President John Dramani Mahama has directed his economic management team to open talks with the International Monetary Fund (IMF) and other development partners for a stabilisation growth programme.
The directive came after the Presidential Advisory Council had met on August 1, 2014 to discuss a range of issues affecting the economy.
A release signed by the Communications Minister, Dr Edward Omane Boamah, in Accra last Saturday stated that “the President directed that immediate initiatives be taken to open discussions with the IMF and other development partners in support of our programme for stabilisation”.
The President further directed that as a matter of urgency, measures must be taken to stabilise the cedi in order to bring about greater predictability to the business environment.
The move is seen as an attempt to tame the country’s mounting inflation, a weakening currency and rising bond yields that have lately taken the shine off Ghana, a country until recently hailed as a model for African growth, which in 2013 was cited as the fastest growing economy in 2011, when it achieved a 14 per cent growth.
Analysts believe that the talks are likely to lead to a bailout from the Bretton Woods institution, but a source close to the economic management team has denied such a move, saying, “This is not the first time that the government has sought assistance from the IMF.”
According to the source, the government applied for a similar facility in 2009 when it faced daunting economic challenges.
The country is currently facing serious economic challenges that have culminated in a sharp fall in the value of the cedi against the major trading currencies, high inflation, revenue shortfalls, a ballooning wage bill, among others, that seem to be troubling the managers of the economy who are struggling to find solutions.
Nearly four years after the start of oil production, which was meant to further strengthen the fiscal position, the public purse is looking empty.
Ghana is battling a double-digit fiscal deficit after a 75 per cent hike in public salaries over two years.
On top of it all is the worsening inflation situation which is now in double digits, after staying single for many months.
The IMF chorus
Last July, some leading economists in the country, including the policy think tank, the Institute of Economic Affairs (IEA), sparked calls for an IMF bailout for Ghana to restore economic and policy stability.
That, they argued, was necessary to curb a budget gap that Moody’s Investors Service forecasts will exceed 10 per cent of Gross Domestic Product (GDP) for a third consecutive year.
A senior economist of the IEA, Dr John Kwakye; an Economics lecturer at the University of Ghana, Dr Eric Osei Assibey, and the Head of the Economics Department at the University of Ghana, Prof Peter Quartey, were unanimous in their calls for the immediate subscription to the IMF programme to restore economic stability.
For them, the present situation required that the government go for a bailout to help bring the economy back on track.
Justifying his point at the IEA’s mid-year economic review in Accra, Dr Kwakye said the government must get tough on its expenditure and tackle the domestic factors that created the challenges confronting the economy.
“Unless we are willing and able to implement a home-grown fiscal discipline regime, the alternative will be to have one imposed from outside, including from the IMF, to unlock much-needed donor support for the economy,” he said.
The government is struggling to reduce the huge budget deficit, while inflation has also sky-rocketed to 15 per cent.
International rating agencies have predicted a further decline in Ghana’s economy.
He, however, said the upward adjustment in the inflation target from nine per cent to 13 per cent was realistic, since June inflation had already reached 15 per cent.
The Finance Minister, Mr Seth Terkper, in his mid-year review of the 2014 budget, announced a revision of some macroeconomic targets.
Key among them were economic growth, which was revised downwards from eight to 7.1 per cent, and the budget deficit, which was increased from 8.5 per cent of GDP to 8.8 per cent.
According to Dr Kwakye, the first half of the year saw the country’s debt rise from GH¢52 billion (55 per cent of GDP) to GH¢62 billion (59 per cent of GDP), moving closer to unsustainable levels should the government continue borrowing.
Dr Osei Assibey also asked the government to, as a matter of urgency, turn to the IMF for a bailout.
“The currency will continue to deteriorate if we don’t resort to the IMF to bail us out to supply the needed dollars to balance the balance of payment,’’ he said.
“We have a huge balance of payment disequilibrium, the imbalance is huge; we have recorded about 12 per cent trade deficit, which is putting enormous pressure on the country’s forex reserves. The buffer has depleted so low that it is very difficult for the country to actually meet any demand pressure on the currency [cedi],’’ he explained.
IMANI on IMF song
The Executive Director of IMANI Ghana, a policy think tank, Mr Franklin Cudjoe, has also asked the government to seek an IMF bailout, since the much expected revenue from cocoa and gold will not be able to salvage the ailing economy.
Mr Cudjoe stated on his Facebook page: “I also think you should ask the Minister of Finance to prepare for an IMF bailout, since the expected magic with cocoa and gold revenue may actually only end up paying our arrears. Even if gas flows from Atuabo sooner, the pricing dynamics would mean nothing may change substantially for energy.”
Blowing hot and cold on bailout calls
But it appears the government is blowing hot and cold on the bailout issue. In May this year, Mr Terkper stated that the government had not excluded the option of seeking a bailout from the IMF to help finance its budget and current-account deficits.
“We haven’t ruled it out,” he said in an interview in the capital of Mozambique, Maputo, where he was attending an IMF conference. “The government is still assessing whether measures put in place to help narrow the fiscal shortfall have been effective,” he said.
Mahama denies IMF bail-out moves
But President John Mahama, delivering the keynote address at the National Economic Forum at Senchi in May this year, said the government had not entered into an IMF programme to bail out Ghana from its current economic challenges.
He said the government had not presented a programme to the IMF which would form the basis for the economic strategies being developed to fix the country's economic challenges.
Responding to queries by the New Patriotic Party (NPP) that the government had already entered into an agreement with the IMF, the President said "...as President, I have not taken any decision to enter our country into an IMF programme".
"This document contains what the government describes as ‘home-grown policies’ which was formally submitted to the IMF during the recent Spring Meetings in Washington DC," he added.
Objecting to IMF programme
The Secretary General of the Trades Union Congress (TUC), Mr Kofi Asamoah, declined to comment on the latest directive by the government when the Daily Graphic called him for the views of labour on the directive by the President.
He had earlier warned the country against pursuing economic policies prescribed by the IMF.
"IMF policies and guidance have never worked. They will give advice and come back and accuse the same government," Mr Asamoah said in an interview with Joy News.
Mr Asamoah, who is an avowed critic of the fund, welcomed the decision by the President not to subscribe to an IMF programme.
He said the TUC had never "come to appreciate any country that has really solved its problems through the fund".
"We need to be quite careful in handling this issue. They will come with the kind of conditionalities which will eventually worsen the situation," he added.
Economic challenges and prospects
An oil boom helped fuel five years of GDP growth above eight per cent, making Ghana an emerging market star, a stable democracy with a population of 25 million which was moving steadily into middle-income status.
However, the country is now paying a high price for not coming through with a new tranche of fiscal reforms.
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