Ghana and IMF bailouts; my humble take

Former president, His Excellency, John Mahama in an opinion piece wrote on the 7th of February, 2022, "Time is ticking for the crisis-ridden Ghanaian economy" stated among other things that the best option for Ghana in our current economic challenges should be to go to the IMF. He said, "The knowledge shared at Senchi crystallized into our Homegrown Fiscal Consolidation Programme, which we eventually presented to the IMF for support.


The IMF agreed entirely with our homegrown strategy whose implementation restored stability to the economy and laid the strong foundations that this government, just as the World Bank in 2016 forecasted, profited from between 2017 and 2020" The former president added, "We must as a matter of urgency, borrow a leaf from our [NDC] sound approach toward the challenges we faced in 2015.""

The view of the former president and the NDC that Ghana should look towards the International Monetary Fund (IMF) to be rescued from what he believes is an unfolding economic meltdown seems to be a call for economic disaster.

There is no question about the serious nature of the economic challenges Ghana is currently facing. Global credit rating agencies are not favourable to us. Both Fitch and Moody have downgraded Ghana.

The economic situation we find ourselves is getting more desperate. This also calls for desperate measures.


Though I am not an economist, my experience as a public servant during some of the years Ghana took bailout from the IMF has given me the full conviction that the very idea or thinking of the former president for the current government to run to the IMF is a bad one and must be dismissed outrightly. Ghana's historical economic dealings with the IMF suggests that IMF administered rescue programmes are actually a recipe for disaster. They worsen rather than rescue the situation. Let us take a brief journey of some of our marriages with the IMF:


The PNDC ERA
In 1983, the PNDC government launched the Economic Recovery Program (ERP) under the guidance of the World Bank and the IMF.

“The overriding purpose of the ERP was to reduce Ghana's debts and to improve its trading position in the global economy. The stated objectives of the program focused on restoring economic productivity at minimum cost to the government and included the following policies: lowering inflation through stringent fiscal, monetary, and trade policies; increasing the flow of foreign exchange into Ghana and directing it to priority sectors; restructuring the country's economic institutions; restoring production incentives; rehabilitating infrastructure to enhance conditions for the production and export of goods; and, finally, increasing the availability of essential consumer goods.

In short, the government hoped to create an economic climate conducive to the generation of capital.” (thehttp://countrystudies.us/ghana/70.htm)


The ERP however could not bring about the fundamental transformation of the economy which Ghanaians anticipated. The country continue to rely on incomes earned from cocoa and other agricultural commodities. Majority of Ghanaians could not boast of benefits from the program.


The ERP ignored the plight of Ghanaians not involved in the export sector. The overwhelming shift in resources was toward cocoa rehabilitation and other export sectors, not toward food production.

Government employees, especially those in the public sector, were actively targeted, and many were rendered unemployed. There was also massive and radical sale and divestiture of state enterprises. Ghanaian farmers suffered much as the percentage of the total budget devoted to agriculture fell from 10 percent in 1983 to 4.2 percent in 1986 and to 3.5 percent in 1988, excluding foreign aid projects.


Although cocoa contributed less to Ghana's GDP than food crops, cocoa nonetheless received 9 percent of capital expenditures in the late 1980s; at the same time it received roughly 67 percent of recurrent agricultural expenditures because of its export value.


The World Bank/IMF inserted conditions in the ERP [Economic Recovery Program] that the PNDC had no option but to accept in exchange for money to re-build Ghana after the mismanagement of the 1970’s.

The biggest of which as indicated above was the divestiture or privatization of state enterprises. This meant that many of the state enterprises and industries built by Dr. Kwame Nkrumah were either sold off to private investors or just left to rot. The introduction of such policies, which were not in line with national interest, contributed to the deterioration and not the development of the country’s economy.


THE JOHN MAHAMA ERA
In 2014, the John Mahama and the NDC government engaged the IMF for a bailout. There was resistance and opposition from the Ghanaian public but the government refused and went ahead to sign the deal.


During a trip to the US for the US-Africa Leaders’ Summit in Washington DC in 2014, former president Mahama explained that his government took the decision to go to the IMF “because there was the need for policy credibility and confidence from the international financial institutions to restore economic stability and growth.”

As stated earlier, the Ghanaian public was against the government going to the IMF. The then Secretary-General of the Trade Union Congress (TUC), Mr. Kofi Asamoah, warned the government during the 2014 May Day celebrations.

He told the then John Mahama administration that eventhough “times are hard; the prognosis on the economy is not good either, but we must at this point resist the temptation to seek an IMF bailout.

As we have stated, it is the IMF-sponsored policies that have brought us almost to the brink. No country has developed following the advice of the IMF.


Resorting to the IMF for financial support was a mistake we made in the past. We must take responsibility for this mistake and find a solution to our problem.”


The government refused the warnings and went ahead with its agreement with the IMF. International Monetary Fund (IMF) approved a three-year arrangement under the Extended Credit Facility (ECF) for Ghana in an amount equivalent to SDR 664.20 million (180 percent of quota or about US$918 million) in support of the authorities’ medium-term economic reform program.


The IMF said the program was to restore debt sustainability and macroeconomic stability to foster a return to high growth and job creation, while protecting social spending.

The IMF added, “Achieving key fiscal objectives will require strict containment of expenditure, in particular of the wage bill and subsidies. The government’s efforts to mobilize additional revenues will also help create more space for social spending and infrastructure investment, in particular in the energy sector...

The government’s structural reform agenda appropriately focuses on strengthening public financial management and enhancing transparency in budget preparation and execution.


Strengthening expenditure control will be critical to avoid new accumulation of domestic arrears.


The government should continue to clean up the payroll and improve control of hiring in the public sector to address one of the main sources of fiscal imbalances in the recent past. At the same time, enhanced transparency in the public finances will be critical to garner broad support for reforms.(https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr15159)


This bailout came with so many unpalatable consequences to Ghanaians. The agreement with the IMF led to the:

1. Withdrawal of Teacher Trainee Allowances
2. Withdrawal of Nursing Trainee Allowances
3. Tertiary students were made to pay utility bills which were free before going to IMF
4. Utility Tariffs were added to the school fees of SHS students
5. Embargo placed on public sector recruitments
6. Removal of subsidies on Electricity Tariffs
7. Imposition of more taxes on Petroleum Products
8. Taking off subsidies from fertilizers
9. Newly posted College of Education teachers were not paid their salaries resulting in the current Legacy Arrears the government is still battling to pay.
10. Introduction of the COLA(Cost of Living Allowance) because the government could not increase salaries of public sector workers.
11. There was also the introduction of the three months pay policy where public sector workers were paid only three months even if they are owed four years arrears and the rest denied them.


These negative effects should not make any Ghanaian to even ever contemplate of going to the IMF.

In fact, former president Mahama on the 29th of March, 2021 at a public forum, had this to say about his experience with the IMF: "Our country has come a long way since then, the international financial institutions have also come a long way since then.

Kenneth Kaunda said the IMF is like a mad doctor, it can only dispense one prescription, quinine, those of you who know quinine, it is the bitterest medicine you will ever encounter on earth, and that’s all the IMF knew to do, give you quinine, so we had to cut down subsidies to everything, subsidies to healthcare, education, agriculture…but Ghana had to go through it, take the bitter pill and make some adjustments... it was in those years that the cedi was left to float, foreign exchange bureaus were introduced, forex bureaus were introduced, those were the beginnings of court sharing and the beginning of cash and carry in the health sector, you had to pay before you were given service.

It created a lot of hardship in Africa and more classes of poverty”.(https://mobile.ghanaweb.com/GhanaHomePage/business/IMF-conditions-were-bitter-John-Mahama-523358)

Bad record
The historical record of the IMF with regards to countries it bailout are not favourable. Majority of the countries which subjected themselves to the IMF Ghana inclusive cannot boast of positive stories. Instead of the IMF bailing out countries, it has rather created a list of countries suffering from debt dependency. A financial and economic Journalist, Kwabena Adu Koranteng, wrote, of all the countries across the world that have been bailed out by the IMF:


•11 have gone on to rely on IMF aid for at least 30 years(Ghana is a typical example)

•32 countries had been borrowers for between 20 and 29 years, and


•41 countries have been using IMF credit for between 10 and 19 years. (https://www.modernghana.com/amp/news/1118075/why-ghana-shoudnt-turn-to-imf-for-loan-kwabena.html)


The data above is a clear indication that it’s nearly impossible for any country to free its economy from the IMF debt programmes.

Debt dependency undermines a country’s sovereignty and integrity of domestic policy formulation. The debt conditions usually restrict pro-growth economic policies making it difficult for countries to come out of recession.


The main reason is that the IMF and World Bank always insist on austerity measures which include; cutting government borrowing and spending, lowering taxes and import tariffs, raising interest rates and allowing failing firms to go bankrupt. These are normally accompanied by a call to privatise state owned enterprises and to deregulate key industries.


These austerity measures always cause great suffering, poorer standards of living, higher unemployment as well as corporate failures.


The World Bank which together with the IMF implemented the Structural Adjustment Program (SAP) during the PNDC/NDC regime in 2001 admitted mistakes in its implementation.

The Public Agenda Newspaper of 15th May, 2001, wrote, "The World Bank Country Director in Ghana, Peter Harrold, told the 250 delegates at the SAPRI forum that the global outcry against the impact of SAP is a manifestation that the World Bank failed to factor in the economic and social impact of the Bank's policies.. Harrold admitted that the World Bank and the International Monetary Fund (IMF) ignored Africa's social priorities and were only driven by economic criteria.


Dr. Kwesi Nduom, Minister of Economic Planning and Regional Integration captured this in a speech he read for President John Kufuor at the forum.


"After 20 long years of implementing structural adjustment programmes, our economy has remained weak and vulnerable and not sufficiently transformed to sustain accelerated growth and development. Poverty has become rather widespread, unemployment very high, manufacturing and agriculture in decline, and our external and domestic debts much too heavy a burden to bear," said the President.


Overall GDP growth averaged 4.3 percent annually, far below the Programme target of 7.8 percent. The annual inflation averaged 24.7 percent, in comparison to the target of 17.6 percent with the year 2000 ending with an inflation rate of 40.5 percent. The balance of payments averaged significant deficits as opposed to the Programme's surpluses. In fiscal affairs, the national budget showed overall annual deficits in contrasts to the Programme's surpluses.


Added to all these is the country's external debt which increased rapidly under SAP, culminating in Ghana opting to access the Highly Indebted Poor Country (HIPC) initiative.

The Chairman of the Tripartite National Steering Committee of SAPRI, Professor Akilagpa Sawyer, was blunt in pointing out that the bankruptcy of IMF/World Bank reforms have been exposed by the failures of SAP."
(https://mobile.ghanaweb.com/GhanaHomePage/NewsArchive/World-Bank-admits-mistakes-in-SAP-implementation-15261)

CONCLUSION
The Nana Addo government has already indicated its desire and commitment to build ‘Ghana Beyond Aid'. For Ghana to be able to stand on its own and develop without aid, it requires sacrifices to be made by all Ghanaians. We cannot build a self-reliant country whilst running to the IMF for a bailout on any least opportunity. We cannot build a self-reliant country without using creative ways to generate revenue from within and that is why the electronic levy is important.


Ghana going to the IMF meant we are ready to sacrifice and take a very bitter pill. Going to the IMF meant we are ready to sacrifice so that government will freeze employment in the public sector, take off the teaching and nursing training allowances, take off the subsidies on fertilizer products and perhaps cancel the Free SHS policy.

These are the painful sacrifices John Mahama and the NDC are pushing the government to.


We need to support the government by having the e-levy passed so that we would not be pushed to the IMF and its killer conditions.

The e-levy will help the government generate more revenue for the country and also create more employment opportunities for the youth. Ghana urgently needs the e-levy at this our economic recovery stage after the economy nearly collapsed due to the outbreak and spread l of the coronavirus pandemic.

Written by: Hon. Amidu Chinnia Issahaku (MP for Sissala East and Deputy Minister of Sanitation and Water Resources)