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Posts tagged ‘Gross domestic product’

CBO Report Underestimates Obamacare Damage to Employment, Economy.

In a new report, the Congressional Budget Office (CBO) once again underestimates the impact of the Patient Protection and Affordable Care Act, commonly called Obamacare, on labor-force participation and the economy.

Gross domestic product (GDP), growth and employment for most workers will be harmed.

It estimates employment will be cut by 1.5 percent to 2 percent, thanks to workers choosing to cut hours or not work at all to obtain Obamacare subsidies for private insurance or maintain eligibility for Medicaid.

According to the report, lower employment only translates into a 1 percent reduction in worker compensation, owing to the concentration of those in low-wage categories.

However, the report fails to adequately calibrate the impact of higher Medicare taxes and the surcharge on interest, dividends and capital gains on the participation of older workers — especially high-productivity and entrepreneurial workers and business owners above age 50 but heretofore not yet inclined to cut hours or retire.

In addition, it fails to consider the consequences of distorted career paths on labor productivity, negative effects on research and development (R&D) spending and lower investment overall in the United States. Those activities will be lost to China, Japan and Germany and other competitors in Asia and Europe because of their lower healthcare costs.

Major industrialized competitors in Europe and Asia spend 9 percent to 12 percent of GDP, and often attain higher healthcare outcomes, while the United States spends 18 percent. And Medicare and Medicaid’s own actuaries expect the latter figure to rise under Obamacare, thanks to the inadequacies of cost controls.

Whether paid through direct taxes, business outlays for health insurance or penalties for failing to provide healthcare, as mandated by the Affordable Care Act, those costs weigh heavily on cost competitiveness and decisions to locate manufacturing and service activities in the United States, especially those critical to R&D effort and innovation.

The Obama administration argues that subsidies for healthcare and Medicaid give Americans more personal choices, and decisions not to work improve the performance of the economy.

Taken to its logical conclusion, the administration should provide direct cash payments to workers to abstain from seeking employment.

Rolling it all up, the impact on the economy beginning this year and escalating through the decade is likely in the range of $240 billion to $320 billion. This will damage the viability of the Social Security trust funds and shake state and local government finances.

More cities, like Detroit, will face bankruptcies. States like Illinois will face lower credit ratings and be forced to reduce funding for education, public safety and the like.

By failing to address the handicap imposed on American businesses by higher healthcare costs, the Affordable Care Act, like other efforts to equalize income, will slow growth to a pace more akin to lethargic European economies than emerging competitors in Asia.

Editor’s Note: 18.79% Annual Returns . . . for Life? 

© 2014 Moneynews. All rights reserved.

By Peter Morici Twitter @pmorici1

Nigeria And Her Gross Domestic Poverty(GDP) By Showunmi Rex.

Whenever senior government officials score their administration excellence with the growth rate of the economy’s GDP it raises concern. It suggests they’re just making statements filled with ambiguities.

I thought for once whether the GDP means something else. If these learned adults can be so confident about the GDP growth (with a deficiency in development) then GDP meant something else that most of us misconceive.

GDP has a new meaning in Nigeria—Gross Domestic Poverty which is the product of our hardworking “Harvard trained” co-ordinator and colleagues. The reality that an average Nigerian can attest to.

In fact the growth rate of this GDP is increasing by the second. Now, it is up to 80% of the population living below $2 per day. There’s likely the possibility that before 2015 the per cent would have increased.

Maybe more companies would have folded up leaving more people out of jobs; inflation would have reduced the value of the take home pay of  both civil servants and private business employees.

Surely, the tertiary institutions would have turned out more half-baked graduates seeking non-available jobs. And Banks in a bid to make profits as well as meet up with their capital base would have laid off more workers and deny more loans or with outrageous interest rates. We are transforming gradually.

If you are an optimist you may look at this as a cynical forecast. But I plead with you to analyse the reality objectively. Our development is traversing towards retrogression while the rich and powerful service their frivolities— very soon, if the report is true, we shall have our 11th Presidential Eagle…

Although, Progressive development is not an impossibility if sincerely pursued but the “body language” of  my “Oga at the rock” does not negate popular speculations. It is almost impossible to witness meaningful development without fighting corruption–the monster that now sits on “the high table”.

In conclusion, if government really wants to be serious about curbing corruption (that has led to several abnormalities including poverty) it must admit that a crusade of such importance does not consecrate any sacred cow irrespective of whatever she is ministering.

*SHOWUNMI REX  (@remirex on twitter)

The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of SaharaReporters

World Bank caveats Nigeria (Zoo) on borrowing to finance budgets.

world bank

The World Bank has cautioned the Federal Government on the fiscal risks that may be associated with borrowing to finance budget deficit in two years’ time.The bank sounding the note of caution at the launch of the Nigeria Economic Report, NER, in Abuja yesterday. It submitted that if fuel subsidy was maintained at N97 per litre, cash call to the Nigerian National Petroleum Corporation, NNPC, remained at 3 per cent of Gross Domestic Product, GDP, and Federation Account distributions increased annually at 3 per cent in real terms, Nigeria may borrow to finance budget deficit in 2015.Making the presentation, the lead economist of the World Bank, Country Office in Nigeria, Mr. John Litwack, pointed out that the current balance of the Excess Crude Account, ECA, may only be sufficient to pull Nigeria through one year following a sharp decline in oil prices. He cautioned that unless Nigeria can manage to accumulate a strong fiscal reserve, macroeconomic stability faces major external risks.The report stated that the world economic situation was still highly volatile, and an associated macroeconomic crisis would imply high inflation, currency depreciation and increased hardship for a large part of the population.While not outrightly canvassing the removal of fuel subsidy, the Breton Woods institution however presented some sets of assumptions, in which it said that subsidy represented a high and growing opportunity cost to the country. In the absence of the fuel subsidy from 2013 to 2015, under the maintained assumptions, the ECA would, already have accumulated to over $20 billion in 2013 and to well over $40 billion in 2015.“Thus, in the absence of fuel subsidy, under the first two scenarios, the country could succeed in both accumulating a sufficient reserve to protect itself from oil price volatility, and in realising strong increases in distributions to budgets of oil revenues,” the bank stated Under another scenario, the Economic Report states that “without fuel subsidy, the fiscal gap by 2015 would also be re-duced to less than $6 billion, which is a generally manageable situation, given Nigeria’s current strong debt position.”The report noted that Nigeria’s short-term macroeconomic outlook looks generally

strong with the likelihood of higher growth, lower inflation and reserve accumulation, adding however that the growth has not automatically translated into better economic and social welfare for Nigerians.According to the report, “poverty reduction and job creation have not kept pace with population growth, implying social distress for an increasing number of Nigerians”.Liwack, who relied on statistical figures produced by the National Bureau of Statistics, NBS, to support his points, lamented that between 2004 and 2010 poverty increased in Nigeria to 75 million people.To translate the potential benefits of Nigerian federalist system to national competitive advantage, the Report stated that the federal and state governments needed to improve cooperation and policy coordination in a few key areasThese key areas are, macroeconomic management (counter-cyclical fiscal policy), coordinated policies to enhance market connectivity and improve public services, and the realisation of national standards in public financial management and disclosure. The NER suggested that the significant degree of autonomy and financial independence of Nigerian states could be potentially advantageous for rapid development in the country, but that this process is currently hindered by too little market connectivity, weak coordination in fiscal policy, and problems in governance.

Source: Radio Biafra.

House of Reps Demands ‘Comprehensive Presentation’ On Economy From Okonjo-Iweala.

Nigeria‘s Finance Minister Ngozi Okonjo-Iweala
By SaharaReporters, New York

The Committee on Finance of the House of Representatives has sent to Dr. Ngozi Okonjo-Iweala, the Minister of Finance & Coordinating Minister for the Economy, 50 questions they want her to show up and answer.

In a letter signed by its chairman, Dr. Abdulmumin Jibrin inviting the Minister to make a comprehensive presentation on the state of the economy, the committee cited concerns that what the Minister consistently tries to make Nigerians believe as the true situation is at sharp variance with the reality on the ground.

It also said the invitation has become imperative because the Committee has concluded that what senior officers of the executive branch say to legislators in private regarding the sad situation of our economy and the so called dwindling revenue base is different from positions they express publicly.

Admitting that the Minister may lack the time to answer all its questions in one sitting, as well as to avoid any element of surprise, the committee sent the 50 written questions and observations to which they seek answers and clarifications.

“You are to answer these questions and provide clarifications where necessary in your submitted response to the Committee within two weeks, after which the Committee will schedule an appearance for you to come back and defend your presentation,” the letter said.

 Below are the 50 questions:

House Committee on Finance

Questions for the HMF/CME on the State of the Economy

1.     What should you consider as the major economic achievements of this government in the 2013 fiscal year and why? In your explanation, we will need facts and figures in demonstrating such achievements.

2.     You have been credited with many announcements regarding Nigeria’s economy as one of the fastest growing economies in Africa. If the economy is one of the fast growing economies, what is exactly growing the economy? What role does government play in the said economic growth, especially given that as high as 80 percent of the country’s total annual budget spending still goes into recurrent expenditure?

3.     Since your arrival as minister of finance in 2011, you have publicly announced the need to reduce the recurrent expenditure so that more money would be made available to capital spending which is critical to growing and diversifying the country’s economy. How far has government succeeded in making these necessary cuts; and where exactly have these cuts been made in this effort to reduce recurrent expenditure? In other words, based on real amount spent on capital expenditure, how much reduction was made in 2011 against 2010, in 2012 against 2011 and in 2013 against 2012?

4.     You are known to be celebrating a single-digit GDP growth. But speaking recently at a breakfast dialogue with some members of the organized private sector in Lagos, organized by the Nigerian Economic Summit Group (NESG), you were quoted as saying: “We are growing, but not creating enough jobs. That is a very big challenge…We need to grow faster.  I think it needs to grow at least 9 to 10 percent to drive job growth the way we want.” Don’t you agree that a good finance minister managing an economy like ours should be celebrating a GDP growth as high as 20 percent annually? Why is it that our economy cannot grow beyond a single digit? How many jobs are being created as a result of these said growths? In which sectors of the economy are these jobs created? If in private sector, what contributions is government making to further assist these private sector firms?

5.     In the presence of Nigeria’s huge infrastructure deficit, why is it that the country’s debt-to-GDP at about 19 percent in 2012 remains one of the lowest in the world when compared to nations already with world-class infrastructure and industrial economies such as America’s 105 percent, Brazil’s 65.49 percent, India’s 67.60 percent,  and South Africa’s 40.9 percent?

6.     Since facts don’t lie, have you any disagreements with the September 4, 2013 Global Competitiveness Report of the World Economic Forum for 2013-2014, which ranked Nigeria 120th out of 148 countries ranked in the Global Competitiveness Index, including being ranked far behind some African countries such as Mauritius 45th, South Africa 53rd, and Kenya 96th?

7.     ”For the first time in Nigeria’s 53rd year history, we have successfully privatized the electric power industry,’’ so said the President at a recent meeting in London with some foreign investors. As minister of finance should you agree that the recent privatization of the country’s power infrastructure is worth celebrating as a major economic achievement in 2013, when in reality there is little or nothing to show as an improvement in the country power supply? Also why our rush to wholesale privatization of the power sector when countries like South Africa, generating as high as 42,000MW still have their power sector mostly in public hands?

8.     What was your reaction to the November 12, 2013 statement credited to the World Bank Country Director for Nigeria, Marie-Francoise Marie-Nelly, who said that over 100 million Nigerians are today living in absolute destitution, representing an unheard-of 8.33 percent of the world’s total number of people living in destitution?

9.     Nigerians are increasingly perplexed that these days nothing happens without government borrowing. And for most Nigerians, it is frightening how those managing the economy are just dragging us into excessively unproductive debts. More worrisome is the fact that every effort is being made to hide the details of the country’s debt stock from Nigerians. Where are the facts that the country’s current high rate of borrowing is productive, let alone have the ability to be repaid without having to resort to more borrowings?

10.                        Is prudence in our borrowing simply reduction in borrowing or simply constructive borrowing with government putting necessary measures in place to ensure that domestic debt profile is properly supervised and utilized by curbing corruption?

11.                        From Debt Management Office (DMO) 2012 Annual Report, the total public debt outstanding between 2008 and 2012 for external stock rose from $3.72bn to $6.53bn, while domestic stock rose from $17.68bn to $41.97bn. The total debt service the same period saw the percentage of external debt service drastically reduced from 11.46 per cent to 5.96 per cent while the percentage of domestic debt servicing grew from 88.54 per cent in 2008 to 94.04 per cent in 2012, drastically increasing the cost of the total debt service since the cost of domestic borrowing is atrociously higher than the cost of external borrowing. How could your debt sustainability analysis rationalize this without seeing some narrow interests being the overriding reason? Could this be the explanation why commercial banks in the country are declaring unheard-of three digit profits and the high Foreign Portfolio Investment and low Foreign Direct Investment?

12.                        It’s an established fact that the willingness and ability to borrow do not automatically translate into economic growth. If you agree with this fact, how productive are the country’s recent borrowings?

13.                        Why should our internal debts continue to represent more than two-thirds of Nigeria’s external debt profile, when the cost of servicing domestic debts is ridiculously far more expensive than servicing external debts? Why should government continue to borrow internally when in so doing results in insufficient funds, skyrockets the cost of borrowing and above all, crowds out the real sector from the money market? Shouldn’t the high cost of domestic borrowing override whatever are the assumed benefits? Since both London Interbank Offer Rates (LIBOR) and the US Treasury Bonds rates offer far better interest rates for sovereign borrowings, why have we continued not to take advantage of cheaper interest rates?

14.                        Your references to the country’s economic growth profile have always been based on Fitch, Standard and Poor’s, and Moody’s ratings. Are you aware that these same rating agencies are being sued in New York (with case # 652410/2013) by two Bear Stearns hedge funds for fraudulently assigning inflated ratings to securities in the run-up to the 2008 financial crisis? If you do, why do you insist on accepting the rating as reliable.

15.                        How much exactly has been the amount of money lost in government revenue as a result of import duty waivers in 2011, 2012 and 2013? Provide the names and beneficiaries and justification for same. In your opinion as the minister of finance who oversees the economy, what are the implications to the country’s economy? What efforts have you have made to stop this waiver policy, which is distorting the economy? Our non oil income has dropped in 2013. A case where increased tariffs on various items effectively reduced importation to zero in some sectors. However, those items now find their way into Nigeria through our borders. Does it make any sense to increase these tariffs when we have such porous borders? As an example, officially, Togo imported more rice this year than Nigeria.

16.                        It was reported that the FIRS is to engage foreign consultants for tax collection in 2014. Could the Minister clarify this position and what Nigeria stands to gain? Have the FIRS not been working effectively?

17.                        Do you really believe that Nigeria needs a ‘Sovereign Wealth Fund’ at this critical juncture of budgetary deficits, and having to be borrowing extensively in an effort to address government revenue gaps? Shouldn’t the presence of Nigerian Sovereign Investment Authority (NSIA) simply mean spreading government’s scarce resources thinly? Why will you insist that no matter what we still need to operate a sovereign wealth fund? Sincerely speaking, how sustainable are the objectives of Nigeria’s Sovereign Wealth Fund, particularly in the long-term?

18.                        You should agree that a lot of Nigerians are interested in the link between NSIA and the government. Since there is no doubt that Nigerian Sovereign Investment Authority is an agent of government — or is it not? The question is: How should we think about the management structure in so far as major decisions are concerned? Where is the line between NSIA, as a commercially minded entity, and the government, especially given government’s policy of having no business doing business? If, for example, government does not get involved in specific investments, then, who appoints the external managers involved in managing some parts of the NSIA funds?

19.                        Who determines the investment objective and who establishes the risk parameter for the NSIA’s portfolio? In providing answer to this question, it is also important to understand and explain why NSIA recently hired a Swiss national as its chief portfolio investor? Answering this question is important since it should help us to know who determines the maximum draw-down that the government would be comfortable with in extremely negative market environments.

20.                        What should be your explanations for awarding MasterCard a multimillion dollar National Identity Smart Cards, when there are indigenous ICT companies that not only have what it takes but would have done it cheaper and create local jobs at the same time?

21.                        Have you taken into considerations how foreign company could use such information available to it to invade the privacy of Nigerians?

22.                        What are reasons for SURE-P to give preference to Chevrolet cars for SURE-P taxis, when it is known that not only are such cars very expensive to maintain compared with Asian and European cars, but also are also not fuel efficient and not durable on our roads?

23.                        Honorable Minister of Finance, you will agree that SURE-P is very important to the people of this country, taking into cognizance that it is the only thing they stand to gain from the increase on petroleum product pump prices almost 2 years ago. Who is in charge of the management of SURE-P and who takes responsibility for its successes and failures?

24.                        You will agree that inasmuch as the interest rate regime is critical to the real sector borrowing decisions, most principal factor in making borrowing decisions is the business’s expected rate of return on investing borrowed money? The question, without efforts to protect local businesses from their foreign counterparts, the high cost of doing business in Nigeria, puts them at such a disadvantaged position that it makes no economic sense borrowing to invest in their local businesses, why should we expect private sector firms to be investing in the economy?

25.                        You are quoted as saying, ” Very soon, the US would become a net exporter of oil…So, it would be disingenuous for anyone to say that just because the price of oil has hovered at around $100 per barrel, it cannot crash…Lest we forget, as recently as 2008, oil prices crashed from a peak of $147 per barrel to $35 per barrel ina space of months triggered by the global financial crisis. Is the minority leader saying he has forgotten that?” This forces one to wonder from which source should the US become that net exporter of oil, given that the US daily oil consumption was 18.7 million barrels with (10.6 million of which was imported daily) in 2012? Or, should it be from the shale oil which the International Energy Agency (IEA) demonstrates to be at two million barrels daily? In other words, given the IEA global oil price trajectory, can’t we agree that “There are many constraints on supply keeping pace with demand’’ which means that within this decade, oil prices should always hover around $125 per barrel? Answering this question will help us understand why you insist on benchmarking the oil price for the 2014 appropriation at below $79 per barrel? In answering this question, would you also agree that as the global economy shifts from West to Asia, so will the appetite for global oil consumption shift from the West to Asia?

As crude oil continues to sell at $100-$110, how low will production have to fall for us to record a net loss or at what production level can we break even at a 2013 benchmark of $79.

26.                        Do you agree that the Excess Crude Account as being operated by government is illegal and unconstitutional, especially given how it has been managed?

27.                        Can you explain with clarity how the ECA is being operated? Also provide a statement of account of the ECA from 2011 to 2013? Also how much have we made in excess of the benchmark price from January 2013 till date.

28.                        If there is nothing like Excess Crude Account, would you have been demanding lower oil price benchmark for the budget, especially when the executive arm of government around world is known for demanding more money from lawmakers in order to be able to meet government spending obligations, particularly capital spending. Why is the reverse the case in Nigeria only, notably since 2011?

29.                        With respect to the Excess crude account and our Sovereign wealth fund again, there have been allegations and counter allegations on its legality. Assuming, for the sake of the committee’s enlightenment, the FGN alone saved its own excess in its ECA/SWF (which is about 52% of the Federation account) and the states and LGs get their funds in full compliance with the constitution, what would be the effect on the economy?

30.                        Do you believe in the fight against corruption? If you do why has EFCC not been proper funded? Without properly funding the commission, how should it be expected to carry out its duties effectively?

31.                        Can you confirm with figures if we have met our cumulative revenue projections for 2011, 2012, 2013, and if we have, how and if we have not, why? Also provide backup performance information under the various revenue generating agencies—NNPC (Oil and Gas), DPR, FIRS, Customs, Independent Revenue and other anticipated and unanticipated revenues e.g. privatization and sales of government properties etc.

32.                        As Minister of Finance, are you familiar and comfortable with all the present business arrangements of the NNPC? Why were these business arrangements excluded from the MTEF which used to be the practice? Provide all the present business arrangements, the parties involved, the share of each party, and justifications for such.

33.                        Provide details of government stake in NLNG. All categories of revenue under the NLNG and total amount generated so far and evidence of remittances.

34.                        Why do you always prefer a lower benchmark which leaves government with wider deficits and your attitude of no qualms with domestic borrowings at excessively high interest rates to balance deficit as against our position of increasing benchmark to reduce deficit which consequently reduces domestic borrowing, that frees up funds for the real sector of the economy, thereby bringing down the interest rate, increased private sector investments and creating jobs.

35.                        What is the total amount expended by certain statutory agencies of government without appropriation for 2011, 2012, and 2013? Also provide aggregate appropriated expenditure for the same period. As the Coordinating Minister of the Economy, do you feel comfortable with allegations that almost equal amount of our yearly aggregate expenditure is being spent without appropriation, yet we are crying that the country is running short of revenue?

36.                        Between May 7 and 9, 2014, it is expected that Nigeria will be hosting World Economic Forum on Africa. Who will finance this event and why? In concrete terms, what are the expected tangible benefits to the country in return to justify hosting such expensive event that will require lots of money for logistics, accommodations, security, especially given that South Africa that recently hosted the event has nothing to show for it.

37.                        If you should for any reason say it will attract foreign investors, the question, then becomes, what kind of foreign investors are we talking about here because as we all know, no serious foreign investor needs to attend such a forum in Nigeria in order to recognize that our country should have been one of the world’s favored investment destinations had our perennial infrastructure deficit been addressed head-on?

38.                        Most of the developing economies like China, India, and Brazil that the world is today celebrating as economic success wouldn’t have become this successful without adopting multi-year development plans. Why after knowing that their successes are as a result of carefully designed multi-year economic planning, we are yet to adopt such a multi-year development model? In other words, why wouldn’t you agree that Nigeria too needs that in order to move faster and more sustainably in its quest for industrialization and economic diversification and job creation for millions of the country’s unemployed young men and women?

39.                        As the Coordinating Minister of the Economy, can you precisely clarify how much is AMCON’s debt exposure  and what will its defaulting mean to the country’s economy?

40.                        Why are we using the 10 to 15 years moving average to arrive at your 2014 proposed benchmark as against the traditional 5 to 10 years moving average we have always used? Is it because using the 5 -10 year average will not give you the benchmark price you desire?

41.                        This time last year you informed this committee that our external reserve position was about $48 billion and the balance on our excess crude account was about $9 billion. You also said that the plan was to grow these balances to about $50 billion and $10 billion respectively. However we are hearing that the balances have dropped to $43 billion and $3 billion respectively. And you are saying all is well?

42.                        Crude oil projections for 2013 were 2.53 million barrels per day while actual figures as supplied by the NNPC/DPR/MTEF have averaged about 2.3 million barrels per day giving a shortfall of about 9%. Could this alone have caused such a drastic reduction in our reserves and savings positions?

43.                        Is any money missing from our anticipated revenue from the NNPC in particular and oil industry in general. If there is, how much? If not, how come such issues emanate from high offices in the executive arm of Government?

44.                        Referring to the pre-shipment inspection of exports act of 1996 and the Federal ministry of Finance export guidelines. If any good (oil, gas or non oil) is exported from Nigeria the exporter is compelled to repatriate these proceeds through the domiciliary account of a Nigerian bank. What has been the effectiveness of these laws? Is there full compliance.

45.                        If there has not been compliance, would it not make it difficult for us to build up our foreign reserves?

Could we not say that the main thrust of the CBN letter was that our foreign reserves are not growing even though there has been a consistent high selling price of crude due to the fact that huge funds are not being repatriated at all or are repatriated through the black market?

46.                        Could we say that the issue is not so much that money is missing (which is yet to be determined) but that proceeds that should have found their way back to the Nigerian economy have grown wings or they fly in through the black market, allowing oil industry players have a field day making spreads of up to N7 per dollar in some cases.

47.                        What is the Minister’s take on the apparent stagnation of the economy as there seems to be very little job creation and growth in small businesses. Even though the Minister has read out growth figures before it is not telling on the average man on the street.

48.                        Would the Minister say that the various Government initiatives at job creation have not lived up to expectation as they affect only a very small part of the population?

49.                        Wouldn’t the Minister think that the private sector should be the main driver of job and wealth creation through natural growth of business and start ups being financed by the banking industry?

50.                        If so, what does the Minister think it would do for the local banking industry if this same pre-shipment inspection law and your own export guidelines are enforced to the letter. The oil industry in Nigeria is worth about $50 billion per annum. If even $10 billion of this passes through our local banks wouldn’t that give the economy a boost with banks now able to fund longer term and bigger projects?

Is Ghana’s Debt Stock Sustainable? By Kwesi Atta Sakyi.

By Kwesi Atta Sakyi

Ghana has a population of 23 million people, and our total debt stock, both internal and external, stands at 23.4 billion dollars. This means that every Ghanaian owes about 1000 dollars to our creditors.

Since it is said that we have reached middle income status with per capita income of about 1000 dollars per annum, it will mean to pay off our national debt, every Ghanaian has to starve for one year by foregoing his per capita income.  Sustainability means the ability to carry on an activity for a long time. It also means the activity should be self-financing, feasible, suitable, acceptable and of benefit to all stakeholders. In the light of this definition, is our national debt stock sustainable?

Who are the beneficiaries of the loans? How will future generations benefit from such loans?  What was the collateral for the loans? What will be the implications for defaulting on our loans when they mature or fall due?  Did we conduct investment appraisal and due diligence before signing on the dotted lines for the loans? What are the returns on the projects invested in? Did we conduct cost benefit analysis and environmental impact assessment? Did we evaluate the hidden costs as well as the opportunity cost?  In 2008, Ghana’s total debt stock was about 8 billion dollars. How come the debt stock some five years later has snowballed by trebling and tripling to 23.4 billion dollars, with more than 50 % of it being internal borrowing?  Our debt stock represents 53% of GDP, which is quite worrisome and scary.

It is understood that a greater part of the loans from China,  are meant for projects in housing estates, energy sector power generation enhancement, roads, construction of new airports, seaports, universities, hospitals, secondary schools and irrigation projects.  Every effort should be made to slow down our humongous appetite for borrowing, for, there is the old saying,’ Neither a borrower nor a lender be….’ Ghana is being mortgaged with loans, and we run the risk of being downgraded by the financial institutions such as Standard and Poor, Fitch, among others.

A heavily indebted country loses its sovereignty and independence in international fora, as it becomes a puppet at the apron strings of the creditor nations. Heavy government borrowing from the banks leads to the crowding out effect on local entrepreneurs and investors, as they may not be able to compete with government for the loanable funds in the banks, which because of high demand from government, may attract high interest rate charges.

Heavy government borrowing for recurrent expenditure such as paying huge salaries of government workers may lead to inflation and high cost of living. However, prudent undertaking of government projects will increase aggregate demand, triggering the multiplier effect and growth outwards of the Production Possibility Frontier (PPF) or GDP.  Government expenditure has however been found to have a lot of leakages due to bribery, corruption, bureaucracy, and lack of transparency.

Unlike investment in the private sector where we have high levels of controls, transparency and accountability, there is tardiness in executing government projects because contracts may be inflated or awarded to people with little technical competence, and most government contracts may go to politically-affiliated bidders who support the ruling government. Supervision, oversight and monitoring of government projects may be weak or non-existent.

Nobody knows when the Accra –Kumasi road will be completed. Nobody knows whether the loan for the project has been exhausted while the project is mid-stream.  If government contracts are awarded fraudulently, then they defeat the whole purpose of contracting loans for public projects, and they put a strain on the taxpayer.

The government borrows for purposes of delivering on their election promises in the form of executing projects in all the 10 regions of the country. However, too much borrowing creates a generational debt burden for the future generation, which action may be unethical. This is why robust checks and balances should be put in place to check the huge debt appetite of the government. Parliament is the body to do this oversight of scrutinising all the proposed loans.

Our parliament is doing a commendable job in this sense. An alternative to borrowing is to enter into BOT (build, operate, transfer) with entrepreneurs in the private sector to build some of the infrastructure from their own resources and then operate them until they recoup their capital and interest.

Projects like schools, stadia, water pumping stations, power generating centres, markets, public toilets, among others can be financed that way. Also, the government should encourage more public-private-partnerships (PPP), thus freeing some of government revenue for priority projects and programmes, such as maintenance of law and order, stocking the hospitals with modern equipment and essential drugs, purchasing ambulances, training teachers, among others.

We should be circumspect in our contraction of loans so that the nation can save and have surpluses. Having a healthy balance of payment surplus can strengthen the cedi against other currencies. Having a cash budget as well as a budget surplus brings about fiscal discipline. Engaging in high budget deficits for political expediency is untenable and irresponsible. We should not deceive ourselves that we have oil money so we should be extravagant and engage in a spending spree by borrowing carelessly.

We might contract the Dutch disease whereby wallowing in oil wealth will make us build castles in the air, and neglect sectors such as agriculture, tourism and local industries. Over-borrowing might stifle growth in the private sector. The loans contracted from outside should be prudently utilised to create jobs and help raise the standard of living of the majority poor, and provide interventions for meeting the 8 Millennium Development Goals (MDGs).

We should be careful not to use loans for buying expensive cars and furnishings for MPs, ministers, and government appointees.  We should make sure all the projects which have been announced from the rooftops by the government are dutifully carried out. These include the construction of new secondary schools, housing estates, hospitals, training colleges, roads, universities, power stations, airports, harbours, among others. Undertaking such projects will increase our stock of social and public assets.

In conclusion, we are calling on all Ghanaians who win government contracts to be committed and work hard at them to assist in delivering quality service to the people.  That way, we shall have value for money, efficiency, effectiveness and economy.



The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of SaharaReporters

Nigeria Sixth Worst Country To Grow Old, Says UN Report.

On the day that Nigeria celebrated its 53rd anniversary as an independent nation, a new study released today by the UN backed Help Age International advocacy group ranked Nigeria among the worst countries in the world that least care about their old population.

The Global AgeWatch Index ranked 91 countries, with Nigeria ranked 85th, the sixth worst, with a poor record of catering for the well-being of the elderly, people older than 60.

Though Nigeria has the highest GDP among the African Index countries, it ranks third lowest for income security, the report said.

“This reflects its limited pension coverage, at 5 per cent. It ranks 84th in the health domain and, with Rwanda, has the lowest life expectancy at age 60 – 16 years.

“For employment and education, Nigeria ranks 70 with the fourth highest proportion of older people, 17.4%, with secondary or higher education among its African Index counterparts.

“Nigeria ranks second lowest regionally, at 76, in the enabling environment domain, with only 53% of older Nigerians enjoying civic freedom.

The report indicated that older Nigerians are taking part in the Age Demands Action campaign for the first time this year.

In contrast, Sweden offers the best environment to grow old. Expectedly, Afghanistan is the worst – but general affluence does not necessarily mean better conditions for the over-60s, reports the London Guardian.

While Sweden’s top ranking – followed by Norway, Germany, the Netherlands and Canada – may be predictable, the Global AgeWatch index throws up some surprising results.

The US, the world’s richest country, languishes in eighth place, while the UK fails to make the top 10, residing instead at No 13. Sri Lanka ranks 36, well above Pakistan at 89, despite similar levels of gross domestic product (GDP). Bolivia and Mauritius score higher than the size of their economies may suggest, while the emerging economies of Brazil, Russia, India and China are a mixed bag. Brazil and China rank relatively high on the index; India and Russia sit much lower.

The ageing index is calculated using 13 indicators under four headings: income security, healthcare, employment and education, and an enabling environment. All indicators have equal weight, except for pension income coverage, life expectancy at 60, healthy life expectancy at 60, and psychological wellbeing. These categories were given increased weighting because of better data quality, and countries were included only if there was sufficient data.

The best and worst countries to grow old: the UN rankings
The index was compiled by the HelpAge International advocacy group and funded by the UN Population Fund

Top 10

1. Sweden

2. Norway

3. Germany

4. Netherlands

5. Canada

6. Switzerland

7. New Zealand

8. USA

9. Iceland

10. Japan

Britain came in at 13, ahead of Australia (14) and France (18).

Lower down in the rankings were the emerging economies of Brazil (31), China (35), South Africa (65), India (73) and Russia (78).

Bottom 10:

82. Honduras

83. Montenegro

84. West Bank and Gaza

85. Nigeria

86. Malawi

87. Rwanda

88. Jordan

89. Pakistan

90. Tanzania

91. Afghanistan


Why the zoological republic of Nigeria is poor.


The average Nigerian believes Nigeria is a rich country. Wrong. Nigeria is a poor country. By every index of measurement. Take the more common measure, Gross Domestic Product (GDP) per capita, defined as the total output of a country divided by the total population.

Nigeria’s GDP per capita in 2012 was US$1,052. That is right. Less than N200,000 (two hundred thousand naira per annum per person).

When I make this assertion on some of Nigeria’s political blogs it agitates some people and some get very abusive because they believe Nigeria is rich but for suffering mainly due to corruption. But GDP measures the total output of a country including the outputs that are stolen.

So why is a country with so much potentials in natural and human resources so poor?

Some will say it is corruption. Wrong. Corruption is a side effect of what causes our poverty. Corruption simply skews the distribution of the total output of the country in favour of a few elites. So while the average may be US$1,052, there is a small percentage with private jets and a large percentage that earn less than US$300.

Nigeria is poor because there is a small clique, or cabal if you prefer that word, that has cornered the political space and made it their exclusive enclave.

This cabal in turn uses their stranglehold on political power to run an extractive economy focussed solely on transferring the commonwealth into their private pockets.

Every economy run along these lines will ultimately generate the scenario you see in Nigeria where seven Shoprite shops sell more Champagne than 600 Shoprite shops in South Africa.

A few examples of the current ongoings in Nigeria will illustrate our point. The ruling party just did their special convention to elect party officials that will lead it to forthcoming national elections.

You would expect that candidates who have the support of the president will win these elections even if the elections are conducted in a free and fair manner.

But the fundamental fact is that the conduct of free and fair elections is anathema to a system that runs on exclusive political institutions.

For free and fair elections may throw up a candidate not beholden to the system and therefore not amenable to the economic extraction goal of the cabal.

So even elected governors, members of the legislature and former high office holders, including a former vice president, were excluded from the process because they had fallen out with the current cabal running the ruling party.

And in case you think this is unique at the federal level, perish the thought. Lagos State, the best advert in Nigeria for exclusive political institutions, beats that.

Party lists for all levels of political contests are drawn up in the bedroom of the ruling party’s leader. When local government elections were organised in Lagos recently the opposition focused on a few local governments where they believed they could make a difference.

A court actually declared them winner in one of such local governments but an appeal court reversed the ruling. Now the funny part is that the candidates’ scores in the election conducted by the incumbent government has still not been released till date.

Exclusive political institutions do not take chances. So while some economic and infrastructural growth can be seen in Lagos, the latest economic news coming out of the state is the attempt to ‘buy out’ the Lekki Expressway concession.

This concession happens to be held by leaders of the same cabal holding the politics of the state by its jugular.

And in case you think Lagos is unique, perish the thought. Anambra State is about to hold gubernatorial elections. A state that has produced first class individuals in every field – Zik, Ojukwu, Achebe, Dike, Ekwueme, Mbanefo, Anyaoku, etc – should have a line-up of first class brains seeking to run its affairs.

But exclusive political institutions do not seek first class brains to ensure that the extraction goes on unhindered. Actually the lower the IQ of those they install the more they are beholden to those who installed them. So the cabal has gone about ‘disqualifying’ every candidate worthy of the name. Of those left to compete for the position, one is a school certificate failure whose company has been taken over as distressed by AMCON.

The other is a failed medical student better known for student cultism. The immediate past governor of the nation’s central bank was not deemed qualified to contest party primaries!

Clearly, the root of Nigeria’s poverty lies in its political institutions and the manner in which leadership emerges. Until this present system is overthrown and replaced with an inclusive system that allows for the cream to rise to the top Nigeria, will remain poor. But who will bell the cat?

By Joe Attueyi

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