3 things we learnt from Ghana’s ex-minister, Cassiel Ato Forson’s response to Vice President Bawumia

Former Deputy Finance Minister, Cassiel Ato Forson has reacted to Vice President Mahamudu Bawumia over his take on depreciation of Ghana’s Cedi.

On Sunday, June 17, 2018 Dr Bawumia had said former President John Mahama’s recent taunts of the Akufo-Addo government as far as the strength of the cedi is concerned sadly demonstrates his lack of understanding on key aspects of the economy.

These are the 3 things we learnt from Forson’s response

1. Forson says Ghana’s VP poorly handled Cedi’s exchange rate

In his statement, Forson says Vice President Bawumia merely sought to defend his poor handling of the exchange rate of the cedi leading to a free fall of the local currency.

“The Vice-President cuts the figure of a man who talks more than he delivers and who when found out chooses bluster over sobriety and reflection. His claims to better fundamentals expose his lack of candour."

“Only pedestrian propaganda could have informed the vice-president’s decision to compare 15 months of the government he is part of and 8 years of previous governments. Suffice it to say that at least since the early 2000s Dr Bawumia had part of the Bank of Ghana team whose duty it was to ensure stability in the currency.”

2. Forson schools Bawumia on currency appreciation

Attacking the VP’s comments on the Cedi appreciation and depreciation, Forson takes a swipe at the second man in Ghana.

“To determine the accurate rate of depreciation or appreciation, the current rate is subtracted from the previous rate and the answer divided by the current rate which is the multiplied by 100 [(Previous Rate-Current Rate)/Current Rate] x 100.

“If Dr Bawumia was minded to do an accurate and honest calculation, the respective percentage of depreciation would have been 41.6 percent under President Kufour; 71.4% under Mills/Mahama; and 6.6% for the 15 months of the Akufo Addo/Bawumia government. These figures are significantly lower than the 72%, 247% and 7% quoted by Dr Bawumia in his statement.”

3. Ghana’s forex depends on exogenous and endogenous factors

Forson also said it is worthy that all Ghanaians understand what Ghana’s forex depends on and why it escaped from plunging into recession when President Akufo-Addo took over reins of the country.

“We wish to remind the self-styled astute economist that, unlike some major SSA countries, Ghana was able to avoid a recession, giving the current administration a head-start.

“It is obvious from the foregoing that it is rather Dr. Bawumia who has shown a lack of understanding about the factors that cause volatility in the forex markets. Otherwise, he would not have made the statement that he had arrested the cedi in the inchoate stages of this government.

“It is universally known that forex market stability in Ghana to a large extent depends on exogenous factors (and of course other endogenous factors) such as commodity price shocks, uncertainty in the financial markets, global financing conditions, energy shocks and its impact on crude oil imports, as well as other fiscal pressures.

“Thus, in years such as 2008, 2013, and 2014 when such exogenous factors were pronounced, the forex market became volatile and unstable. The solution therefore is to work on our resilience to such shocks and to build the necessary buffers to absorb such shocks (as we did with substantive measures that he opposed), not through borrowing or through issuance of sovereign bonds that are channeled into consumption, not investments!

“Allowing the exchange rate some more flexibility is often part of a good strategy to stem the impact of some of these exogenous shocks, especially where the shocks are persistent.”