international monetary fund bailout again?
History keeps on repeating itself but it seems we are not learning from our past experiences. Do we always have to wait till things get out of hand?
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Do we always have to run to the International Monetary Fund (IMF) and World Bank after messing our economy? Ghanaians are fascinated by the lower middle income status we have attained but the fundamental issues are still lingering; our economy is import dependent, our exports are not diversified, corruption keeps on eating us up etc.
With the proceeds from our oil industry, we have not made any significant overturns in our economy. A country which, in 2011, was referred to as the fastest growing in the world is running to the IMF for bailout. What went wrong?
A bit of history
In 1983, the government of Ghana launched the Economic Recovery Programme (ERP) under the Bretton Woods Institutions. This was to reduce Ghana’s debts and to improve its trading position in the global economy. It included lowering inflation through stringent fiscal, monetary and trade policies etc. Ghanaians can attest to the untold hardships that accompanied the ERP.
In response to criticisms of the ERP, government initiated the US$85 million Programme of Action to Mitigate the Social Costs of Adjustment (PAMSCAD). Beginning in 1988, the programme sought to create 40,000 jobs over a two-year period. It was aimed at the poorest individuals, small-scale miners and artisans in particular and communities were to be helped to implement labour intensive self-help projects and we know the rest of the story.
Ghana declared herself a Highly Indebted Poor Country (HIPC) in April 2001 to relieve her of its debt and put the economy back on track. At the time, the country’s per capita income was $390, while HIPC countries were defined as countries with per capita income less than $690. HIPCs are a group of developing countries with high levels of poverty and debt overhang which are eligible for special assistance from IMF and World Bank.
Now
President John Dramani Mahama, after a meeting with his Economic Advisory Committee, directed that immediate initiatives be taken to open discussions with the IMF and other development partners in support of his country’s “programme for stabilisation and growth”. What went wrong?
Ghana’s currency, the cedi, has depreciated about 30 per cent since January 2014. Bloomberg last week reported that the cedi was the poorest performer on the global market.
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Again, the finance minister, Seth Terkper, in a mid-year review budget, made some revelations; Ghana’s total public debt stock which stood at GHC35,999.64 million cedis as of the end of December 2012. It increased to 52,125.91 million cedis at the end of December 2013. Consumer Price index for June 2014 was 15 per cent; the highest since 2010.
Producer Price Index for the same month is about 33 per cent . Monetary policy rate by the Central Bank is 19 per cent. Ghana’s net international foreign exchange reserves currently stands at some $700 million which is less than one week of import cover.
The Finance Minister in his mid-year budget reviewed our macro-economic targets for 2014 because targets would not be met. Indeed, our macro-economic indicators are not in “good condition”. Ever since the government hinted of an IMF bailout, Ghanaians home and abroad are complaining all because of the country’s past experience with the Fund.
But the Deputy Finance Minister, Mr Ato Forson, has called on Ghanaians not to panic because government is presenting Home Grown Policies to IMF for negotiation. This means that Ghanaians will not go through the 1980’s and 1990’s experiences. Again, he said Ghana was going to IMF as a lower-middle income country and not a lower income country.
Word from IMF
The Managing Director of the International Monetary Fund, Christine Lagarde, has downplayed assertions that a bailout programme from them could see Ghana go through another phase of hardship while the country tries to meet its strict conditionality in order to restore fiscal discipline and macro-economic stability. “Structural adjustment? That was before my time. I have no idea what it is.
We don’t do that anymore. No, seriously, you have to realise that we have changed the way in which we offer our financial support. It is really on the basis of a partnership”. The implementation of IMF’s structural adjustment programme in the 1980’s saw subsidies wiped, public sector jobs cut, while wages kept low which, however, restored economic growth.
Speaking at a press briefing at the IMF and World Bank Spring Meeting, IMF managing Director, Christine Lagarde, says the Fund has changed its approach in the implementation of its programmes which focuses on partnership. She said, “there is always in partnership bit of hardship to go with it”. From Christine; “there is a bit of hardship to go with it.” Let me say that bailout does not come on a silver platter. There is always a price to pay.
Structural adjustments were first introduced by the World Bank in 1979. A type of credit facility that helps developing countries become more economically self-sufficient. They emerged from the conditionality that Bretton Woods’s institutions have been attaching to their loans. They are created with the goal of reducing the borrowing country’s fiscal imbalances in the short and medium term or in order to adjust the economy to long term growth.
Critics argue that the financial threats to poor countries amount to blackmail, and that poor nations have no choice but to comply. But the IMF boss has assured Ghana of friendly partnership to bring our economy back on track. So let me ask, were IMF and World Bank aware of the untold hardships that came along with Structural Adjustment Programme?
In the box
Most sub-Saharan African countries have had a bitter experience with these institutions, especially during the 1980’s. That is why countries such as Greece, Portugal, Ireland, Iceland, etc., felt uncomfortable when their governments opted for a bailout.
The conditionalities include balance of payment deficits reduction through currency devaluation, budget deficits reduction through higher taxes and lower government spending also known as austerity, cutting wages, monetary policy to finance government deficits, raising the prices of public services, market liberalisation, and privatisation of state owned enterprises, improving governance and fighting corruption. What reforms has the IMF made with reference to bailout? Will our hands be tied to our backs to implement their conditionalities?
Currently, statutory funds for the National health insurance Scheme, District Assembly Common Fund, and Ghana Education Trust Fund are in arrears. We spend about 70 per cent of revenue paying wages and salaries. New taxes coming upstream and others are waiting for implementation. Our public debt keeps on rising. Utility prices are on the surge. Interest rate keeps rising. We operate flexible foreign exchange regime and our dear cedi keeps depreciating against major trading currencies.
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The nation keeps on losing millions of cedis through corruption. Public sector reforms are still lingering. I must say that we are the cause of our own problems. At this time, I will pause for the Finance Minister and his entourage to get to the table with IMF. I will make my assertions when the bailout is finalised.
The writer is an associate chartered economist.
Writer’s email: katakyiequamevigor@gmail.com
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