Go to IMF, but...

Ghana, a country that epitomised the ‘Africa rising’ narrative of strong economic growth and improved governance, is to seek help from the International Monetary Fund and other development partners.

The reversal of fortunes underlines the challenges the country faces as it turns to the IMF for financial assistance after the cedi has plunged nearly 30 per cent against the US dollar this year, making the local currency one of the worst performing in the world in 2014.

Ghana is the second sub-Saharan African country to turn to the IMF for help this year, after Zambia announced in June that it would seek talks with the Washington-based multilateral body.

 The government’s request for assistance is likely to shake some investors, as Ghana is largely seen as a model of economic and political development in Africa. 

In 2007, Ghana became the first country in sub-Saharan Africa, apart from South Africa, to tap the sovereign bond market, raising US$750m through a 10-year bond.

The country tapped the market again in 2013, raising another US$1bn with a 10-year note at an interest rate of 7.875 per cent.

 Although the economic prospects remain high and the government is working for a more prosperous outlook, issues such as conflicts, strikes, overspending and the slow pace of reforms will put the brakes on expansion.

The Daily Graphic, however, cautions that economic mismanagement risks “spoiling” the virtuous circle of rising growth and better governance for which Ghana became enthusiastically known as “the rising star”.

 It is clear that the opening of talks with the IMF is a U-turn for the government that has long insisted that the country will resolve its economic problems using home-grown solutions.

 Though the government has been slow to cut public spending to bring down the double-digit fiscal deficit, some of its policies have been praised.

The Communications Minister, Dr Edward Omane Boamah, said in a release that the President had “directed [the government] to open discussions with the IMF” to support the country’s growth programme, adding that the most immediate concern was “to stabilise the cedi and reduce the [fiscal] deficit”.

Nearly four years after the start of oil production in Ghana, which was meant to strengthen the country’s fiscal position, the country faces a double-digit fiscal deficit after a 75 per cent increase in public salaries over two years.

Inflation is rising rapidly as the cedi plunges.

The Finance Minister, Mr Seth Terkper, in his mid-year review of the 2014 budget, announced a revision of some macroeconomic targets. Key among these 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.

The Daily Graphic thinks that the love story with international investors for cheap and abundant funding will not last forever.

This is because investors have started demanding higher interest rates for holding the debt of some African countries, a sign that the market has become increasingly wary of rising fiscal deficits.

It is important to note that although the country had recorded some growth in the past, allowing it to tap into the sovereign debt market for the first and second time in its history, we should not expect this to continue.

The Daily Graphic would again wish to caution the government to heed calls by sections of the public to limit its borrowing and not overload the country with too many debts.

We still haver faith in the home-grown policies of the government, as they hold the key to the resolution of our economic challenges.

There is no way the economy will rebound if we continue to import every conceivable merchandise.

 More importantly, the government should be more prudent in the management of the country’s resources by avoiding waste and corruption in the public sector.