Business News of Wednesday, 26 September 2018
Democratic Alliance Ghana, a new think-tank, says conditionalities in the three-year International Monetary Fund (IMF) Extended Credit Facility have slowed the progress of the Akufo-Addo-led New Patriotic Party (NPP) government.
According to the group, without the IMF bailout programme, the speed of progress could have been faster than currently being witnessed.
A statement issued in Accra and signed by Samuel Zumah, Public Relations Officer (PRO) of the group, said the dose of policy prescriptions outlined by the IMF to get Ghana out of economic troubles proved too difficult for the National Democratic Congress (NDC) government to implement.
IMF prescriptions brought about hardships
Democratic Alliance Ghana said the IMF prescriptions brought about hardships in the economy as subsidies were scrapped, public sector jobs frozen and wages kept at the minimum.
This, the group said, is slowing down the developmental agenda of the Akufo-Addo-led government.
According to the think-tank, the bailout was as a result of poor economic management under the erstwhile Mahama-led government, causing Ghana’s economy to experience large fiscal and external imbalances, which led to a growth decline, putting Ghana’s medium-term prospects at risk.
Public debt rose at an unsustainable pace, recording a 72% debt-to-GDP ratio, according to the IMF report in 2015, and the external position weakened considerably.
Under the IMF conditionalities, government’s appetite for borrowing was tamed and limits were placed on government from going to the international capital market to borrow in order to improve the country’s debt distress situation and infrastructural deficit.
On the expenditure side, the IMF advised government to cut the wage bill, which has been one of the main reasons for the country’s fiscal imbalances, by limiting the nominal increase in the total wage bill to 10% and scrap the 10% Cost of Living Allowance granted to workers.
Additionally, the fund commanded government to freeze employment into the public sector and also do away with subsidies for utilities and fuel consumption by ensuring that the automatic adjustment formula was implemented to the core.
IMF targets missed at the end of 2016
Virtually all the targets under the IMF programme, as of December 2016, were missed as fiscal indiscipline, once again, reared its head in the 2016 election year.
Over-expenditure in 2016
Total projected expenditure for 2016 was GH¢43.9 billion (26 % of GDP), but actual expenditure amounted to GH¢50.3 billion (30.2% of GDP).
The total revenue target for the year was GH¢37.9 billion (22.7% of GDP), but the actual revenue came in at GH¢33.2 billion (19.9% of GDP).
Budget deficit increased
The combination of higher expenditure and lower revenues than projected resulted in a significant increase in the budget deficit for 2016.
Compared to a target of 5.3% under the IMF programme, the fiscal deficit for 2016 was 9% of GDP on a cash basis and 10.2% of GDP on a commitment basis (that is on the basis of expenditure undertaken but not yet paid for).
Fiscal deficit of 10.2% to GDP took Ghana to IMF
Ghana entered into the IMF programme to restore fiscal discipline; the fiscal deficit was 10.2% of GDP.
Ghana met only one out of the 11 targets set under the extended credit facility programme.
Twenty months in government, the NPP has brought on track all the targets and is on course to ending the programme in April 2019.
Govt achievements so far
Democratic Alliance Ghana noted that in the midst of all these IMF conditionalities, the Akufo-Addo-led government has been able to implement some remarkable social interventions like the Free Senior High School (SHS) policy, nurses and teachers’ allowance, Nation Builders’ Corps (NaBCo), payment of outstanding arrears to contractors, reducing cost of fertiliser by 50% for farmers, and scrapping of nuisance taxes.
Others mentioned are resolving rolling power cuts (dumsor), reducing electricity tariffs drastically by 17.5% residential and 30% for non-residential, as well as 10% for mining sector and 25% cut for Special Load Tariff, and 10% reduction in water tariff; and still maintain fiscal discipline on the IMF programme.
According to the group, all these social interventions, policies and programmes implemented by the Akufo-Addo government were to reduce hardships in the country, and “so we find it difficult to understand why the opposition National Democratic Congress (NDC) is blaming the current government for the hardship they created with their indiscretion in economic management”.
Good management of the economy by NPP
The think-tank said the Akufo-Addo-led government has shown beyond reasonable doubt that they are good managers of the economy, which is reflective in the current macroeconomic stability in terms of the reduction of the lending rate from 28% to 17%, inflation currently stands at 9.6%, and the stabilisation of the cedi.
“The government is on track to getting out of the IMF programme due to good economic management and meeting the main pillars of the programme in terms of ensuring a sizeable and frontloaded fiscal adjustment to restore debt sustainability, focusing on containing expenditure through wage restraints and limited net hiring, as well as implementing new measures to mobilise additional revenues.
“Others are structural reforms to strengthen public finances and fiscal discipline by improving budget transparency, cleaning up and controlling the payroll, right-sizing the civil service, and improving revenue collection, restoring the effectiveness of the inflation targeting framework to help bring inflation back into single-digit territory and preserving financial sector stability to alleviate the potentially adverse impact of the strong fiscal adjustment on the most vulnerable in society and protect real income of the poor, which was dented by three years of high inflation,” the group added.
Democratic Alliance stated that the government is committed to use part of the resulting fiscal space to safeguard social and another priority spending.
It is optimistic that the completion of the three-year IMF-supported Extended Credit Facility Programme would spur on government to implement its own policies to improve the quality of lives of Ghanaians.
“The end of the programme means that we will have the space to design our own social and economic programmes, without jettisoning the fiscal discipline and proper economic management necessary to give entrepreneurs the predictability and stability to plan properly, invest boldly to grow their enterprises, and create jobs.
“The Akufo-Addo-led government, in our estimation, has done considerably well, and must be given the necessary support to bring progress and prosperity to the good people of Ghana,” it added.