Development Discourse with Amos Safo: IMF bailout and ‘Ghana Beyond Aid’

IMF financial assistance

A Facebook post by Information Minister, Mr. Kojo Oppong Nkrumah, to the effect that the impending IMF financial assistance to Ghana will not affect the ‘Ghana Beyond Aid’ policy, has attracted public backlash, with some critics describing his assertion as dishonest and arrogance.

One commentator noted that at the time there is widespread suffering across the country, the minister had the guts to be talking about ‘Ghana Beyond Aid’.  Impliedly, many Ghanaians think that once Ghana has returned to the IMF for support, government has no justification to continue talking about homegrown solutions. The reality is that borrowing is not a bad policy. Some countries, businesses and individuals in the past borrowed and prudently invested the money and made progress.  The reverse is the wasteful use of borrowed money.

Arguably, the stance by some Ghanaians against the return to IMF and its link to ‘Ghana Beyond Aid’ casts a picture of a people who have lost hope and self-belief to change their destiny. Once we nurture such hopelessness in our consciousness, I doubt we can ever aspire to control our destiny and attempt to wean ourselves from western domination. Let Ghanaians be reminded that sacrifice, patriotism and ingenuity are central to nation building.

The journey of South Korea, Malaysia and Singapore to economic development was marked by strong leadership, and a selfless and patriotic population that sacrificed to lay a solid foundation for the future. That is not the case with Ghanaians and Africans in general. Ghanaians, and perhaps many Africans have lost a sense of direction, always seeking to promote self-interest over national interest. What else can explain teachers’ demand for cost-of-living adjustment amid global financial difficulties that is crippling our economy? The attitude of the teachers is nothing but selfishness and nation-wrecking.

IMF discussion

Meanwhile the IMF team, led by Carlo Sdralevich, has concluded its first assessment of Ghana’s current economic situation.  A press release by the IMF team said the discussions focused on improving fiscal balances in a sustainable way, while protecting the vulnerable and poor; ensuring credibility of the monetary policy and exchange rate regimes; preserving financial sector stability; and designing reforms to enhance growth, create jobs, and strengthen governance. It is heartwarming that job creation is high on the agenda, unlike previous discussion when a net freeze on jobs dominated the discussion.

The outcome of the current discussion suggests that the 2015 IMF programme is different from the current. While the 2015 programme sought for an extended credit support, the 2022 version is seeking balance of payment support.  Experts say the balance of payment support will help government to shore up its foreign exchange reserve to stabilise the cedi against major foreign currencies, as well as assure investors of the safety of their investments.

Debt burden

Interestingly, the IMF team affirmed that “Ghana is facing a challenging economic and social situation amid an increasingly difficult global environment. The fiscal and debt situation has severely worsened following the COVID-19 pandemic. At the same time, investors’ concerns have triggered credit rating downgrades, capital outflows, loss of external market access, and rising domestic borrowing costs.

The IMF statement confirmed that, the global economic shock caused by the war in Ukraine is hitting Ghana at a time when the country is still recovering from the COVID-19 pandemic shock and with limited room for manaeuver. These adverse developments have contributed to slowing economic growth, accumulation of unpaid bills, a large exchange rate depreciation, and a surge in inflation.

Prior to the IMF confirmation, some critics had held that the current financial and economic difficulties in Ghana had nothing to do with COVID-19 and the Russia-Ukraine war. Meanwhile, Dr. Mahamudu Bawumia, Ghana’s Vice President, has acknowledged that the debt burden is partly to blame for the resort to IMF. According to him, the power purchasing agreements signed by the John Mahama Administration, and the banking and financial sector cleanup also caused by the same John Mahama Administration shackled the economy with crippling and unsustainable debts.

According to Dr. Bawumia, a cumulative debt of GH¢54billion from the energy debt and financial sector failure was what compelled the government to go to IMF. The current total public debt stock stands at GH¢391.9billion at the end of the first quarter of 2022. This translates to a debt to GDP of 78 percent.  Addressing an audience last week, the Vice President debunked the suggestions that government turned to IMF because of economic mismanagement.

Adding new sector

Ghanaians are generally weary of interventions of the Breton Woods institutions, especially the IMF because of its harsh conditionalities like a freeze on employment and social interventions. As indicated above, with the obvious resort to IMF, some analysts are dismissing the relevance of ‘Ghana Beyond Aid’ policy of government. ‘Ghana Beyond Aid’ is a vision announced in 2017 to pursue a foreign aid-free country. The policy is anchored on a “Wealthy, Inclusive, Sustainable, Empowered, and Resilient” Ghana, or in short, a W.I.S.E.R Ghana. It is a departure from previous dependence on foreign aid to the point of Ghana’s development budget drawing more than 50 funding from foreign donations.

While some Ghanaians have become overly pessimistic of the ‘Ghana Beyond Aid’ agenda, the policy framework gives cause for hope that if we get our priorities right, the economy will come out of the woods in the medium to long term. To start with, it is becoming clear that our economy cannot continue to depend on traditional sectors like cocoa and gold for sustainable development. To turn things around, government needs to focus on industrialisation such as the one district-one factory. So far the completion and operation of 106 factories across the country is impressive, but such investments will take time to yield the results.

Overtime, when Ghana starts exporting more instead of importing, more jobs will be created, and the cedi will become stronger because of less demands for foreign currency for imports. Garments and textiles is an area Ghana could become competitive over time, as there is increasing demands for Ghanaian textile abroad. It is estimated that Bangladesh earns more than US$30billion annually from the garment industry, compared to US$2billion Ghana earns from cocoa annually. From this scenario, it can be discerned that new economic sectors like garments are yielding more revenues than the traditional sector. The pharmaceutical and rubber products will always remain two of the promising sectors Ghana can develop as a major foreign exchange earner.

Looking beyond cocoa

While not discounting the essence of the traditional sector, I think more investment in the crops and livestock is the surest way of diversifying our economy. I think the overreliance of the cocoa sub-sector as the major source of foreign exchange needs to be reviewed. We need to focus on producing and exporting non-traditional exports.

Boosting the crops and animal sector will not only promote food security, it will also enhance our economic diversification. Ghana’s inability to harness the potential of palm oil as a major export earner is regrettable. It is sad that Malaysia, which borrowed the palm oil seed technology from Ghana is making a windfall from the commodity while Ghana is sleeping.   With all the land and water endowments, Ghana has no excuse to be consuming imported food. It is inexcusable to be spending foreign exchange in importing tin tomato, for instance, and other primary products when we have the competitive advantage to produce them locally.

Equally significant is government’s strategic focus on industrialisation. The 1D1F and the current investment in the automobile sector is commendable. The vibrancy with which some foreign automobile companies like VW, Toyota, Nissan, Kia, etc. have embraced government’s call for industrialisation is also commendable. It is estimated that Ghana spends US$1billion annually in importing new and used automobiles.

This could reduce if vehicle assembling becomes vibrant in Ghana. In future development, partners like   Germany, Japan and South Korea will be acknowledged for helping to industrialise our economy. Thus, Ghana’s drive for industrialisation should be supported by genuine development partners, rather than creating more avenues for dependency and plunging more African countries into unsustainable debt.

Boosting tourism

Like other sectors, tourism is another non-traditional sector Ghana has failed to harness as a major source of foreign revenue. Nevertheless, Ghana and her development partners have agreed that the sector needs more attention if it is to become a major source of revenue. As a result, the World Bank recently gave Ghana a US$10million-grant for investment in the tourism sector. A similar facility of US$40million was allocated to Ghana in 2018.

The World Bank notes that given the sector’s strong links with the economy, the grant is expected to contribute to an enhanced business environment that will enable private sector–driven growth, and will be important for long-term growth, jobs and investment. The World Bank acknowledges that tourism receipts provide an important source of foreign exchange, contributing to the government’s tax revenues and enabling economic growth.

Tourism is already having a positive impact on jobs and community income around the parks (such as Kakum and Mole), and has demonstrated economic benefits for Ghana’s coastal areas, such as Elmina and Takoradi.

Ghana is well-endowed with parks, protected areas and cultural attractions, and can attract high-spending environmentally conscious travellers. International demand for nature-based adventure tourism, ecotourism, and cultural experiences is increasing at a higher rate than business, wellness, or cruise tourism. Significantly, the international diaspora market for tourism is also important to Ghana because of the high number of forts associated with the Transatlantic Slave Trade.

Poor maintenance

Sadly, however, the World Bank’s report on tourism development in Ghana points out that the quality of tourism assets is low. Many tourism sites are poorly packaged or developed as destinations, and they are underfunded, poorly maintained, and lacking in visitor management facilities.

The country has a network of historically significant slave forts along with important national parks and reserves, beaches, vibrant cultural events, and high-quality traditional crafts. More than 64 forts, lodges, and castles were built between 1480 and 1760, but only about 32 are left, and only 18 of those are relatively intact. Sadly, while there is very little renovation of the forts, castles, and parks, those with UNESCO status have no signage indicating their status.

Additionally, there has been little attempt to capture revenue or add to the tourist experience at these sites, and many have inadequate parking spaces, poor sanitation, limited food, and low-quality souvenir shops. Similarly, Ghana’s beaches suffer from severe sanitation issues and require investment in cleanup and community awareness raising. The national parks have also been underused for tourism. Consequently, a low-quality visitor experience arises from a lack of value added to degrading tourism sites and attractions across the country. Herein lies a huge resource and foreign exchange earner that Ghana has failed to harness.

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