Former deputy Finance minister Ato Forson

Accra, Ghana, November 13, 2018//-Minority Members of Parliament in Ghana chastised the government for mismanaging the country’s  economy.

Speaking at the third pre-budget round table discussion on Tuesday, Minority Spokesperson on Finance, Cassiel Ato Forson said due to these policies: “Fuel prices have gone up on 17 different occasions in the last 21 months leading to increases in transport fares and food prices.

Below is the Minority National Democratic Congress (NDC) statement


Good Morning, Ladies and Gentlemen,
Let me welcome and thank you sincerely on behalf of the Minority Caucus for honouring our invitation to the third in the series round-table discussions on the national economy with specific focus on the budget.
On Thursday, 15th November, 2018, the Hon Finance Minister, Ken Ofori Atta, will present the third budget of the Akufo-Addo government. This will be against the backdrop of implementation of two budgets between 2017 and 2018. Since the presentations of these budget statements, there have been several developments within the economy which have elicited diverse commentary from various stakeholders and segments of society.
By the end of 2016, the Ghanaian economy started to exhibit great potential for recovery and promising outlook. This followed a bold effort to stabilize the economy, while also investing in public infrastructure, during a period of adverse shocks that affected general economic activity.
The shocks and challenges emanated from
(a) Break of the WAGPL leading to constraints in energy supply;
(b) Significant reduction in crude oil production which was mainly as a result of technical challenges on the FPSO Kwame Nkrumah
(c) Fall in the GDP growth for BRIC countries and global demand leading to simultaneous fall in commodity prices, for Ghana gold, cocoa, and crude oil; and
(d)  Drastic measures required in both penultimate (2015) and substantive election years (2016).
 We are proud to have averted the recession that occurred in many SSA, emerging, developed and developing economies, with lingering effects in places such as Nigeria.
The prospects for a full recovery and robust growth predicted by institutions such as the World Bank in 2016 has stagnated and fizzled  out for the non-oil sector, due to the inability of the NPP government to continue with the growth-oriented policies initiated by H. E. John Dramani Mahama.
The NPP government inherited an economy with a relatively stable electricity supply; robust  oil and gas production due to the massive public and private investments under the able leadership of  H.E John Dramani Mahama; a robust economic and social infrastructure to boost economic activity; measures and policies such as ESLA to tackle emerging problems in the  financial sector; an active private sector; a  recovering economy with a positive outlook that would translate into sustainable jobs; a vibrant  Agriculture sector; relatively stable exchange rate; as well as lower prices of energy and petroleum prices, amongst others.
Amidst great pomp and pageantry, the Akufo-Addo government through the Vice President and Finance Minister, raised the expectations of Ghanaians through  a 2017 budget presentation that continued the unrealistic campaign promises that were foistered on Ghanaians—and is still ongoing. Catchy slogans and platitudes were recited as proof of a government that was ready to transform the living conditions of the ordinary Ghanaian through well-crafted economic and social policies. These promises ignored the onset of global crises and exogenous shocks to the domestic economy.
Instead of the improved living conditions promised, Ghanaians have been ushered into an era of unprecedented and excruciating hardships. The imposition of economic pain that the President was forced to admit are occurring even as we see outcomes from positive factors such as (i) recovery in global demand, prices, and growth; and (ii) increased crude oil and gas output and prices at the very moment that the nation is seeing increasing output from the TEN and Sankofa Petroleum fields.
Ladies and gentlemen, this introduction tells you the purpose of this round table. The discussions are to engage all stakeholders and our trusted partners in development on matters that effect the growth and development of Ghana, assess the performance of the economy over the two budget cycles under President Akufo-Addo, and indicate our dim expectations of the 2019 budget.
Our presentation will focus on the following;
a) Economic performance in 2017 and 2018
b) Hardships caused by harsh fiscal and other policies
c) Low investment, unemployment, and job losses;
d) Debt accumulation and the impact of the Century bond
e) Fiscal and financial or banking sector developments
f) The collapse of earmarked and statutory funds.
e) Policy failures of government
g) Expectations of the 2019 budget
i) The way forward and policy recommendations
We would begin Ladies and Gentlemen, by reviewing the economy and highlighting a few issues of concern.
Economic performance in 2017 and 2018
GDP growth
1. The overall GDP growth in 2017 stood at 8.5 percent. Non-oil GDP growth stood at 4.8 percent while that for 2016 was 5.0 percent.The 8.5 percent GDP growth recorded in 2017 was mainly on the back of investments in the petroleum sector in prior years. Oil production contributed about 3.1 percent points to GDP growth in 2017 resulting from an 80.4% increase in production. It is the investments made in previous years by H.E John Mahama that has yielded, and will continue to yield, great results.
2. The non-oil GDP growth declined to around 4.8 percent in 2017 because of the preoccupation with consumption expenditure and relative lack of government commitment to revive the real sector through infrastructure development. However, the real sector growth in 2016 (non-oil GDP growth) was 5.0 percent which is a reflection of H.E John Mahama’s commitment at the time to transform the Ghanaian economy.
3. The growth rate of 8.5 percent on the back of oil has since misled the Minister responsible for Finance into demonstrating little or no commitment to the real sector.
4. The Ghana Statistical Service reported the overall GDP for the second quarter of 2018 to be 5.4 percent while the non-oil GDP growth stagnated at only at 5.0 percent. This means that, despite global recovery and increase in domestic crude oil and gas production, only 0.2 percent growth has been created over the previous.
5. The growth rate in some key sectors have also declined with some sectors recording negative growth rate. The construction sub-sector, which recorded a strong and robust growth rate in 2016 has since assumed a declining trend due to government’s failure to pay contractors for work done.
6. Growth in the financial sector has also worsened due to unprecedented accumulation of arrears by government which has resulted in an upsurge in non-performing loans (NPLs).
7. This contraction in growth rate in construction  and financial sectors is represented in Table  1 and Figures 1 and 2 below;
Table 1
  ITEM 2017 2018
Real GDP growth rate 7.4 11.1 8.7 5.5 5.4 5.4
Real non-oil GDP growth rate 5.2 6.7 5.0 1.8 4.2 5.0
Agriculture 6.8 3.8 8.3 5.3 4.7 4.8
Industry 15.3 20.8 14.0 12.8 10.4 11.1
0/W Construction -0.2       0.3       3.6       5.1       5.2       4.2
Services 1.4 6.8 4.6 0.3 1.4 0.5
O/W Financial and insurance activities -11.2 -8.6 -25.5 -25.0 -11.6 -13.4
8.  In September 20018, the Ghana Statistical Service rebased the country’s GDP, hence the base year is 2013 and the entire economy expanded by 24.6 percent. Using the new base year of 2013, the nominal GDP of Ghana is now GHS 256.671 billion. The implication is that all ratios that are affected by the rebased GDP will decline due to base effect. For instance, we expect the debt-to-GDP, expenditure-to-GDP and tax-to-GDP ratios to decline.
9.  Hence, though all ratios decline, the exercise is being touted as some great financial engineering to create some borrowing space by reducing the debt-to-GDP ratio. This is just to satisfy their appetite for borrowing.
b) Hardships caused by harsh fiscal policies
A key promise of President Akufo-Addo in the run up to the 2016 elections was the removal of taxes as a way of alleviating what he described as hardships being faced by Ghanaians. The Ghanaian Chronicle of 13th June, 2016 quoted him as saying “…my approach is going to be completely different from that of John Mahama. It is not going to be tax, borrow and spend. My priority will be to reduce the cost of doing business to help small scale enterprises grow, and to make the Ghanaian economy become globally competitive”
The 2017 budget statement purported to remove a number of tax handles with the claim that it would reduce the cost of living and bring relief to Ghanaians. Businesses and households therefore looked forward to immediate reductions in the cost of living and the cost of doing business as well as the avoidance of further taxation. The hope that greeted that announcement has however been replaced with pain and anguish following the implementation of a number of draconian fiscal measures that have introduced severe economic hardships to all Ghanaians within all income brackets.
Under President Akufo-Addo;
•Fuel prices have gone up on 17 different occasions in the last 21 months leading to increases in transport fares and food prices.
•The Ghana Cedi has depreciated significantly leading to hardships and uncertainty for businesses.
•VAT has been increased through the back door by decoupling NHIL and GETFund Levy from the old VAT regime (and denying businesses their right to Input Tax Credit), leading to a 5% increase in production cost which has affected the prices of all goods and services in the country. We note that our prediction that VAT was going to be increased has come to pass despite denials by the Finance Minister of same on the floor of Parliament.
After being ignored when they asked for an efficient tax regime, businesses decided to speak with the language they know best: increase in prices. It is time for the Government to listen, to alleviate the plight of Ghanaians.
•The amount paid for Import Duties have gone up astronomically leading to an increase in the price of imported items because of the disruptions in policies that have resulted in distorted Benchmark system and the Cargo Tracking Notes measures.
•A luxury car tax of between GHS 1,000 and GHS 2,000 for vehicles with engine capacity ranging between 2950 cc and above has been imposed. Note that these cars already attract graduated import and excise duties at the time of importation. Though referred to as a Luxury Car Tax, this affects vehicles that do not boast of any luxurious features including those used on farms and in construction.
•A 10% increase in the Personal Income Tax (PIT) marginal rate to 35 percent for employees and self-employed earning GHS 10,000 and above has been introduced.
•The 5% National Fiscal Stabilization Levy has been extended beyond its 31st December 2017 expiry date, effectively making it a new tax.
•The 2% component of the Special Import Levy has been maintained in spite of the sunset clause in the legislation that introduced it.
These tax measures and other policies have combined to make life unbearable for Ghanaians and they run contrary to the clear promise made by President Akufo-Addo in 2016.
a) Low Investments, unemployment and job losses
The fiscal measures discussed above, have had serious consequences for Ghanaian businesses and households.
Many Ghanaians have suffered job losses within the last 20 months. Most of these job losses occurred within the banking and finance, the media, and the mining industries.  Businesses in these industries are struggling to cope with the cost of running their operations and have had to lay off workers or close down.
The resulting unemployment situation is gradually developing into a crisis. What is even more worrying is that, instead of redirecting policy incentives to improve the productive base and create employment for the good people of this country, the Akufo-Addo government continues to be fixated with political sloganeering.
In the midst of this unfolding tragedy, they continue to claim that they are shifting the focus of the economy from taxation to production even as they continue to heap taxes on these same businesses with very little production incentives.
A job loss suffered by one member of a household translates into the welfare loss of a household numbering about five (5).  The NPP government must be reminded that evidence of wealth is in the well-being of the people and not in political and macroeconomic jargons.
The current high rates of unemployment are the result of policy indiscretion and political sloganeering. The implication of the rushed implementation of unplanned populist policies are daunting, causing government to cap allocations to earmarked funds and cut capital expenditure allocation to MMDA’s that are mandated to execute capital investments on behalf of government. In fact NHIL, GetFund, RoadFund, among others have been suffocated to death.
What was billed as an economic turnaround has brought severe hardships. The lay-offs are unprecedented across all sectors of the economy and government must act accordingly. If this NPP government has lost count of the number of job losses that the good people of this great nation have suffered within twenty (21) months of leadership by propaganda, we will like to remind them in the table below.
The turn of events after the 2017 and 2018 “funfair” budgets are really shocking to many Ghanaians. Things seem to have fallen apart and the center can no longer hold. Where are the jobs Mr. President? You promised Jobs and now you are delivering unemployment. We are indeed sitting on a time bomb.
Table 2: Summary of Key job losses recorded within the past twenty (20) months
1 Vodafone Massively Lays Off Workers 1500 to 2000 employees lost their jobs within the first four months of 2017.
2 Workers lose jobs in Tema as steel factory shuts down About 400 workers of a steel company in Tema, Rider Steel Ghana Limited, have been laid off due to the company’s inability to pay for what they describe as unfair and high electricity tariff.
3 TV3 sacks workers in massive restructuring 100 workers of TV3 have been laid off.
4 Government to lay off public sector workers – Senior Minister Many public sector workers have suffered employment termination by government and several others are gripped by fear of losing their jobs.
5 Goldfields to lay off 1,700 workers About 1,500 workers of the mining giant, Goldfields, are rendered jobless.
6 About 200 workers of Central University to be sacked 67 staff of Central University already sacked, 200 more workers to follow.
7 Mensah Otabil to sack over 200 staff in latest revelation To reduce the staff cost by 40% of approximately 500 staff
8 Massive job losses hit Capital and UT banks’ staff The collapse of UT and capital banks caused about 1000 people to lose their jobs.
9 Delayed posting of unemployed bonded nurses and midwives  About 38000 qualified nurses and midwives are rendered unemployed, some washing dishes to earn a living.
10 Troubled BXC lays off workers by Sept. 400 out of 600 workers dismissed, with the remaining 200 also about to be laid off.
11 Defunct Beige bank sacks  workers 500 staff of Beige bank have been dismissed.
12 Mass dismissals hit Nduom’s GN Media as company struggles for survival About 450 staff to be laid off in an effort to cut down wage cost.
13 EIB Network to lay off workers from a number of its outlets in Kumasi, Nkawkaw, Accra and Takoradi. Massive dismissals hit EIB Network; 100 staff to be laid off.
14 TV Africa suspends all programs effective September 3  The rebranded television station is struggling with its finances and also not able to pay salaries of workers.
15 5 Collapsed Banks: Be ready for job losses – John Boadu envisages Staff of collapsed banks to lose their jobs.
16 Ecobank shuts down 10 branches across the country. About 180 outsourced staff laid off.
17 Collapsed banks: workers to lose jobs in September 1700 workers to lose jobs.
18 Consolidated bank sacks security personnel  Over 2000 rendered unemployed.
19 Former Capital Bank staff grills pork for survival A year after the collapse of UT Bank and Capital Bank, some of their former employees are still struggling to make ends meet
20 Collapse of Getfund and Road fund due to implementation of earmarked fund capping act Getfund and Road fund unable to deliver capital investment, resulting in about 5000 job losses
21 Collapse of NHIL as a result of the implementation of the earmarked fund capping act NHIA unable to pay suppliers due to lack of funds and as a result, healthcare facilities are downsizing leading to the loss of about 500 jobs
22 Cut in capital expenditure from 4.6% of GDP to about 1.8% About 10, 000 jobs lost
23 Non-payment of contractors for twenty months About 10,000 jobs lost across the country
24 Ban on small scale mining without alternative source of livelihood Up to 100,000 jobs lost over government’s refusal to fulfill its campaign promise of offering job replacements
25 Media General Group lays off workers in its latest retrenchment exercise 25 staff of TV3 Network fired
26 Metro TV workers suffer job losses 45 Staff laid off
27 Ghana’s employment sector has been characterized by massive job cuts  Centre for Socioeconomic Studies (CSS) reports that over 1 million individuals have lost their jobs between 2017 and 2018, leaving the livelihood of at least 3 million people affected
As shown in Table 2 above, over 1 million jobs have been lost since 2017 and this leaves up to about 3 million people wallowing in abject hardship (each unemployed person assumed to have at least 2 dependents).
d) Debt accumulation and the impact of the Century bond
Government has served notice that it intends to commit the country to a $ 50 billion century bond and indications are that, the first tranche of this amount may be tabled for approval by Parliament in the 2019 budget.
This proposition underscores the sudden and humbling u-turn of President Akufo-Addo on borrowing. He made it clear during the electioneering campaign, that he and his party have the capacity to mobilize domestic revenue to finance the development of the nation. As noted in the June 13th Ghanaian Chronicle report, he said his government was not going to be one of “tax, borrow and spend”, yet in power he has resorted to borrowing at an alarming rate and the imposition of many taxes.
Available figures show that in the 22 months that he has been President, our total public debt has risen from GHS 122.3 billion in January 2017 to GHS 159.4 billion at the end of July 2018.
We project that additional borrowing will take our public debt to GHS 170 billion by close of the year. This would represent an increase of nearly GHS 50 billion in two short years. We wish to stress that the GHS 50 billion is not what has been borrowed, it is what would have been added to the public debt by the close of the year.
Government’s own bond issuance calendar shows that between 2017 and 2018, a staggering GHS 117 billion would have been borrowed from domestic bond issuances alone. Part of this amount has been used to roll over maturing debt with the rest representing fresh debt that was used to finance the budget.
Given its inability to raise domestic revenues to fund its campaign promises, we estimate that government’s appetite for borrowing will result in the addition of about GHS 16billion  to our public debt in 2019. This would take the total public debt to about GHS 186 billion by close of next year.
The Akufo-Addo government appears to have pumped a large chunk of this money into consumption as there is virtually no major capital investment to show for this level of borrowing. Almost all capital projects that are ongoing are either projects for which money was secured by President John Mahama or which were started under him.
The foregoing shows clearly, that President Akufo-Addo and his Vice President misled Ghanaians with their claims on borrowing whilst in opposition. Instead, they have resorted to the very thing that they condemned just two years ago. Where has his the President’s ability to develop Ghana without taxation and borrowing, which he touted in opposition, suddenly gone to? Why is he engaging in this level of borrowing and where are the projects to show for it? We join former President Mahama to demand an apology to Ghanaians for this clear deception.
e) Fiscal developments
On the fiscal front, the overall policy of government has been characterized by:
a) Poor revenue performance and weak expenditure management;
b) Increasing expenditure on goods and services and low capital expenditure;
c) Accumulation and hiding (through offsets in the 2017 Budget)  of arrears owed contractors which has resulted in high NPLs;
d) Collapse of earmarked and statutory funds with the capping law;
e) Misapplication of ESLA proceeds which has resulted in an increase in fuel price.
Fiscal data available at the Ministry of Finance shows that the overall deficit on cash basis was 5.9 percent of GDP in 2017, which is equal to 4.77 percent of the rebased GDP. The exact deficit figure was underestimated because government took a deliberate decision to make offsets, not make payments; backdated legitimate expenditures from January 2017 to December 2016; and deferring the payment of arrears and other claims due individuals, businesses and contractors.
The accumulation of arrears for the period amounted to about GH₵1.8 billion, while outstanding payment for the period amounted to about GHS 550 million.
It is worrying to note that government expenditure on goods and services is on the rise while capital expenditure is declining. Government overall expenditure on goods and services for the first seven months of 2018 is about 1.5 percent of GDP while capital expenditure is still below 1 percent of GDP.
Figure 4: Trend in capital expenditure
Source: MoF
f) The collapse of Earmarked and Statutory funds
Government is currently in the market to raise $ 1.5 billion to pay off contractors and complete projects under GETFund—while capping the same Fund for other campaign promises for which no funding plan was thought of. This policy incompatibility shows the weirdness of the original decision to “cap” the GETFund and other statutory funds.
This borrowing of $ 1.5 billion through securitization of GETFund is wholly needless and emanates directly from the mismanagement of statutory funds. In the 2017 budget, government announced the capping and Realignment of all earmarked funds to about 25 percent of tax revenue. The implementation of the Capping and Realignment Act resulted in government depriving GETFund of an amount of GH₵ 1,030,252,710 in 2018 alone. This action of the Government has weakened the financial position of GETFund, hence their inability to make payments to meet their financial obligations to contractors.
The GETFund is left with no option than to borrow on the back of their books, a situation that could have been managed properly if government restored the capped amount back to them. Table 5 gives a detailed description of the deductions made using Capping and Realignment Act.
Table 5: Deductions from GETFund due to earmarked fund capping and realignment
Capping and Realignment Amount capped/realigned(GHC)
Uncapped amount 1,480,782,243
Capping weight (%) 9.3079677121
Capped amount 928,041,133
Amount deducted due to capping 552,741,110
Other deductions 3,236,590
Amount left after capping (Final Budget allocation) 924,804,543
Teacher Trainee Allowances 177,511,600
Other Education Requirements 300,000,000
Total realignment to MoE 477,511,600
Total deduction due to capping and realignment 1,033,489,300
Amount left to Statutory Fund 447,292,943
           Source: Budget, 2018
In a similar fashion, the Road Fund has also been denied resources due it per the law establishing it. See detailed description of the deductions made on the resource allocation to Road Fund as a result of the application of the Earmarked Fund Capping and Realignment Act in Table 6 below.
Table 6: Deductions from ROADFUND due to earmarked fund capping and realignment
Capping and Realignment Amount capped/realigned
Uncapped amount 1,411,310,000
Capping weight (%) 8.87127596
Capped amount 884,501,241
Amount deducted due to capping 526,808,759
Other deductions 3,084,743
Amount left after capping (Final Budget allocation) 881,416,498
Nana Akufo-Addo’s Plan for Agricultural Roads 300,000,000
Total deduction due to capping and realignment 829,893,502
Final amount left to Statutory Fund 581,416,498
Source: Budget, 2018
Tables 5 and 6 clearly demonstrate that the President, his Vice President and the Finance Minister lack the innovation to find sustainable sources of financing for their populist policies. Collectively, government owes road contractors about GH₵1.5 billion. This is of no surprise to us because the growth rate of the construction sub-sector has contracted drastically.
Our attention has also been drawn to some breaches of the ESLA, Act. (Act, 899). An amount of GH₵ 600 million of the ESLA proceeds have been diverted to pay pension arrears. This singular action of government is against the provisions of the ESLA, Act. (Act, 899). The said amount according to the provision should have been used to stabilize petroleum prices.
g) Policy failures
In addition to the harsh economic conditions under which Ghanaians live, the NPP government has failed to deliver on its campaign promises. We wish at this point to draw the attention of Ghanaians to some glaring policy failures of the NPP government:
As part of efforts to win the 2016 elections, the NPP manifesto contained a number of lavish promises. The promise making has not ceased since they have been in government. We list for you a few of these promises and demand an update on the status of implementation from the Minister of Finance
a) A bank account for every Ghanaian
In December last year, the Vice President promised that every Ghanaian would have a bank account by the close of this year as part of efforts to formalize the economy and ensure financial inclusion. We wish to ask whether with barely a month to the end of the year, every Ghanaian has a bank account.
b) 1 village 1 dam
On 17th March, 2018, the Vice President once again promised that 570 dams would be constructed this year in the Northern, Upper East and Upper West Regions. This was in spite of the fact that the 2018 budget made provision for just about 100 dams. We wish to find out from the government whether these dams have been delivered as promised.
C) 1 District 1 factory
The promise to construct a factory in each District of Ghana remains unfulfilled two years into the Akufo-Add Administration’s mandate. We challenge the Akufo-Addo government to show how many factories it has built since 2017.
d)1 constituency 1 million dollar
President Akufo-Addo also promised in both the NPP manifesto and on campaign platforms, that every constituency in Ghana would receive $ 1 million every year for priority infrastructure projects. Two years down the line, we expect that each constituency would have received $ 2 million. We challenge the Finance Minister to indicate which constituencies have received the $ 2 million since last year, at a time we are all aware that district assemblies are receiving a reduction in the allocation of the district assemblies’ common fund (DACF), as a result of the Earmarked Funds Capping and Realignment Act 2017, Act 947. The government has characteristically failed to redeem its promise of allocating $ 2million per constituency, for the 2017 1nd 2018 fiscal years.
h)  Expectations of 2019 budget
We have noted that the rhetoric that has characterised previous budgets of the NPP government have begun in earnest. President Akufo-Addo is on record to have stated that the 2019 budget portends hope for the people of Ghana. Contrary to what the President claims, our analysis shows that Ghanaians are in for very tough times in 2019. There is no indication that there will be a change in Government’s policy direction. We therefore cannot agree with the President’s claims of hope in the 2019 budget. There cannot be a turnaround because of the effects of the rushed implementation of unplanned policies which are currently causing a collapse of Ghana’s macro-fiscal and financial frameworks. Ghanaians should therefore expect the following:
a) new taxes to deal with the financial sector mess they have created and their populist policies,
b) A budget that is skewed away from the economic (growth-oriented) sectors to non-economic sectors (goods and services),
c) the prevailing hardship will persist and may even get worse,
d) worsening unemployment situation,
e) more debt accumulation due to alarming borrowing for consumption,
f) upsurge in government expenditure on populist policies,
g) the issuance of a century bond which is over and above the absorptive capacity of the economy,
i) cut in capital expenditure allocation to MMDA’s that are mandated to execute capital investments on behalf of government, and
j)  Collapse of earmarked Funds (NHIL, GetFund, RoadFund, DACF, etc) using Earmarked Fund capping and realignment law. This means that the plight of contractors will not end anytime soon.
i) The way forward and policy recommendations
Ghana’s financial sector crisis: What is the way forward?
1. Ladies and gentlemen, as part of our unflinching commitment towards a financial sector that is characterised by a sound banking sector and well-developed capital markets, we deem it necessary to assess the on-going issues in the banking sector and to offer some free suggestions on how to solve the issues.
2. Let me make it clear from the outset that, if we were in government today, we would have solved the issues without the on-going panic and heightened uncertainty we are currently witnessing. We were more measured with our promises to Ghanaians.
3.  I have received several petitions from many stakeholders asking what is really going on. Banks are experiencing a severe systemic liquidity crisis with their funds locked up with other institutions, and the non-bank financial sector is also reeling under extreme liquidity pressures.
4. As I speak to you, a number of banks are ready to go down again, and I am aware that a particular local bank is only surviving with daily liquidity support from the Bank of Ghana. Unfortunately, the uncoordinated utterances and actions by various officials such as the Governor of the Bank of Ghana and his team on one hand, and the Minister of Finance and his deputies on the other, are worsening matters by the day and causing acute fear and panic among bank depositors and clients.
5. We are therefore calling on Government to act immediately to stem the growing trend and to reduce the tensions in the banking and non-banking financial sector in particular.
6. We are also calling on Government to redeem its promise to pay in full all customers of DKM Ltd that are yet to receive their monies. All payments made so far, have been arranged by the previous NDC government, but curiously, the Government will not tell you. In the least they must pay the remaining customers in full, in line with the promises that they made in the run up to the 2016 elections.
7. In addition, we urge Government not to stay unconcerned about the happenings at MENZGOLD. We therefore expect the government to take steps to ensure that the depositors’ money held by Menzgold are redeemed. It is only the government that has the power to trace where these funds are kept (locally or internationally). The ‘I don’t care’ attitude of the Akufo Addo administration must stop. I will now proceed to throw light on the issues and end with some suggestions on the way forward.
Exogenous shocks and the banking sector
8. Ladies and gentlemen, you will recall the results of the 2015/2016 Assets Quality Review (AQR) exercise that was carried out by the Bank of Ghana, which gave us a clear insight about the vulnerabilities in the banking industry at the time.
9. We sprang into action thereafter and a number of legal and institutional reforms to address these. The AQR at the time showed that our banks were at various solvency levels, with 8 banks having a clear capital shortage. For some, the shortages resulted from deterioration of their SME portfolio while for others, this was due to significant exposures to state owned enterprises (SOEs) in the energy sector as well as bulk oil distribution companies (BDCs).
10. An updated AQR was done in late 2016 which led to the establishment of a recapitalization and liquidity roadmap for the banking sector. We also moved in to pass the ESLA law, which initial proceeds we used to restructure up to ghc2.2 billion of debt owed by VRA to the Banks.
11. Broadly, the banking sector recapitalization was intended to be completed by end-2019 at the latest, and a new minimum capital requirement of GHS230 million was generally planned to be imposed on banks starting January 2019.
12. At the same time, the government was developing a plan to restore SOE’s viability including clearing arrears and a plan that was underway to audit and clear government arrears due to BDCs. This plan was to be finalized by end-December 2016, and government had committed to implement the plan through some cash payments and issuance of ESLA-backed government bonds to repay the impaired loans to the affected banks. There was the understanding that if the plan was not followed, then at the least, banks would have to book these provisions by year end-2016 which may lead some banks to insolvency.
13. However, this was not deemed necessary as the initial restructuring of VRA debt was successful and a second draft term sheet was prepared and given to the incoming administration.
Legal and institutional reforms by the previous NDC government
14. Ladies and gentlemen, despite recent irresponsible statements, it is clear therefore that the banking sector issues were already being handled by the previous administration, to ensure a sound, stable, and resilient financial sector to support economic growth.
15. A number of new banking laws and regulations were passed,  such as the Specialized Deposit-taking Institutions Act, BSDI Act 2016 (Act 930), the Ghana Deposit Protection Act, 2016 (Act 931) and the Bank of Ghana Amendment Act, 2016 (Act 918). The BSDI Act 2016 (Act 930) was meant to bridge gaps associated with consolidated supervision, bank resolution and other lapses identified in the legal framework that we came to meet, while the Deposit Protection Act 931 sought to provide a safety net for customers of financial services. Amendments to the Bank of Ghana Act also sought to clarify some ambiguities in the Act and made the role of the Central Bank more transparent.
16. Ladies and gentlemen, I must emphasise that it was our efforts in the passage of Act 930 that has provided the Bank of Ghana the necessary powers to resolve insolvent banks, and also ensured that a credible threat of resolution would serve as an incentive for banks to implement recapitalization.
17. A number of regulations were also developed such as the Corporate Governance Guidelines which was issued earlier this year.  In an effort to promote payments systems development, two guidelines, namely; Guidelines for Electronic Money Issuers in Ghana and the Agents Guidelines were also issued in 2015.
18. The Guidelines brought interest among financial and non-financial service providers in innovating products and services, especially in the mobile sector. Thus, new institutions entered the space; and new products and services were delivered through market-driven collaboration between financial institutions and non-financial institutions.
Energy sector levies Act
19. Ladies and gentlemen, it is clear therefore that a roadmap for the resolution of the challenges was in place since 2016 and was meant to be completed by end-2019 with the recapitalisation of banks.
20.  Clearly, besides the changes to laws and guidelines, we had started tackling the issues differently and more effectively. As noted, for example, we were using the ESLA to help clean up the banks’ books, and the same framework had the potential to adequately accommodate the entire restructuring without the current disruptions we are witnessing.
21. Also, we had prioritized the need to avoid unnecessary panic and heightened uncertainty in the financial sector, and hence this would have guided our approach. For instance, the Official Administrator for UNIBANK would have handled their mandate more carefully since the plan was to restructure the bank and “return” to owners.
22. What was the point in creating panic and driving away more than 600 million cedis in customer deposits within the first three (3) days, only to turn around and pour-in expensive BoG liquidity support to replace it? Why kill a patient first before making efforts to resuscitate the same patient all over again?
Recommendations on the way forward
23. Ladies and gentlemen, there has been too much propaganda and panic in the banking industry, which is actually impacting severely on a number of banks and non-banks, especially the local institutions.
24. The challenges have become widespread, leaving the entire financial system suffocating. It could even collapse the entire economy if drastic measures are not adopted to effectively manage the situation.
25. With the crisis approaching a crescendo, customers have already lost confidence in the banking system and have resorted to panic withdrawals. This has further worsened the liquidity position of some ailing financial institutions, and also constrained their capital base.
26. While depositors are consumed by the trauma they have to go through to access their funds, banks are faced with the challenge of stemming panic withdrawals and providing sustainable SME financing.
27. Amidst the banking sector challenges, there appears to be an unusual forbearance by the BoG, while discretely administering additional liquidity support to some struggling banks.
28. We want to ask BoG the question: Are these liquidity supports in line with Section 46A of the Bank of Ghana (Amendment) Act, 2016 (Act 918)? Is it true that some local banks are currently only surviving on daily support from the Bank?
29. Again, we ask the question: Did BoG really understand the potential systemic impact of their brutish stance? Or are they now only seeing reality?
30. Meanwhile, a critical examination of the financial soundness indicators reveal widespread and poorly managed systemic risks in the sector, among others. To address these, we propose the following:
a) Government must consider a toxic asset relief framework, similar to Ghana’s Non-Performing Assets Recovery Trust (NPART) in the 1980s; and more recently, Special Liquidity Scheme (SLS) employed by the Bank of England; or the Troubled Asset Relief Programme (TARP) adopted by the Federal Reserve of US; to address their respective financial crises.
b) This would involve a government bond through legislation by parliament, to make short-term loans (about 7%-10% of GDP) available to local banks and financial institutions that meet some specified requirements. This was the purpose of ESLA and the Government should stop diverting its flows for unauthorized uses and restructure it to meet the banking sector need and provide relief for taxpayers from more borrowing.
c)  A legal framework is critical as it will outline the loan disbursement procedures and the sectors that the funds should be extended to. This approach is preferred to the current practice (i.e., arbitrary issuance of bonds to clear debts of insolvent banks) because unplanned borrowing intensifies moral and financial risks, and makes the economy more vulnerable to external shocks.
d) Government must quickly move to tackle the conceptual issues relating to the future of Ghana’s financial sector. We must adopt a consultative approach to find answers to some of the key issues about the future of the financial sector. Among the potential questions to be addressed in a consultative forum are:
• What type of financial structure do we desire as a country? As you are aware, we currently have the microfinance institutions, the other financial institutions such as savings and loans, finance houses, rural and community banks, and the major banks. These are all currently being supervised by the Bank of Ghana.
• However, there are some suggestions lately for separate supervisory structures for each of these segments. Indeed, this pertains in some countries. In Bangladesh for instance, the microfinance institutions are about the same number as we have in Ghana. There, they have a separate supervisory body that regulates them rather than the Central bank.
•  Should the Bank of Ghana focus only on the major banks so as to regulate these more efficiently?  We could take a cue and restructure the rural banks’ APEX Bank into a specialized regulatory body.
• Alternatively, should we establish a consolidated supervision structure for financial services to eliminate regulatory gaps, and to increase protection of consumers of financial services? An example is the Financial Services Authority (FSA) or similar bodies in many countries.
• This initiative would seek to reduce the number of regulatory bodies. For example, all non-bank financial service providers would be licensed by a Ghana Financial Services Authority through a single license and the authority will have a full range of administrative and enforcement powers to meet its statutory mandate.
• How do we ensure that adequate financing is made available through the local banks to our SMEs? It is a fact that when it comes to SME business, the small local banks play a greater role than the big foreign controlled banks. This may be because small local banks, with few branches, often specialize in short-term credit for trading activities which they refinance from the deposits they take from their customers. Being smaller and more flexible, their level of service is often more attractive.
• The question therefore is how to support local banks so that they can in turn offer the flexible services that our SMEs require, bearing in mind the experience from the current banking sector issues. We have heard the Minister of Finance on the proposal that taxpayers’ money should be used to support selected local banks that are perceived to be managed well.
• However, there could be a lot of subjectivity in such an approach and this could easily be abused. Instead, a consultative approach could consider for example whether to make it mandatory that all MDAs operate accounts only with local banks and that all project funds are only kept with our institutions rather than the practice currently where these are kept with foreign controlled banks.
•  The forum would also revisit the issue about the optimal number of banks that we as a nation should aim to have and the minimum capitalisation regime that would avoid the frequent changes that have been witnessed over the years.
31. Ladies and gentlemen, to conclude, we are calling on Government to act immediately to address the panic withdrawals and the heightened uncertainty across the financial sector. While this is not hard to do, we are also calling on government officials in the Ministry of Finance and the Governors of the Bank of Ghana to be circumspect in their utterances in order to stop fuelling the panic and fear in the industry.
32. Secondly, government must go for a legislation to be passed by Parliament which allows it to lend up to GHS26 billion (or 10 percent of GDP) to local banks and financial institutions that meet specified requirements at an interest rate of about 5 percent to capitalize them. The banks will in turn on-lend these in key priority areas and there would be peer reviews at all levels on all loans to ensure that value is created.
33. Finally, the Bank of Ghana must adopt a consultative approach to finding answers to a number of key questions relating to the future of the financial sector. Indeed, such consultative approaches have been successfully used in the past.
34. In 2014, the Bank of Ghana held such a dialogue in consultation with government and other stakeholders in its quest to promote greater exports and foreign exchange resources through agriculture and agri-businesses. This was what has resulted in the establishment of the Ghana Exim Bank and also the “Ghana Incentive-Based Risk-Sharing System for Agricultural Lending” (GIRSAL), an innovative vehicle to leverage lending for agriculture and agribusiness through a risk-sharing scheme.
35. Clearly, if we were in government, the on-going challenges in the financial sector would have been addressed more efficiently.
Ladies and Gentlemen,
The 2017 budget was named Asempa (good news) budget but turned out to be Asembone (bad news).
In 2018, the budget was named Adwuma (employment) budget but we are witnessing high unemployment, no jobs, layoffs and unprecedented hardships.
The president has again announced to the nation that the 2019 budget will be full of hope. Ladies and gentlemen, judging from the outcomes of the 2017 and 2018 budget statements and economic policies, what should we expect in the 2019 fiscal year? Hopelessness or no hope?