Summary of why Ghana sought for an IMF programme
The University of Cape Coast (UCC) Lecturer, Professor John Gatsi has summarized the reasons behind Ghana opting for an IMF programme.
In a public statement, Professor John Gatsi disclosed that Ghana has spent a year struggling to meet the conditionalities set out by the IMF in order to secure an approval. Finally, with iron hand implementation of the domestic debt exchange programme, paying deaf-ear attention to vulnerable pensioner bond holders, production of different taxes and introduction of economic prices and tariffs for energy and utilities, the IMF has approved Ghana’s request for extended credit facility on May 17, 2023.
SOME CAUSES OF THE CRISIS
He stated that among the reasons hinged on by the IMF and accepted by the government of Ghana are:
1. Pre-existing fiscal vulnerabilities reflecting in openly weak fiscal indicators and pronounced debt distress.
2. External factors such as Covid-19 and later Russian- Ukraine war. The government has decided to amplify this as though we had good fiscal indicators and Ghanaians were comfortable with the outcome of economic management before Covid and the war. The IMF staff report explained that was not the case, that there were pre- existing difficulties before the war. The IMF Managing Director started a crusade claiming it was Covid and the war that were the problem of Ghana.
However, the programme report explained otherwise meaning those statements were made only to secure the deal.
3. Fiscal dominance and weak independence of the monetary function of the central bank.
Explaining, he said this was admitted to when the governor of the Bank of Ghana explained that the economy recorded 12.6% inflation at the end of 2021 but rose to over 50% because government did not have money to finance the budget so the bank accommodated financing needs of government. So the inflationary development in 2022 and part of 2023 is just due to over lending to government and not the war.
This is what his explanation means, that we should blame fiscal dominance first before blaming the war. The weight of contribution to inflationary development between Russian-Ukraine war and Bank of Ghana’s lending to government is hugely tilted towards lending to government by the Bank of Ghana.
“That is the reason why the IMF has asked the government and the bank to revise the Bank of Ghana Act to reflect zero lending to government before the next tranche can be released. Also for the revised Act to reflect specific time lines and the magnitude of events that should trigger emergency financing by the monetary authority. Trust issues compelled the IMF to set a pre-condition of signing a memorandum between Ministry of Finance and the Bank of Ghana that they embrace zero lending and borrowing principle,” he disclosed.
“This whole over lending to government was treated by the IMF as reflecting weak independence of the central bank. To a large extent weak independence means the bank is open to do whatever is requested by government.”
Further, Professor John Gatsi added that “Now, the causes listed above and the solutions have been presented to government and the bank but they prefer to justify the wrong instead pausing and change. Here we are the same thing,Bank of Ghana and government refused to take from us and treating us as though we are opponents of the economy are here in the form of conditions. An elongated suspension of fiscal responsibility Act is another cause.
“Suspension of fiscal responsibility Act is not the same as suspension of transparency, accountability and responsibility. It only means the fiscal deficit of 5% has been increased to a specific higher level but this was misunderstood to mean, we can do whatever we like.”
The program report shows that the IMF does not think the Covid-19 expenditure audit published in January demonstrates responsible use of the funds and basically violates the rules in the public financial management.
He concluded saying ‘In summary, our problem is tilted more towards mismanagement and less towards external factors. External factors are real but they are not our main problem, mismanagement is our main problem.”