IMF deal up for revision — Experts call for balanced approach

Economists have thrown their weight behind plans by the incoming government to review Ghana's existing International Monetary Fund (IMF) programme, citing the need to align the agreement with its electoral promises. 

The experts contend that the new administration's mandate, anchored on its social contract with Ghanaian citizens, necessitates adjustments to the current IMF deal to accommodate key manifesto commitments.

The endorsement comes as the country prepares for a transition of power, with financial analysts emphasising that renegotiation could provide an opportunity to better balance fiscal discipline with social welfare programmes. 

President-elect John Dramani Mahama has indicated that his government will review and adjust the country’s three-year programme with the IMF and other existing agreements with Ghana's development partners to better meet the needs of the public. 

He said the adjustment was crucial and would help put the new government that will be inaugurated on January 7 “on the same springboard with its development partners to begin the rebuilding of the economy and the country.” 

“So we look forward to working with you. Looking at the existing programmes, we need to tweak them to meet the realities of today. I believe we have had discussions with the World Bank and the IMF already and we look to an early engagement so that we can continue to be on the same wavelength.

“In the campaign, several promises were made and we need to look at what the reality is in terms of sitting together and seeing what the way forward is. 

One of our main concerns is the issue of the debt repayments; we need to see how we can smoothen them so that we don’t default again, which will be more catastrophic than the current defaulting,” he said.

The IMF has also indicated that it was open to renegotiating the programme, provided accompanying reforms aren’t jeopardised.

A spokesperson for the Bretton Woods institution noted that IMF-supported programmes are developed collaboratively with each country’s authorities.

“Any changes must ensure that the economic objectives of the reform programmes remain achievable.”

“The IMF’s primary focus under the current extended-credit facility is to support Ghana in restoring macroeconomic stability and ensuring debt sustainability while fostering long-lasting and inclusive growth,” the spokesperson said in response to questions from Bloomberg.

Delicate balance 

In an interview with the Graphic Business, Economist and Professor of Finance Professor Godfred Bokpin and the Executive Director of the Institute of Fiscal Studies, Dr Said Boakye, stressed that while renegotiating the deal is a good call, the new government must clearly articulate specific aspects of the IMF programme it seeks to modify.

While supporting the proposed review, they cautioned the new administration to maintain a delicate balance between fulfilling campaign promises and preserving the fundamental objectives of the IMF programme, which aims to restore macroeconomic stability and sustainable debt levels in Ghana. 

They emphasised that any renegotiation should be approached with clear, well-defined objectives to avoid creating uncertainty in the financial markets.

Reality on the ground

Professor Bokpin emphasised the importance of renegotiating the IMF programme to align with current realities.

"You have a new government with a clear mandate from the people, with a social contract inspired by the party's manifesto, which is full of promises," he said.

"Without renegotiating the programme, it will be practically impossible for the government to operationalise its vision for the country," he explained.

He noted that many of the promises regarding tax cuts and expenditure rationalisation are not reflected in the existing programme. 

Therefore, a new mandate requires adjusting the current framework; otherwise, it would not allow the new mandate to be executed. Prof. Bokpin emphasised that the government must have a clear strategy on which aspects of the programme they want to renegotiate. 

"If you are cutting off some taxes, you need to indicate how the gap will be closed," he advised.

Existing IMF programme

Prof. Bokpin also pointed out that the design of the existing IMF programme was problematic, making this the perfect opportunity to readjust it.

He explained that the current programme unfairly shifts adjustment costs to businesses and households through higher taxes, which ultimately contributes to higher production costs for businesses in Ghana.

This, he said, would limit the economy's growth potential in the medium to long term. "Over 60% of the adjustment costs in the existing programme are revenue-based while expenditure rationalisation is minimal. 

Meanwhile, Ghana's problem stems from wasteful expenditure, inefficiencies and corruption within our public investment management process, which undermines growth. "If that is the main issue, the solution cannot be more taxes. 

So here you have a diagnosis that says corruption is our basic problem - why should the solution be more money?" he questioned.

He noted that the existing programme relies too heavily on revenue generation, which should be reconsidered during renegotiation.

Front-loaded fiscal relief

Prof. Bokpin also explained that the fiscal relief from the debt treatment is front-loaded, with over 90% being used while the IMF programme is in force.

This structure, he said, suggests the programme was designed with an extension in mind.

"The renegotiation should ensure a fair distribution of the relief from the medium to the long term. Additionally, the deadline for returning to debt sustainability should be extended.

"The 2028 target is too short, and consequently, the adjustment cost is heavy, negatively impacting the cost of living and doing business. We need to address this as well," he said.

He noted that while governments have discussed governance reforms and tackling corruption over the years, they haven't properly costed these initiatives.

"The renegotiation must, therefore, quantify how much we can recover from looted assets and funds. 

Those who benefited from these infractions shouldn't escape while the majority of Ghanaians pay for their actions," he added.

Need for revision

Dr Said Boakye acknowledged that while the current IMF programme has helped stabilise the economy, revision is necessary to accommodate the new government's agenda.

He advised that the incoming government should be firm about their goals and how they plan to restructure the programme without compromising targets.

He urged the government to consider renegotiating the $3 billion financing amount for a possible increase, given that international capital markets remain closed to the country. He pointed out that depending on the T-bill market isn't sustainable and is crowding out the private sector.

"The country still cannot secure international financing, and raising money from the domestic market has been challenging. The government should, therefore, look to secure additional resources from the IMF and other development partners," he stated.

The economist also emphasised that the current programme relies too heavily on raising additional revenue through taxes. He recommended that the government balance this with increased expenditure rationalisation during the renegotiation.

Dr Boakye also expressed concerns about the proposed abolishment of the requirement for foreign companies to surrender part of their foreign currencies to the Bank of Ghana.

He explained that while the current IMF programme proposes eliminating this practice, the incoming government should push to maintain it during renegotiation.

This measure, he said, would help the BoG build more reserves to support the local currency.