7% growth, the NPP left in 2008 at 7.3%.
We have many issues to grapple with and the cyclical election year fever must stop. Every 4 years Government loses its focus and saddles Ghanaians with excessive and compulsive promises to get back in power, only to fumble over the next term and repeat the same mistakes. We have to get out of the politics and get into the economics and finances proper.
By Sydney Casely-Hayford