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Random thoughts of a rural farmer (20): Defending a governor in a turbulent economy?

Last Saturday morning, I told the daughter of my mother in- law that I was fed up with having tea for breakfast. I settled for porridge (koko). When they brought the bowl of koko sakora to me and said it cost GHS. 3.00, I nearly missed a heartbeat. Kuro mu aye hye, koko too? The atmosphere is hot, even porridge?

Just then a message popped up on one of my WhatsApp groups where a member had sent a list of some key Ghanaian public servants and their monthly emoluments. Many on the platform had expressed disquiet about the alleged emolument of the governor, among other public officials.

I scoffed at the idea of joining the whining public over the figures; simply telling myself that the same people complaining about what they consider to be unfair wealth distribution are the people who would willingly pay even GHS.200 for a ticket to watch a musician in a packed stadium where that musician would boast about filling the stadium to the capacity of 50,000 revelers.

Annoyingly, the key musician would sing for less than thirty minutes on stage and take home not less than USD. 50,000 equivalent, which the patrons would not complain about.

I wonder at what point in time this world ever became fair? So why should I waste time worrying about a governor’s emoluments?  There is only one spot for a governor at any point in time. If that person is a Ghanaian and qualifies per the rules, why should I split hairs over that?

In the late 1970s when I started my journey into GCE “A’’ Level economics, my fascination with public financing was over the roof. I nearly flew to the skies when I entered the university, while also pursuing my studies towards the professional banking certification which traditionally has contained a huge dose of monetary economics in the examination scheme.

This area of study has caught my interest even to this day as I try to upgrade my knowledge continuously. The complementarity between fiscal and monetary policies can never be over- emphasised.

The textbooks talk of the objectives of fiscal and monetary policy convergence towards the same objective of sanitizing the macro-economic environment, especially the financial space, which mirrors the strength of the economy.

Theoretically, this is quite understandable until you attempt to disaggregate the political aspirations of a government with a 4-year mandate carrying huge expectations to win the next election as soon as the government is sworn into office.

I wonder at what point the governor gets involved in the executive’s penchant for electoral promises, cutting sods for projects like the construction of interchanges, Agenda 111 when a few selected hospitals could be refurbished, the unsustainability of FSHS in its current form, and a bloated government machinery delivering less than optimal results, without minding the source of funding.

The political establishment chooses to be oblivious of the source of funding these multiple projects, their time frames for completion, the costs of continuous maintenance, and even sometimes their relevance for socio-economic development.

In reality, however, an independent observer can clearly discern that instead of monetary policy complementing fiscal policy, the former has become subservient to the latter in the Ghanaian politicians’ unrepentant financial indiscipline.

Ironically when the fiscal operators literally go upstream to muddy the waters already suffering from galamsey operators, they gleefully blame external political and economic factors while the monetary authorities are urgently called up to salvage the sinking ship of state reluctantly or otherwise, through the various forms of budget financing.

Thus, you find a situation where unconscionably unpatriotic public servants recklessly dissipate covid funds, per the latest Auditor General’s report, create gaping holes in public finance supported by World Bank grants, bilateral support and even higher  taxes  which suffocate  the masses, while  the politicians refuse to bear an equitable share of the burdens resulting from belt tightening .

After all this, we turn round to wonder why inflation and exchange rates refuse to be arrested by an enthusiastic IGP according to opposition parlance. Perhaps his police cells are too full to accommodate these twin miscreants who continuously defy any attempts to rein them in.

So, we resort to the governor to attempt to arrest inflation blamed largely on excess money supply. Reluctantly, the governor has had to continue raising the prime rate in a fruitless effort to tame inflation without any serious fiscal adjustnents.

In times past, with HIPC reliefs flowing through from donors tripping over  themselves to demonstrate who loves Ghana most, the capital account of the balance of payments was freed from suffocation of outflows for payments of prior principal loans and related interest. The fiscal space exhibited reasonable room conducive to economic stability. The exchange rates were not as erratic as we find them today.

A governor operating within that space could therefore flex his independence in the pursuit of a stable macro- economic environment. He could boldly but respectfully return government cheques from over drawing public accounts without solid assurances.

Compare that situation to the current atmosphere of a heavy budget deficit in excess of 20 % instead of the mandatory 5% of prior year revenues. The dilemma of the governor in deciding to dishonour government cheques become even more challenging. Thus, the budget deficit continues to balloon with all the effects of inflation manifesting to our dismay.

An analysis of the Auditor General’s report for the half year of 2022 depicts ominous challenges with the receipts side of the balance of payments continuing to dwindle, while payments due can hardly be postponed.

The cause is not too far- fetched as we grapple with a downgrade on sovereign   risk decimating our ability to source funds from the international financial market.

Paradoxically this was the same time that we had to honour commitments on past loans and interest payments. A repeat of similar trends cannot be ruled out in the short term, given the potential effects of the debt exchange programme currently underway, with the IMF gleefully playing “chaskele” with our lives.

Making the waters even murkier is the IMF’s insistence on a zero central bank deficit financing support at a time when there appears to be a fixation (justifiably or otherwise), on the next elections against a strong desire to break the eight- year election transitions. Economics and politics will soon get into the boxing ring to determine whose aspirations take centre stage.

Yet, the “poor” governor had no hand in the inexplicable tax exemption policies in the fiscal space where a hung parliament has a golden opportunity to re visit this obnoxious policy in the interest of the nation but they are still dithering over such an important issue while discussing less relevant matters.

Can we blame a governor who, perhaps,  did not participate in the glaring inequities inherent in the forex retention laws that permit gold exporters to retain 80% of their gold export proceeds offshore? That is a purely legislative function.

What informed that inimical retention policy is still a mystery to this writer when our South African counterparts maintain a zero- export retention policy. Unless someone educates me otherwise, I see no economic rationale or the benefits that have accrued to this country since the inception of this nebulous, self -strangulating measure.

How we are going to finance the numerous projects under construction and the promises of even more grandiose ones in the next few months, remain to be conjectured. The effects on the fiscal and monetary space, and particularly how these could affect galloping inflation and weakening cedi in the medium term can hardly be determined when we have largely reached our tether’s end as far as  Debt/GDP ratio is concerned.

Add to this the wranglings over the domestic debt exchange programme and the dire implications for lending to the government in the foreseeable future now that the average investor has had the rude shock that sovereign instruments are not risk free as previously understood.

Whether the high interest rates to be offered for new instruments as a hedge against surging inflation will be enough to attract lenders’ enthusiasm in new Treasury bills and bonds auction remains a challenge.

The perceived risk remains  a daunting challenge facing a governor whose monetary policy stance is often diluted by unbridled  fiscal indiscipline that he  has no absolute control over. And some are worried about his emoluments when we do not know how many hours he can enjoy his sleep?

The writer is a Fellow of the Chartered Institute of Bankers, an adjunct Lecturer at the National Banking College and the Chartered Institute of Bankers, a farmer and the author of “Risk Management in Banking” textbook.

Email; koriginal59@gmail.com  Tel. 0244 324181

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