… as cedi fights back
Over the past ten years Ghana’s national currency, the cedi, has held its own against foreign currencies and remained comparatively stable. But over the last one year, the cedi was murdered through western policies. Key among the policies were the Environmental and Social Governance (ESG) policy and negative credit ratings by western rating companies.
These policies came on the heels of the Russia-Ukraine war, which limited the supply of critical raw materials like steel, iron and petroleum products. The invasion of Ukraine was followed by an instantaneous downgrading of Ghana by Moody’s, Standard & Poor’s and Fitch – which control the entire credit rating market. Together, these major rating companies reduced Ghana’s credit rating from mid-risk to very, very high risk. Unfortunately, the developing world has no credit rating companies to counter the power of western companies.
The reason for downgrading Ghana’s credit rating had little to do with economic management, but more to do the ESG policy of western countries. The rationale behind ESG is that Ghana’s environmental policies are conflicting with western expectations; hence their decision to raise the red flag about ESG in Ghana. Experts say Ghana’s decision to restrict mining in our forests by western mining companies did not go down well with the western powers, hence the decision to punish Ghana by using ESG as a ruse. Undoubtedly, the downgrading was to make it difficult and expensive for Ghana to borrow at low interest rates from the international market.
Reliance on foreign investors
Over the years, Ghana’s biggest mistake has been over-relying on foreign investors, because it is easier to obtain billions of dollars at low interest rates. As low as the interest rates may be, the loans come with strict conditions and golden handcuffs. The handcuffs increase interest rates to 3% – 4% to make it unattractive and punitive to borrow in order to refinance existing debts and interest rates. This was how the rating agencies and western powers undermined the Ghanaian currency. Given the fragility of our economy and unpredictable global financial market, Ghana needs to come to the crossroads and make a decision whether to continue with golden handcuffs or break from western finance and resort to local initiative.
Liquidity
As a matter of national urgency, we need to start creating local liquidity if we want to free ourselves from western control in the long run. But many Ghanaians are tax-averse and employ all means to evade taxes. Regrettably, some Ghanaians – including revenue officers – often collude with foreign companies and other non-Ghanaians to avoid tax payment. The recent public angst against the E-levy is a clear demonstration of our collective stance against tax payment; hence government’s failure to meet revenue targets over the last three years.
The 2023 Budget statement revealed a negative primary balance, indicating a departure from the previous three years when a positive primary balance was realised. This shortfall over the years resulted in an overall budget deficit of GH¢41,699million (7.0% of GDP), against a deficit target of GH¢36,684million (6.2% of GDP). The corresponding primary balance for the period was a deficit of GH¢9,597million (1.6% of GDP), against a deficit target of GH¢5,794million (1.0% of GDP).
According to the Budget Statement, total revenue and grants amounted to GH¢65,399million (11.0 percent of GDP), compared with a target of GH¢67,307 (11.4 percent of GDP) and the GH¢49,108million (10.7 percent of GDP) recorded in 2021. The shortfall in revenue stemmed from the less robust performance recorded in all the revenue handles for the period, says Mr. Ofori-Atta. Similarly, domestic revenue for the period amounted to GH¢64,601million (10.9 percent of GDP), falling below the GH¢66,503million target (11.2 percent of GDP) by 2.9 percent.
Two dilemmas
Against the backdrop of declining revenue mobilisation and poor credit rating, Ghana faces two dilemmas. First, should Ghana submit to western pressure or improve the ESG scores and enhance its credit rating? Secondly, should Ghana break from the western financial system forever and adopt home-grown solutions? Either way it is going to be difficult for Ghana, given the current fragile nature of the economy.
Adopting home-grown solutions would be the better option, but Ghanaians are used to being spoon-fed, and hardly make sacrifices for future gain. What’s worse is our collective failure to boost industrialisation and local consumption. This leaves Ghana with no choice but to continue submitting to the will of western powers. Small wonder that government reverted to the IMF for credit to solve the current fiscal distress.
IMF credit
Last week, Ghanaians received the good news that government and the IMF had reached a staff level agreement for a US$3billion facility to help Ghana restore economic stability. But the agreement is subject to approval by IMF management and the Executive Board, based on outcomes of financing assurances from Ghana’s creditors and development partners. A staff level agreement is the first step toward approval of an IMF support programme by the Executive Board. This implies that the US$3billion is not yet guaranteed.
As indicated earlier, Ghana’s programme is meant to restore economic stability while protecting interventions that improve a strong and inclusive recovery. Ghana’s government has committed to a wide-ranging reform on the Post-Covid Plan for Economic Growth. The programme is also meant to tackle serious challenges like weak productivity, worsening exchange rate and over-reliance on imports that are plaguing the economy.
Ghana is not the only the country receiving IMF support. One significant recipient is Rwanda, one of Africa’s top performers. Rwanda is receiving US$315million from the IMF’s new Resilience and Sustainability Trust. Rwanda is the first African country to receive this support – to be used for maintaining macroeconomic stability, advancing structural reforms and enhancing climate change adaptations.
Receiving IMF support is not new to Ghana, since the country has visited the IMF 16 times over 65 years of independence. The real news should be what the current government is going to use the money for. I can imagine the economic and social transformation that Rwanda will use its US$315million to achieve. Conversely, it is easy to predict that very little, if any, good will come out of Ghana’s US$3billion IMF credit if previous outcomes are to be used as a measuring-rod. Ours is an economy that is already shackled in debt – far beyond the targetted debt to GDP ratio.
The debt-shackle is a result of unbridled and imprudent borrowing by past governments. This has compelled the current government to borrow to settle interest rates and debts, besides the numerous social interventions calling for investments.
Another concern is our high level of importing almost everything, to the detriment of local production and industrialisation. Though some form of local production and industrialisation is ongoing, Ghana’s economy is still too dependent on imports. This is based on our collective insatiable taste for foreign goods, thus creating a huge market for foreign companies. If that’s what we are going to use the US$3billion for – to pay wages and salaries or sell to traders to import more goods – we are better off without the loan.
I am expecting government’s economic management team to channel a chunk of the money into manufacturing and industry, so that in the long-term our economy will emerge stronger by producing the bulk of what we consume and creating jobs for the youth. I shudder to think of Ghana going to the IMF for another bailout five years after receiving US$3billion. Were that to happen, Ghana would be doomed forever. Looking forward, government should develop a Marshall Plan based on national consensus that maps how we can utilise the US$3billion to boost local production, industrialisation and job creation.
Industrialisation drive
Moreover, the IMF, World Bank and Ghana’s multilateral and bilateral donors should be keen on helping Ghana chart a path of industrialisation. Our foreign partners should not be interested in lending to us to pay-off old loans and continue the borrowing cycle; they should aim at making Ghana the example of a country they have helped to industrialise and an economic success-story they can be proud of. I have had cause to challenge western countries – especially the United Kingdom which enslaved, colonised and looted Ghana’s resources – to lead Ghana’s industrialisation agenda.
Once the UK takes the lead, the USA, France, Germany and Netherlands can provide additional technical support to industrialise Ghana. They did it for South Korea, Singapore, Malaysia and Thailand etc., and can do same for Ghana. Looking at the ongoing effects of the slave trade, colonialism and the current unfair world economic order, western countries should be sincere in their dealings with Ghana and Africa. We need industries – not aid and loans which keep us mired in a cycle of consuming foreign goods and begging for assistance.
Of course, one of Ghana’s headaches remains visionary leadership. It is not every political leader or political party that has the capacity or foresight to lead an industrialisation agenda. Therefore, whether Ghana transitions from its current beggar and import status into a robust, emerging economy based on local production and industrialisation depends on which party or personality is in the driving-seat.
