Three economists have asked the government to seek assistance from the International Monetary Fund (IMF) because it will provide the best fix for the country’s ailing economy.
With domestic revenue mobilisation not performing to budgetary expectations, coupled with the inability to raise money from the international capital market due to the downgrade of the economy by credit rating agencies, the three economists are unanimous in their belief that it is time to seek assistance from the Bretton Woods institution, in spite of the austere consequences that can hurt the citizenry.
The economists are the Director of the Institute for Statistical, Social and Economic Research (ISSER) of the University of Ghana, Professor Peter Quartey; the Head of Research at the Institute of Fiscal Studies (IFS), Dr Said Boakye, and an economics lecturer at the University of Ghana, Dr Adu Owusu Sarkodie.
However, two key private sector umbrella bodies are divided on whether the government should go back to the IMF or design a homegrown solution to help address the challenges currently facing the economy.
In separate interviews with the Daily Graphic, the Private Enterprises Federation (PEF) maintained that the government needed to seek immediate financial aid of about $4 billion from wherever possible to salvage the situation, while the Ghana Union of Traders Association (GUTA) insisted that the country must depend solely on a solid homegrown solution.
In April 2015, the country turned to the IMF for a $918-million loan to support its ailing currency and help stabilise the economy.
IMF advisors, working with the government, developed a three-part programme to restore debt sustainability, strengthen monetary policy and clean up the banking system.
Ghana exited the IMF programme in December 2018, and during the 2019 budget presentation to Parliament, the Minister of Finance, Ken Ofori-Atta, had assured the country that the government would back the IMF reforms with legal and institutional measures to ensure the irreversibility of the gains made so far.
“We are grateful to the IMF and are determined to maintain a combination of economic discipline and vibrancy that will ensure that we will not have to be rescued in that manner in the future,” he had said.
However, in just over three years after exiting the programme, it appears the country is at the crossroads whether to go back to the IMF or find an alternative to its current economic woes, as the new tax measure, the Electronic Transfer Levy (E-Levy), has failed to meet expectations.
Huge fiscal hole
Dr Boakye told the Daily Graphic that the economy currently found itself in a huge fiscal hole that required it to swallow some bitter pills to recover.
However, he did not trust the government to be self-disciplined enough to swallow the bitter pills, hence the need for an IMF programme.
While the COVID-19 and the Russia/Ukraine war had been blamed for the fiscal situation of the country, the economic analyst and researcher said the country had long been battling with fiscal issues, and that what the COVID-19 and the Russia/Ukraine war did was to worsen the issues.
“What is happening started before the COVID-19. Between 2013 and 2016, the average deficit to Gross Domestic Product (GDP) ratio was 6.5 per cent, and between 2017 and 2019, it stood at 6.4 per cent, which are both two times higher the three per cent recommended by the West African Monetary Zone,” he stated.
Dr Boakye indicated that what COVID-19 and the 2020 elections did were to worsen the situation, pushing the budget deficit to an unprecedented 15.2 per cent of GDP.
“These deficits, which date as far back as 10 years, have now virtually crippled the economy. The government is now also finding it difficult to go to the Eurobond market due to the downgrade, and if it dares go the interest rate that will be charged will be very high,” he said.
“And even domestically, government bonds are being under-subscribed, so while I do not like the idea, in the short term I think the government will have to go back to the IMF,” Dr Boakye advised.
IMF not bad option
For his part, Prof. Quartey said ideally, the best option was for the country to manage its own affairs, but should it get to a point where it could no longer do so, “then going to the IMF is not a bad option”.
He said the decision must, however, be backed by data that showed the current position of the country.
“The Finance Minister introduced some new policies, such as the cutting down of government spending, the introduction of the E-Levy and other tax measures, and we need to know where we are in terms of the numbers,” Prof. Quartey said.
He said while the IMF would impose some restrictions, it also came with some support, for which reason it was necessary not to paint it like a bad institution.
Need for an IMF programme
In a separate interview, Dr Sarkodie said although he was not a fan of IMF programmes, there was the need for an IMF intervention now.
He said an IMF programme would help inject some cash into the economy, provide policy credibility and help stabilise the macroeconomic environment, which was what the country needed now.
“I initially thought the government was going to access a number of options, such as using the international market to raise funds or improve on domestic revenue mobilisation, in which case there wouldn’t be the need for an IMF programme,” he said.
Dr Sarkodie said his only concern was with social intervention programmes, some of which the IMF could ask the government to cancel.
“Some of the social intervention programmes, such as the free senior high school, Nation Builders Corps (NABCo) and teacher training allowances, may be affected, but I think in times of economic difficulties like this, there is the need for those social intervention programmes,” the economist said.
He added that should the country go for an IMF programme, the government must negotiate for those interventions to remain untouched in order to help the poor and needy.
The Chief Executive Officer (CEO) of the PEF, Nana Osei Bonsu, and the President of GUTA, Dr Joseph Obeng, in separate interviews, underlined the need for short-term prudent actions that could help address the challenges with the economy.
They said that was because businesses and the citizenry in general were feeling the brunt of the economic difficulties.
Nana Bonsu said the country was in a desperate situation and needed to seek financial support from wherever possible to resolve its economic challenges.
He added that the government needed at least $4 billion in the next six months to solve the immediate challenges before developing a long-term solution.
“Our difficulty is the absence of resources (revenue). The government needs resources to service its debt, but the foreign exchange variation is not helping the situation,” he said.
Nana Bonsu decried the continuous granting of tax exemptions to businesses that were making profit and repatriated it, saying that was aggravating dollar-cedi exchange rate challenges.
Without an immediate homegrown solution to impact the situation, the CEO noted, the only option available to the government was a bailout from the IMF, which provided a special discount.
“The viability of a homegrown solution is key, but that will come in after the storm has been weathered and some of the things being done in error retrenched,” he said.
He said with discipline and monitoring, especially of the tax exemptions granted rampantly to foreign businesses, Ghana could exit the IMF programme successfully.
Dr Obeng, who expressed a contrary opinion, said the government did not need any assistance from any international organisation to address the current economic woes.
Rather, he said, there was the need for bold and prudent measures to be deployed by cancelling the payment of teacher and nursing trainee allowances.
Dr Obeng insisted that there was the need to re-examine the free SHS policy to make it more targeted at the poor and those in the rural communities.
The GUTA President also stressed the need for a crackdown on tax evasion and rationalising exemptions, so that foreign firms would be blocked from repatriating profits.
“We should look within and develop solutions that best suit us, instead of going to international institutions, such as the IMF, for financial aid. We have been to the IMF several times, yet problems keep recurring,” he averred.
He supported calls for the government to provide a detailed account of current challenges with the economy to enable the country to secure the most appropriate solution to the difficulties.