The Ghana Cedi To Be Devalued?…As A Condition For The IMF Bailout?
The Ghanaian Economy is in serious distress. The genesis of the distress is a huge budget deficit occasioned by a reckless over expenditure of about US$4billion in the run-up to the 2012 general elections.
The local currency, the Ghana Cedi, is suffering its worst humiliation against the major trading currencies. Statutory payments to the Ghana Education Fund (GETFUND), District Assemblies Common Fund and the National Health Insurance Scheme are all in arrears.
The Government also owes road contractors and many of its other Suppliers huge debts. Overseas scholarship payments are also in arrears and Ghanaian students abroad are virtually stranded and turned destitute.
In spite of all these challenges, the President H.E. John Mahama at a May Day Rally at the independence square this year, assured the nation that the economy will turn around for the better by the end of the year 2014.( i.e. in about only six months.)
“This year is a turn-around year and I am positive that the Ghanaian economy will show strong signs of recovery by the end of this fiscal year” the President told the crowded the parade of workers some of whom were holding placards with messages like “Mr. President we are hungry”.
The basis for the President optimism has become a mystery to most watchers of the economy and many are wondering just how the President and his Government will turn around this huge gap into a positive within six months.
But now the SCANDAL has gathered that the President has his eyes on an IMF bailout. The Government is also asking to be allowed to raise another One billion dollars from the capital market. There however appears to be one caveat which is holding the bailout and that is; DEVALUE THE CEDI. MAKE IT GHC4.00 TO ONE US DOLLAR NOW!!!
The Government of President John Mahama on the 14th of April this year-2014, formally submitted to the International Monetary Fund (IMF) in Washington D.C. an economic policy document titled “Economic and Financial Policies for the Medium Term”. (2014-2017)
Some of the key policy decisions that the government has taken in this ‘Home Grown Economic Blueprint’ include the retrenchment of government workers, increase in taxes and the spread of the tax net, raising more loans from the IMF and the capital market as well as working to achieve a more realistic exchange rate.
The IMF has in principle accepted the document and has made its own assessment of the Ghanaian Economy which is not too complimentary. (See the centre pages of the IMF’s assessment of the economy).
The Cedi is currently selling at GHc3.50 to the dollar in the black market. The interbank rate however is GHc2.98 to One dollar. If the cedi continues to fall the way it is going then the government will not need to do any formal devaluation to qualify for the IMF bailout.
What is strange is that the Government for the first time in the country’s history refused to grant the routine consent for the publication of the IMF’s assessment of the Ghanaian Economy until the Americans, the British and the French intervened. The question is why? What does the government have to hide? They appear not to want Ghanaians to know the real state of the economy as well as their own plans to address the on-going economic crisis.
In the IMF’s assessment it says “Ghana’s short-term economic outlook is subject to significant risks. Growth is projected to slow to 4¾ per cent in 2014, as high interest rates and a weaker currency are compressing domestic demand. At the same time, the economy’s continued large twin deficits, and high financing needs, leave it vulnerable to a deterioration of external conditions.
The IMF also suggested further monetary policy tightening if inflationary pressures from second-round effects of large administered price increases and from the exchange rate depreciation persist. It recommended tight liquidity management, including less direct financing of the fiscal deficit. The Bank of Ghana should also allow the exchange rate to continue to adjust to prevent further erosion of an already low reserve buffer and to rebuild reserves as external pressures subside.
The IMF welcomed the Ghana Government’s recent policy document outlining it homegrown medium-term reform and consolidation measures. In that document, the Government intends to rationalize public spending, retrench public sector workers, lower the wage bill, restructure the statutory funds and enhance revenue mobilization and tax administration.
Now that the National Economic Forum is over, the Government will now begin to implement these measures using the “consensus” from the Forum as their instructions manual.
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