The return to IMF: what has changed?


The return of Ghana to the IMF has generated a lot of controversies, arguments, and political equalisations, among others. But it should not split heads among Ghanaians. The reality is that Ghana is in financial distress and needs temporary relief since government cannot meet its revenue targets for 2022.

Ghana’s woes regarding the march back to the IMF began from the moment the main opposition party in Parliament decided right from the party leadership level not to support the E-levy in any form, which sent a bad signal and triggered panic in the international business/investor community.

The financial services architecture is built on the pillars of trust and confidence. Any wrong signal sent out creates panic in the system and engenders withdrawals or inertia in additional investments. For those who follow international news on finance, you will recall that a BBC journalist broke the news on liquidity challenges facing Northern Rock in the UK – and that resulted in the bank’s collapse and subsequent recession in the UK. as well as the global financial meltdown in 2007/8. It was the same with Lehmann Brothers in the US, which exacerbated the financial crisis in 2007/8.

So, when people blame parliament (influenced by the main opposition party) for frustrating and not passing the E-levy in good time, it is not political talk but reality in managing the expectations of the international investor community. The reason is that government had projected to raise about GH¢100.5billion in 2022 against an expenditure target of GH¢137.5billion, giving an overall fiscal deficit of GH¢37billion – equivalent to 7.4 percent of GDP.

This was at a time Ghana’s public debt at the end of 2021 was estimated at GH¢351.8billion (about 76.6 percent of GDP) and the cedi had depreciated by 9 percent on the retail market. These conditions of high budget deficit, high debt to GDP ratio and quickly depreciating currency make investors nervous. But some investors still had faith in government, hoping that if the E-levy was passed, it would bring in a new revenue stream to shore-up government’s fiscal position. By not passing it and generating huge controversies around it and the entire economy, what impression were we creating in the minds of the investors? How were we expecting the sovereign rating agencies to profile us?

The end result was that the Sovereign rating agencies quickly downgraded Ghana. This made it impossible for government to raise new bonds – or had to do so at a very high cost. In addition, some investors also started disinvesting in Ghana and there was capital flight at the time government had not raised enough dollar bonds to shore-up our reserves and stem the tide of cedi depreciation. As a result, by the end of first quarter the cedi had depreciated by 15.8%. The situation was worsened by outbreak of the Russian-Ukraine war.

According to Kristalina Georgieva, the IMF Managing Director, the world has never experienced these double crises – pandemic and war – at the same time. She noted that the world’s ability to deal with them is further complicated by another growing risk – fragmentation of the world’s economy into geopolitical blocs with different trade and technology standards, payment systems and reserve currencies. In effect, the world is facing serious economic challenges with growth trending downward while inflation is trending upward. In human terms, peoples’ incomes are down and hardship is up. Economies facing downgrades include net importers of food and fuel – in Africa, the Middle East, Asia and Europe.

Since 2020, over 100 countries have approached the IMF for either an emergency funding/lifeline or a programme funding with them. Those countries seeking IMF programme funding include Pakistan, Sri Lanka, Egypt, Tunisia, Argentina, Lebanon, Kenya and lately Ghana, just to mention few who are at various stages of engagement with the Fund. So, I do not see what the hullabaloo about Ghana seeking a programme with the IMF is about, except for making political noise.

What’s different this time? Apples should not be compared with oranges

There is no argument as to the path of Ghana’s development toward a ‘Ghana Beyond Aid’ prior to emergence of the twin disasters of COVID-19 pandemic and the Russian-Ukraine war. Ghana for 3 consecutive years (2017-19) was among the fastest-growing economy in the world, with an average GDP growth of 7% (double the 3.1% inherited at the end of 2016) and a positive primary surplus over the same period – which was rare in our economic history.

Through Planting and Rearing for Food and Jobs, Ghana had become a net exporter of food-related items; factories under 1D1F (120 currently operational) had started popping up and adding value to our raw materials and reducing our import bill; automobile giants including Volkswagen, Toyota, Suzuki, Nissan and Sinotruck lined up to open their Assembling plants in Ghana; a policy to improve our human capital through Free SHS and massive recruitments in both public and private sectors of the economy to reduce youth unemployment after a 4-year freeze among others. But for COVID-19 and the Russian-Ukraine war, Ghana would have inched closer to ‘Ghana Beyond Aid’ just like President Kufour’s government transformed Ghana from HIPC to Lower Middle Economy in a record six (6) years.

It must be noted that when the NPP criticised the then-government for going to the IMF, conditions were different in the sense that Ghana by 2011 was the highest growing economy in the world with a GDP growth of 14% as a result of the oil money coming into the main revenue stream. And within 3 years, the economy had degenerated to an extent that Ghana needed to seek an IMF bailout.

To put it in context by comparing some figures, under new oil money and without any crisis – except the cholera that hit both Accra and Kumasi and killed nearly 200 people – GDP growth trended downward from 14% in 2011 to 3.1% (lowest in 25 years) by end 2016. This was lower than the average GDP growth rate of 4.2% during the COVID-19 pandemic under Akufo-Addo.

Under the previous regime, BoG’s prime rate had trended upward to 25.5% while the interest rate had trended above 32% by end of 2016. However, the BoG Prime rate under Akufo-Addo had trended downward from 25.5% in 2016 to its lowest in 10 years at 12.5% for September 2021 before climbing back to 19% in May 2022, for obvious reasons.

The inflation rate had achieved a long-running single-digit under President Atta Mills, but ended at around 15.5% by end of 2016 under President Mahama. Under Akufo-Addo’s regime, inflation had trended downward from 15.5% to its lowest of 7.2% in 2021 before rising up to its record high of 27.6% in May 2022 – at the same time countries across the world had broken inflation records. For instance, Nigerian inflation was 17.71%, US inflation of 8.6% was the highest in 40 years. UK inflation of 9.1% the highest in 40 years. The EU region’s inflation of 8.1% was the highest since creation of the Eurozone in 1999. So, Ghana’s record inflation was in line with world record inflation figures.

The cedi had depreciated from GH¢1.2/$1.0 from 2009 to GH¢4.2/$1.0 by end 2016: a depreciation of about 250% with an average annual depreciation of 31.25%. No wonder the cedi was adjudged the worst-performing currency in 2014 and 2015. Under President Akufo-Addo, the cedi depreciation from 2017 to 2019 (before Covid) was 33.3%, giving an average annual depreciation of 10.1%. From 2017 to May 2022, the cedi-dollar rate had moved from GH¢4.2/$1 to GH¢7.126/$1. This gives a depreciation of the cedi by about 69.66%, giving an annual depreciation of 12.7% under this government.

With regard to public debt, public debt had increased from GH¢9.5billion by end of 2008 to about GH¢122billion by end of 2016 – a percentage change of 1,184.2% and giving an annual debt accumulation of 148%. In the midst of all these debt accumulations, employment was frozen; Dumsor ran for 4 years; industries were on their knees; teachers could not afford chalk; the judiciary service could not afford printing paper; NHIS was on the verge of collapse and MDAs were in debt of over GH¢11billion; and energy sector debt was about GH¢10billion among others. In addition, the IMF had indicated that out of the US$37billion dollars borrowed between 2009 and 2015, only US$6billion could be accounted for in terms of infrastructure projects – hence the freeze on employment and other harsh conditionalities.

Under President Akufo-Addo, public debt moved from GH¢122billion to about GH¢391.9billion (including legacy debt and banking-sector clean-ups) by first-quarter 2022. This gives a percentage increase of 221.22% with an annual accumulation of 36.9%. With barely six years in office, the Akufo-Addo/Bawumia government has rolled-out Free SHS (over 1.2 million beneficiaries); about 93,724 recruited in the educational sector, clearing all the arrears from 2012; about 100,000 health professionals recruited, clearing all the arrears from 2012; 48,000 teacher-trainees, 49,000 nurses trainees and about 3,000 Arabic Instructors had their allowances restored; 100,000 were recruited under NABCO;

One-District One-Factory (1D1F) was introduced, with about 120 factories currently operational; One-Village One-Dam (1V1D) came in; 307 modern-equipped ambulances were provided (1Constituency 1Amb); 6-interchanges (roads) and over 750 km of asphaltic overlay (the largest by any government in history) were completed; there were Tamale and Kumasi airport upgrades, as well as Sunyani airport construction; mobile money interoperability, the paperless port among other life-changing projects and policies were implemented.

Concluding Remarks

As stated by the managing director of the IMF and captured earlier, the world has never before experienced the twin disasters of a pandemic and war at the same time. As a result, cost of living has gone beyond imaginable proportions – causing hardships and demonstrations across the world as observed by the following few headlines:

  • Nearly 80,000 people in Brussels (Belgium’s capital) protest high cost of living (June 21, 2022)
  • Cost of living protests held across Ireland as inflation reaches 4-decade high (June 19, 2022)
  • Ecuador at a standstill after two weeks of protests over cost-of-living crisis (25th June, 2022)
  • Thousands protest in Tel Aviv against rising cost of living (17th February, 2022).
  • French Unions lead protests, strikes over cost of living (27th January 2022)
  • Thousands of Moroccans staged nationwide protests to complain about the soaring prices of fuel and other essential commodities (20th February 2022).

With Ghana signing up to IMF’s programme, the uncertainties and nervousness are high. It may have been a political equalisation or victory for some people, but it will be Ghanaians that pay the high price. For instance, if the IMF asks for Free SHS to be cancelled, parents, guardians, public/civil servants who are breadwinners in their families, as well as our MPs, will return to paying school fees for multiple people under their care or constituency.

If employment is to be frozen, as happened at the last Fund programme, will Ghanaians be happy for another 4-year freeze on employment by government? In the last Fund programme, 500,000 public sector workers were seen as being over-bloated. The Akufo-Addo government increased this to close to 700,000. If the IMF insists on trimming the numbers, who will be happy to go out and look for new job when there is a freeze on employment?

Government did its best to avoid going to the IMF – including literally begging and making concessions for parliament to come onboard in getting certain bills passed; not because of the political noise it would generate, but the hardship they would avoid bringing on Ghanaians. But if for some people making it an agenda to frustrate government and force it to the IMF is more important to them than the welfare of Ghanaians, so be it. We will all live through it as Ghanaians. We went to HIPC and came out stronger. We inherited an IMF programme and we worked our way out of it. We shall overcome this one, too. In Sha Allah.

Assallamu Allaikum!

The writer is the Senior Economist, Office of the Senior Presidential Advisor   

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