I have noted that right after the reading of the 2017 budget statement, the NDC star man in recent times on matters of economics, Hon Isaac Adongo, MP for the Bolga Central constituency has been doing so much talking. I don’t doubt the Hon Man’s background anyway. He has been speaking intelligently on some other issues over the last couple of months. I think I like him generally.
However, his analysis regarding projected GDP figures regarding the 2017 budget statement left me wondering if he is not being disingenuous or on this occasion just lacks a better appreciation of the subject matter.
Now, here is it. Hon Adongo says that the GDP(provisional) for 2016 is 3.6%, and this has resulted in an outturn of 184 bnGhc. Meanwhile, the NPP projected growth is 6.3%, which is expected to result in an outturn of 204bn Ghc.
According to him, this results in a difference of only 20bn Ghc, and having done a simple proportional analysis, Hon Adongo comes to a conclusion that something has gone amidst. In other words, if a GDP growth of 3.6% results in an outturn of 184bn Ghc, then a GDP growth of 6.3% should give you much much more. This is the Hon Man’s logic.
What Hon Adongo should know is that what we are talking about here is real GDP. The difference between 6.3% and 3.6% is 2.7%. If you apply the 2.7% to the 2016 outturn of 184bn Ghc, it gives 49bn Ghc. Hon Adongo or anybody thinking this way wants us to add the 49 bnGhc to 184 bnGhc for 2016, and arrive at 233 bnGhc at a projected growth rate of 6.3% for 2017.
In real GDP, you apply what we call the GDP price deflator. The GDP price deflator is the relative rate at which prices of goods and services have changed over a period(one year in our case). The deflator factor, in this case, will be the rate of inflation.
Now, for 2017, inflation is projected at 11.27%. Meaning, the cedi value would have reduced by that margin at least in 2017. If you apply a deflator of 11.27% to a nominal size of 233 bnGhc, you get, 27.26bn Ghc. Now, if you subtract the 27.26bn Ghc from 233 bnGhc, you get 205bn Ghc. The NPP projected figure is 204 bnGhc. Now, compare the two. Hon Adongo feels there is something wrong.
In conclusion there is nothing amidst with the real projected GDP growth of 6.3%, at an expected inflation rate of 11.27% which is expected to result in an outturn of 204 bnGhc. Hon Adongo should just make a distinction between nominal GDP and real GDP, and he will understand the figures properly.
Abudu Abdul-Ganiyu
Senior Lecturer, Department of Management Studies
Tamale Technical University.
Doctoral Researcher
Sheffield Business School
Sheffield Hallam University
[email protected]
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