Can the IMF be trusted?
At the just-ended Spring Meetings of the International Monetary Fund (IMF) and World Bank, the Breton Wood institutions demonstrated readiness to bail out Ghana by providing it with the badly needed $3 billion balance-of-payment support.
Consistently in many sessions, the IMF Boss, Kristalina Georgieva, was heard vowing to help Ghana secure a timely bailout from the fund to enable it to revive the ailing economy battered by the twin global incidents of COVID-19, the Russia invasion of Ukraine, and domestically, over-borrowing on the part of the government, mostly for consumption rather than investment in capital projects according to many experts.
Last Thursday, for instance, Ms Georgieva said Ghana has a long track record of sound macroeconomic policies and must, therefore, not be allowed to fail under crises caused by external factors.
To many, having painted a good picture of Ghana in the eyes of the world, the IMF should not be using words like ‘soon’ as a timeline, because that word has been used many times since December last year after the country reached a Staff Level Agreement with the fund.
The IMF has set several indirect conditions such as asking Ghana to restructure its debt and bring it down from the present 102 per cent of GDP to about 55 per cent by 2028.
Much as the demands may look or sound light in nature, the conditions are hurting the economy because it is clear that all the measures being taken by the government, such as the Domestic Debt Exchange Programme (DDEP) and the recent passage of new revenue bills expected to rope in additional GHC4.5 billion at the end of the year, are badly hurting the economy and for that matter businesses while draining household incomes.
Analysts and some Civil Society Organisations (CSOs) have persistently warned the government to be cautious in its dealings as it moves to meet the conditions set by the IMF.
A Partner at Ishmael Yamson and Associates, Dr Mike Harry Yamson, on a Joy FM programme, was emphatic when he said, for instance, that taxation was good to rake in revenue.
However, it was wrong for the government to target the formal sector alone while doing almost nothing to rope in the informal sector as a way of reducing the burden on those already in the tax net.
According to him, the implementation of the process by the government was a clear indication that there was no proper plan being followed, hence the back and forth that is hurting household incomes.
The irony
Judging from the comments made by the IMF, the lender of last resort, there is no reason why it has to subject Ghana to this painful exercise.
It is clear that the IMF, for the first time, is pushing a country in heavy debt distress to deal with its local creditors before it will approve a bailout.
Ghana has been to the IMF 17 times. None, apart from this current one, has been that painful, because it has made the government confused to an extent that it is forcing policies down the throat of businesses and individuals to look good in the eyes of the IMF but refusing to appreciate how draconian the impact has become.
Parliament, which was expected to stand for the people, has also woefully failed to protect the very individuals who voted for them and instead, allowed the passage of bills that seem to suck the life out of the people to go through.
The cries of the people are loud enough for the IMF to hear. However, the body expected to save the people is rather playing hard while the people suffer.
Warning
When Ghana defaulted on its debts and reached a preliminary agreement on the $3bn IMF bailout last December, the IMF imposed many familiar conditions to get the country’s finances back on track.
One demand, however, was strikingly new, and analysts say it will change the debt landscape forever.
The IMF said that before it asks its board to approve the support package, Ghana must first address its domestic debts — money typically borrowed from local banks, pension funds, insurance companies and even individuals.
“This has opened a can of worms, in Ghana and elsewhere,” an analyst who is also a low, emerging market debt portfolio manager at an investment company, Ninety One, told the Financial Times, adding that “Every restructuring is going to have this issue hanging over it.”
The dilemma for the government in this strange scenario is that, as it sinks deep into default, it faces a stark choice.
It must be noted that if the government forces its overseas creditors to shoulder all the pain, it risks losing access to foreign capital while struggling to restore its overall debt to a sustainable footing.
Yet, pushing losses onto domestic creditors risks wiping out local banks, pension funds and insurance companies, a scenario which is already playing out.
The cost to taxpayers of recapitalising an already battered banking sector can be more than the savings achieved through debt restructuring according to analysts.
This is true because some four years ago, the government took the country through that path and created serious challenges, most of which still linger, despite the over GHS23 billion it claimed to have used to solve a problem which, if properly done, would have cost the taxpayer less.
Conclusion
The issue is simple in this case. If the IMF truly believes in the government to put the economy back on track, there is no need for it to impose these draconian conditions which are hurting the mass of the people.
It cannot shower praises on the government whilst in public, only to squeeze it behind the scenes.
The trust issues about the fund have reared their ugly heads again and if the IMF wants the people to trust it, then it is time to demonstrate commitment by releasing the bailout funds without any further delays and stop using ‘soon’ because soon has been six months already with no end in sight.
The more it delays, the more the government gets confused as to what to do to please the fund and that cannot continue any longer.