IMF assistance meant to gain seal of approval — President
The President, Mr John Dramani Mahama, has explained that the decision to turn to the International Monetary Fund (IMF) for assistance was necessitated by the need for policy credibility and investor confidence in the measures being implemented to restore economic stability and growth.
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He said turning to the IMF was a decision to gain the seal of approval from the Bretton Woods institution for the country’s home-grown measures.
But the Industrial and Commercial Workers Union (ICU) and the Minority in Parliament have urged the government to be cautious of the conditionalities of the IMF.
Speaking to the Daily Graphic in separate interviews, the General Secretary of the ICU, Mr Solomon Kotey, and the Minority Spokesperson on Finance, Dr Anthony Akoto Osei, said they were apprehensive of the strings that would be prescribed by the fund.
But answering questions on the decision to join the IMF’s programme at a GE-Economist event organised as apart of the US-African Leaders Summit in Washington, DC, President Mahama said there would be no significant changes in Ghana’s domestic policy.
He insisted that the decision to hold discussions with the IMF was not because of the failure of the government’s own home-grown solutions but rather the need for policy credibility and the confidence of international financial institutions, capital markets and investors in the measures being implemented to restore economic stability and growth.
Ghana has achieved strong economic growth over the past two decades. It has out-performed regional peers at reducing poverty and improving social indicators.
Yet, the economy faces a number of challenges.
About a quarter of the population still lives below the poverty line, firms lack access to affordable credit and reliable electricity supply, while about seven million jobs — more than half of the current labour force — need to be created in the next two decades.
To address the challenges, the government’s transformation agenda is focusing on economic diversification, social inclusion and macroeconomic stability.
“So we are going to discuss with the IMF how we can turn the deficit around quickly and create the kind of confidence even in the short-term narrative,” the President said.
Changing the narratives
He also responded to the negative impression and the apparent interest of some individuals and groups to paint a gloomy picture of the economy.
According to President Mahama, there was a grave misunderstanding of Ghana’s potential because of too much fixation on the short-term narrative.
“As much as we have tried to draw attention to Ghana’s potential, there is too much fixation with the short-term narrative. Yes, there has been a deficit and inflation has gone up, but we have put in measures to turn that around.
Deficits are not turned around just in a year or two… the deficit will be brought under control by 2017,” he stated.
He, however, acknowledged that the unfortunate international narrative on the short-term challenges facing Ghana had come about probably because Ghana had been “one of the few most potential emerging markets in Africa in recent times”.
Osafo-Maafo supports IMF bailout
In the meantime, the decision by the government to go for an IMF bailout has been hailed by some individuals and groups
A former Minister of Finance, Mr Yaw Osafo-Maafo, said the bailout was a means to promote fiscal discipline in the country.
“The rate at which the economy is deteriorating, we have no choice but to subject our management of the economy to discipline. Things have gone haywire and Ghana has no option but to go to the IMF,” he said in an interview with the Daily Graphic in Accra yesterday.
Mr Osafo-Maafo said he was particularly happy because the IMF was the only body among the Bretton Woods institutions that disciplined other economies.
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Debt
Citing the Bank of Ghana (BoG) monetary policy report, the former minister said as of the end of 2008 and the beginning of 2009, “the total domestic and external debt of Ghana since independence was about US$9 billion, after $4 billion had already been cancelled as a result of Ghana going HIPC”.
“But by the end of March 2014, according to the Monetary Policy Department of the BoG, US$23.6 billion was the debt burden of Ghana. This certainly calls for concern because it represents 55.4 per cent of our GDP. This is just too high,” he noted.
According to him, there was something wrong with the government’s method of borrowing and for that reason “I am happy we are going to the IMF for discipline to be brought to the system”.
Support decision of government
While urging Ghanaians to support the decision of the government to seek an IMF loan, Mr Osafo-Maafo, however, said the danger in borrowing more was the burden interest payment would place on the fiscal purse.
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For instance, he said, US$1.7 billion was paid as interest, which, to him, was “almost three times our total oil revenue per annum. This is just unacceptable”.
While admitting that there would be tough times ahead, Mr Osafo-Maafo urged Ghanaians to expect some harsh economic conditions.
“We should expect subsidies to be removed. We will pay fully for oil and gas and so expect further increases in oil and gas,” the former Finance Minister warned.
According to him, public servants “should expect a freeze on wage increases and employee rationalisation which can lead to possible redeployment and layoffs”.
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“We also expect subvented organisations to be on their own. Those on their own will be required to pay more dividends to the government,” Mr Osafo-Maafo said.
He said it was unfortunate for the government not to control its excess expenditure.
The Association of Ghana Industries (AGI), however, welcomed the move by the government to subscribe to an IMF programme, since that would stabilise the macroeconomy.
The AGI President, Mr James Asare Adjei, said, “We will support any initiative that will stabilise the macroeconomy and save industries from collapsing. This is because the private sector is feeling the heat of exchange rate fluctuations and so any move to stabilise the economy is welcome.”
Minority urges caution
But Dr Akoto Osei asked Ghanaians to brace themselves up for more hardships as the country sought a bailout from the IMF.
According to him, though a bailout from the IMF would improve investor confidence because “they will see that somebody is helping us see discipline, there will be more hardships between now and 2017”.
“We are not even sure when the money will come because, at this stage, what the country needs is financial support and not technical assistance,” he added.
According to the Ranking Member of the Finance Committee of Parliament, Ghanaians should expect job losses and hikes in utility tariffs, which would be compounded by a general increment in the prices of goods and services.
ICU is skeptical
But speaking to the Daily Graphic in an interview, the General Secretary of the ICU, Mr Solomon Kotey, said he was apprehensive of the conditionalities that would be prescribed by the fund.
That, he said, had heightened fears of job cuts and hikes in utility tariffs, a situation which was expected to cause a further rise in the general prices of goods and services.
“We are not comfortable with this request unless the type of assistance sought is clearly spelt out, whether it is technical or financial support,” he said.
“Tell me, which country has ever succeeded with the prescriptions?” Mr Kotey asked.
Other perspectives
Dr Lloyd Amoah, an economist and lecturer at the Ashesi University, believes going for IMF assistance is equal to erasing the achievements of past governments.
“Once we go to the IMF and conform to its policy prescriptions, the final nail will have been driven in the Kufuor Legacy......it is all but gone..... In effect, we [are] back to economic ground zero,” he wrote on his Facebook page.