Policy Think Tank IMANI Africa, has stated that the next Mahama-led administration – if given the nod in the upcoming elections - will need an amount of $24 billion to implement 75 percent of the promises contained in the party’s manifesto.
President John Mahama outlining the party’s manifesto for the next four years at the Banquet Hall on Tuesday stated among many things that the next NDC government will set up a commission of enquiry to look into the creation of five new regions.
He also stated that Metropolitan, Municipal and District Chief Executives (MMDCEs) will be elected if the National Democratic Congress (NDC) wins the 2016 elections.
The President added that the Ghanaian economy is now more predictable and no longer bleeding as it used to be in the past.
This is because his administration was able to identify the various factors that led to the bleeding of the economy before they went for the current IMF bailout.
But in an analysis presented by IMANI Africa Wednesday, the policy think tank said from the ballpark costing exercise performed on the scope of the NDC’s planned projects and programs, as detailed in the annexes, the party would need to spend a sum of $24 billion over and above their 5-year spending average if they are to implement 75% of their full manifesto.
“From an analysis of revenue growth, donor appetite for budget financing, and other net positives, $22 billion of the amount would have to be borrowed and added to the debt stock taking this country’s debt to GDP ratio above 100%.”
IMANI Africa also described the NDC manifesto as the most ambitious blueprint ever by the party.
Below is the full analysis by IMANI Africa
IMANI Alert: Vision 2021: The Future of Ghana as Promised by NDC’s Manifesto
14/09/2016
President Mahama presented the highlights of the NDC’s manifesto in the evening of 13th September 2016 in Accra.
By ‘highlights’ he obviously meant the most important, most high-impact, and most representative aspects of the 100-plus page manifesto document he shall be unveiling on 17th September 2016.
IMANI can thus use this speech alone to analyse the most critical parts of the NDC’s campaign platform for 2016, and perhaps even make an input into the yet to be launched full version.
It is IMANI’s hope that this brief analysis shall present the general public and the media with an objective assessment of how the NDC’s plans for Ghana shall impact the country regardless of how extreme the partisan debate develops over the next few days.
IMANI’s IMANIFESTO program, which dates back to 2007 in various forms, has been designed to enable citizens navigate the election campaign promises of political parties in the midst of a highly polarised environment where the bulk of media coverage usually goes to the competing political parties.
There are four sections in this brief article.
I. Firstly, the annexes at the bottom of this piece, which contain descriptive notes we used to calculate the financial impact of the Manifesto commitments in the NDC Flagbearer’s highlights speech.
II. Secondly, a very basic scenario analysis exercise, which attempts to look at how the spending proposals found in the commitment shall impact what we believe are the three greatest risk factors of NDC rule, should the party win power in this year’s elections.
III. Thirdly, a d-day report, in which we examine how this country will look like on 13th September, 2020, should the NDC win power and implement 75% of the commitments in its manifesto without any adjustments.
IV. Lastly, a proposed set of adjustments to the NDC’s planned program for 2017 – 2020 comprising of IMANI’s policy perspectives on how they can avoid some of the adverse findings in this brief.
A. SCENARIO PLANNING: HOW WILL THIS MANIFESTO IMPACT NDC’S 3 BIGGEST GOVERNANCE RISK FACTORS
To predict how Ghana will look like on 13th September 2020, following a victory at the polls for the NDC on 7th December 2016, we first need to look at the biggest risks facing NDC rule on 13th September 2016.
There has been a sustained trading of accusations between the NDC and the political opposition. Various interest groups in support of and opposed to the NDC have also made all sort of claims over the last seven and three-quarter years about the character of the NDC’s governance.
But there are three issues or factors that have emerged over the last five years of NDC rule, which are supported by such objective evidence that no one, not even the NDC’s most loyal supporters, can wholly dismiss.
Not in any particular order, the three factors are:
I. Rising Public Debt. The escalating rate of public debt growth as measured by debt-to-GDP ratio data is a subject that has fostered a lot of controversy. From December 31st, 2008 to date, Ghana’s debt to GDP ratio has increased from 32.3% to roughly 70% (Note that by benchmarking against GDP, several variables that normally interfere when comparing economic variables at different points of time disappear.).
In contrast, Nigeria has a debt to GDP ratio of about 13%. Cote D’Ivoire has a debt to GDP ratio of about 42%. Kenya has a debt to GDP ratio of about 52%. IMF Debt sustainability analysis show that over the medium-term horizon all three countries have a declining profile of total public debt to GDP ratio.
These are some of the key countries we are typically grouped with when investors are sizing up frontier economies. That we are not only such a glaring outlier today but is projected to get worse should worry us immensely. As we will show later, the trajectory of our debt growth is far from benign. This factor is a major determinant of the fiscal leeway of the NDC government.
II. Waste & Leakages. The alarming rise in the level of resource misapplication through maladministration; documented corruption (SADA, GYEEDA, SMARTYS etc.); poor value for money transactions (Ameri etc); weak state defence against contractual liabilities (eg. The ‘judgement debts’ saga) and costs incurred through poor planning, tracks the adverse findings of Auditor General reports of the last 5 years (showing compounded growth of more than 250% in the scale of financial regularities). This factor is a major determinant of the spending efficiency of the NDC government.
III. Slowing GDP Growth. Between 2005 and 2011, it was quite difficult to plot a clear and consistent curve for GDP growth in Ghana. The rate declined from 5.9% to 4.35% in 2007, rose to 7.9 in 2010 and then climbed up even further to an all-time high of 14% following the discovery of oil.
The most consistent 5-year fall in GDP growth we have however witnessed since independence is most likely the one we have seen since 2011. Such consistency tells a story, and that story is the story of a lack of new growth pills. Having milked the last set of growth pills, such as debt relief, telecoms, financial services booms, and the oil find, to build a $40 billion economy, we now appear stuck in a ditch, frantically searching for the new steroid. This factor is a major determinant of the growth burden of the NDC government.
As far as IMANI is concerned, these three major risk factors of rising public debt, persistent waste and leakages and slowing GDP growth, when combined together, strongly constricts the government’s capacity to sustain investment without unhinging other levers of the economy (‘fiscal leeway’); affects the delivery of projects on time and within budget (spending efficiency); and raises the cost of living, offsetting the gains of infrastructure as real incomes fall and the living conditions of people deteriorate (‘growth burden’).
It is against this matrix of 3 risks and 3 constraints that the ‘highlight promises’ made by the NDC flagbearer on 13th September 2016, and detailed in the annexes below, were analysed to determine what the shape of Ghana would be on 13th September 2020 should the NDC succeed in implementing 75% of their manifesto without the adjustments proposed by IMANI.
In building the scenario, the first thing the IMANI’s analysts did was to compute ballpark costs of the projects and programs that in our estimation, fall off our medium-term expenditure trajectory, and which therefore are likely to most severely impact our finances. We computed these off-track expenditures based on our more than a decade’s experience analysing Ghana’s budget and public spending patterns.
Projects and programs likely to stimulate economic growth or address institutional deficits for the attainment of various structural objectives were isolated and their positive net effect factored into the analysis. Savings due to possible rationalisation or restructuring of existing recurrent expenditure were also considered.
Finally the impact of the new net spending, fresh overheads, administrative overreach, additional costs of controls, leakages, and the second-order effects of these parameters was assessed on key macroeconomic variables such as inflation, GDP-per-capita growth, debt service-to-revenue ratio, exchange rate, import cover, interest rates and credit dynamics.
The total effect of this composite calculations is described in the next section.
B. THE D-DAY REPORT: WHAT GHANA WILL LOOK LIKE ON 13TH SEPTEMBER 2020
From the ballpark costing exercise performed on the scope of the NDC’s planned projects and programs, as detailed in the annexes, the party would need to spend a sum of $24 billion over and above their 5-year spending average if they are to implement 75% of their full manifesto.
From an analysis of revenue growth, donor appetite for budget financing, and other net positives, $22 billion of the amount would have to be borrowed and added to the debt stock taking this country’s debt to GDP ratio above 100%.
The prevailing composite interest rate for total public debt will exceed the current effective rate of more than 9%.
With the exchange rate hovering just about 8:1, the total debt service requirement in local currency will exceed 76 billion, a crazy 19% of then GDP, and an even crazier 50% of all Government revenues.
The current account deficit will be in the 25% range, interest rates will be galloping at 70% and inflation will be hovering at 45%, whilst domestically the government would have no choice but to start borrowing at a 60% treasury bill rate making the 42% recorded in 2001 look rather tame.
At these levels of inflation, weekly changes in the price of goods, shortages of fuel at the pump, rolling blackouts, and a repressive forex regime, would by now be commonplace and start feeding into the job market, as businesses rapidly downsize and investors nervously hunker in their bunkers.
Of course, things do not have to be this way.
The NDC government has the option, even now, before it launches the full version of the manifesto, to carefully review the financial implications of its freakishly long laundry list of off-track projects and programs by fundamentally reframing the strategy behind these choices.
It can achieve several of the targets and social objectives it has in mind by cleverly inducing private sector spending in particular directions.
In the next section, we provide specific philosophical suggestions as to how many of the party’s lofty goals can be attained without ratcheting debt up to the frightening levels suggested by the raw estimates in the annexes.
C. HOW TO ‘PUT PEOPLE FIRST’ IN A LASTING WAY
There is no doubt that this is the most ambitious ‘social democratic’ blueprint of Ghana’s future the NDC has ever developed.
At some points in the President’s address, one couldn’t help but be stunned. The promise to go back to the Kwame Nkrumah – era industrialisation vision and resurrect certain viable parts of it was a clear challenge thrown to the traditional Nkrumahist parties in Ghana that the NDC having for long laid claim to the mantle of the Osagyefo now intended to up the stakes further.
They have now even gone to the extent of promising a wholesale collectivisation of agriculture in their sweeping grab of Nkrumah’s legacy.
‘Farming Service Centers’ for every district that dictate every aspect of farmers’ work; ‘National Employment Centers’ to record the skills of every young person in the community; and polyclinics in every corner, are just a few of the nuts and bolts of this grand vision.
There is of course much to admire in a string of policies designed to make everyone happy in Ghana by dishing out goodies left, right, and center. Who in their right minds can oppose free tricycles for the disabled, tested and approved by the Ghana Federation of the Disabled? Or a complete eradication of mother-to-child HIV transmission through free and prompt access to potent medicines? Or a definite and conclusive HALT to open defecation by 2021?
The problem is that it takes management to ensure the timely design and coordination of the design of all these programs, to staff the institutions, to raise the money, to spend it effectively, and to harness the results to generate more resources to sustain the program.
Given the risks and constraints that the NDC is confronted with, which we have carefully outlined above, the overarching strategy behind its manifesto should be a set of policies that minimises those risks and helps navigate the constraints.
Programs and projects should be connected together and joined up in a way that achieves that overriding risk management goal.
Channels for program management effectiveness should be outcome rather than input-focused; trigger incentives by enabling the right community relationships; and harness the country’s latent strengths not create a plethora of new, inexperienced, institutions.
In this light, the first order of business for the NDC is to build means-testing capacity into all the many, many, welfare programs that it has in mind so that scarce public resources go only to the neediest, while every beneficiary is encouraged in subtle ways to vacate the freebies as soon as they are able.
Providing blanket free goods to everyone is the quickest way to drop efficiency. Celebrating the continuous rise in the number of children being fed by the state (apparently by more than 4x in 6 years) is not a viable measure of progress.
Without consolidating government departments and identifying those services where the government has no clear advantage in providing (example: processing licenses and managing their printing) and which should therefore be delivered by private service providers in a competitive tendering regime, there is simply no way to free capacity to deliver all these planned new services without doubling the size of the public service and tripling the cost of wages and administration.
It should be evident upon accessing the key ‘highlight promises’ in the annexes below that the NDC has a lot of room to reorganise the overarching strategy behind its planned programs and projects to achieve many of the admirable social goals that it has so eloquently espoused in the manifesto, from universal prosperity and security to gender parity and scientific advancement.
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