President John Mahama
The Mahama-led National Democratic Congress (NDC) government has finally decided to seek refuge with the International Monetary Fund (IMF) after running down the economy.
Currently, the Ghana Cedi has been ranked as the worst performing currency in the world after that of conflict-prone Ukraine, by some international financial institutions; and the economy is in tatters as all sectors are virtually grinding to a halt.
Officials of the IMF had warned in January when they came to Ghana that by June to August if Ghana did not come for support, the Ghanaian economy would grind to a halt and the signs are ominous, compelling President Mahama to abandon his much-touted homegrown strategy to revive the dying economy.
Recently, salaries of civil servants have delayed as a result of cash squeeze. Furthermore, the Mahama administration has been finding it difficult to meet statutory payments, accruing huge arrears.
An astute economist and running mate to the NPP’s Nana Addo Dankwa Akufo-Addo in the 2012 elections, Dr Mahamudu Bawumia said in March that looking at the poor management of the economy, the NDC government may have to fall on the IMF for salvation.
‘I would like to repeat without exaggeration that the Ghanaian economy is in a crisis. It is time for serious action. If government does not take the right decisions and soon, then Ghana would likely have to approach the IMF for a bailout before the end of the year,’ Dr. Bawumia, a former deputy Governor of the Bank of Ghana said at a public lecture at the Central University College on March 25, 2014.
The IMF bailout will come with stringent conditions such as job cuts in the public service in order to reduce the wage bill, and also place a cap on the amount of loans Ghana can contract, with the public debt now hovering around GH¢65billion (almost 60 percent of the GDP ratio).
But with all roads appearing to be thorny, the President rose from his meeting with his economic advisors eating the humble pie, and announcing that they are going for the IMF bailout after his home grown measures to revive the sick economy (caused by election overspending in 2012) had failed to bring relief to agitating Ghanaians.
A statement confirming the government’s decision to go to the IMF for a bailout was issued in Accra on Saturday August 2 and signed by Dr. Edward K. Omane Boamah, Minister of Communications.
The statement titled: ‘Outcome of Presidential Advisory Committee on Economy Meeting’, was released following President John Mahama’s meeting with his economic advisors last Friday at the Peduase Lodge near Aburi in the Eastern region before emplaning to the United States to attend the special African/American Leaders Summit.
‘The President directed that immediate initiatives be taken to open discussions with the International Monetary Fund and other Development Partners in support of our programme for stabilization and growth,’ the statement said.
It explained that the Peduase meeting chaired by the President focused on measures aimed at restoring macroeconomic stability, promoting growth and improving the living conditions of the people.
Ghanaians from all walks of life have been up in arms against the government over the poor handling of the economy, especially the rapid depreciation of the Cedi.
‘Arising out of the deliberations, the President reaffirmed the Government’s continuing commitment to a liberal Foreign Exchange regime that provides, among others, incentives for Ghanaians, both at home and abroad, as well as foreign investors to invest in Ghana’.
The statement also said the ‘President further decided that as a matter of urgency, measures be taken to stabilise the Cedi in order to bring about greater predictability to the business environment.’
With this move, Ghana has become the second African country to seek IMF intervention after Zambia in June.
The Zambian kwacha was the worst performing currency in Africa until the Cedi cruised past it with 40 per cent depreciation since the beginning of 2014.
Ghana Left IMF
Ghana had weaned itself of IMF conditionalities after refusing to renew its agreement with it under the Poverty Reduction & Growth Facility in November 2006 when the government said it had graduated from the HIPC and enhanced HIPC initiatives.
The then NPP government said it had made as much money as it could from the ‘acute relief’ support offered as a result under the MDRI debt forgiveness program.
When the NDC came to power in 2009, they managed to argue that the country deserved a one-off balance-of-payments facility of more than $600m without entering into an extended program with the IMF and in fact, pushed for $1billion.
‘It is unclear that such a tactic would work this time around. So if the government intends to sign another concessional loan scheme, the real risk is that we may not make much progress in unlocking significant funds this year or in 2015,’ an economist who wanted to remain anonymous told DAILY GUIDE.
‘This is because most of the low-hanging fruits have already been plucked in previous ‘sweet deals’ with the IMF and only the hard stuff of hardcore system overhaul/reform remains, offloading liabilities from state-owned enterprises, ending quantitative easing among other things,’ he added.
He also said these initiatives are not debt-restructuring deals and therefore the money tends to be small, and are supposed to serve as a signal to unlock more external fund inflows.
‘The problem in our case is that we have so sunk into the depths of a fiscal hole we have dug relentlessly for a while now that we need to first pull ourselves up to show the world that the IMF medicine is working.
‘But if we could do that through mere prodding, we surely would have done it ourselves. If the government has so far struggled to unlock money from the World Bank programmes, it is easy to see how hard it will have to sweat to squeeze cash from the fiercer IMF.’
Dr Mahamudu Bawumia
In March, when the NPP running mate Dr. Mahamudu Bawumia delivered a lecture on the state of the economy where he said the economy was in crisis, he got ‘crucified’ by some NDC appointees.
He had predicted that ‘if government does not take the right decisions and soon, then Ghana would likely have to approach the IMF for a bailout before the end of the year.’
He also predicted that the Cedi was likely to sell at GH¢4.00 to $1 by December 2014.
Dr. Bawumia, while on tour of the Upper East Region, said the government through the Bank of Ghana, since 2009, had spent a whopping $6.5 billion in order to stabilise the value of the Cedi, but it has failed and the currency is now officially the worst in terms of performance across the world.
He said in eight years of NPP rule, the government spent $2.5 billion in non-oil foreign exchange sales to stabilize the Cedi and by January 2009, the Cedi traded at GH¢1.2 to $1.
In early May, DAILY GUIDE reported that the NDC government was going to commence the mass retrenchment of public sector workers in 2015 under a killer IMF bailout programme for Ghana, but the report was rubbished by the Presidency.
A policy document titled, ‘Economic and Financial Policies for the Medium Term’, dated April 14, 2014, was put together by government to be the blueprint for the exercise, which is likely going to spark more labour agitations.
By William Yaw Owusu
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