The International Monetary Fund (IMF) bailout and the expected impact on the informal economy in Ghana: A trade union perspective

Ghana’s informal economy plays a critical role in providing employment and livelihood opportunities for a significant portion of its population. However, concerns arise regarding the potential impact of the recently approved $3 billion loan under the Extended Credit Facility by the International Monetary Fund (IMF) on this sector.

This article aims to explore the expected consequences of the IMF bailout on Ghana’s informal economy, taking into account the historical context of harsh conditionalities and the need for a comprehensive policy approach by the government.

Ghana has previously faced stringent conditionalities imposed by the IMF, leading to adverse effects on the informal economy. Structural adjustment measures implemented during the late 1980s and mid-1990s aimed at stabilising the economy and reducing fiscal deficits resulted in job losses, increased poverty, and social unrest.

For instance, between 1987 and 1992, Ghana’s informal sector employment declined by 28%, while real wages fell by 50%. The removal of subsidies and price controls further exacerbated the challenges faced by informal workers and entrepreneurs, causing higher costs of living and reduced access to essential goods and services.

Given the IMF’s focus on macroeconomic stability and debt sustainability, it is likely that the Ghanaian government will be compelled to implement severe austerity measures. These measures may include reducing public spending, cutting subsidies, and increasing taxes.

Unfortunately, such actions can have a detrimental effect on the informal economy, which heavily relies on public expenditure and affordable inputs. The implementation of austerity measures is expected to exacerbate unemployment, as individuals may turn to the informal sector for survival. The Ghana Statistical Service (2021) indicates that unemployment rose from 4.5% in 2019 to 5.1% in 2020, with underemployment also increasing from 8.6% to 9.6%. Moreover, the IMF bailout program requires Ghana to reduce its fiscal deficit from 15.2% of GDP in 2020 to 9.5% in 2021 and 5% by 2024.

Such significant cuts in public expenditure can impact sectors crucial for developing human capital and productive capacity within the informal economy, including education, health, and infrastructure.

Addressing the informal economy comprehensively presents a significant challenge for Ghana’s policymakers.

However, the constitutional mandate requiring the President to present a coordinated program of economic and social development policies offers an opportunity to establish a clear policy framework.

The government’s initiatives, such as providing national identification cards and generating a digital record of properties, can assist in effectively targeting and implementing government interventions.

Nonetheless, successful implementation is crucial for the success of these initiatives. Additionally, the government faces pressure from the IMF to increase domestic revenue mobilisation, which may involve expanding taxation to cover more informal businesses. However, to avoid discouraging formalisation and compliance among informal enterprises, it is crucial to ensure that they receive adequate benefits and incentives in return.

Trade unions and non-governmental organisations (NGOs) have made efforts to address challenges related to the informal economy. Collaboration between the government and these organisations is essential for successful formalisation. Trade union organisations such as the Trades Union Congress (Ghana), have sought to organise and represent the interests of informal workers through social dialogue.

In 2013, the TUC facilitated the formation of the Council of Informal Workers’ Associations (CIWA), later renamed Union of Informal Workers Associations (UNIWA) as an umbrella trade union organisation to support, protect, and promote the interests of the vulnerable informal economy workers in Ghana. Furthermore, NGOs like StreetNet International and Women in Informal Employment: Globalizing and Organizing (WIEGO) advocate for the recognition and protection of informal workers’ rights and interests at various levels.

To ensure the negative impacts of the IMF conditionalities are mitigated, Ghana should adopt a comprehensive policy approach that draws on lessons learned from past experiences. One effective model to consider is the Programme of Action to Mitigate the Social Cost of Adjustment (PAMSCAD), which was introduced in 1987 as a response to the social costs of structural adjustment policies imposed by the IMF.

PAMSCAD prioritises social protection measures, skill development programs, and financial services tailored to the needs of the informal sector. By implementing such measures, Ghana can provide support and assistance to informal workers, ensuring their rights are protected, and their livelihoods are strengthened.

Social protection measures can include access to healthcare, education, and affordable housing, which are crucial for improving the well-being of informal workers and their families. Skill development programs can empower informal workers with the necessary skills and knowledge to enhance their productivity and competitiveness. Financial services tailored to the informal sector, such as microcredit and savings schemes, can provide them with access to capital and resources to expand their businesses.

Additionally, the government should focus on developing policies that encourage formalisation while recognising the unique characteristics and challenges faced by informal workers. This can involve simplifying registration processes, reducing bureaucracy, and providing incentives for formalization.

By formalising the informal sector, workers can access social protection benefits, improved working conditions, and greater opportunities for growth and development.

Furthermore, the government must invest in infrastructure and public services that directly benefit the informal economy. Access to reliable electricity, transportation networks, and marketplaces can significantly enhance the productivity and efficiency of informal businesses. Additionally, providing affordable and quality education and healthcare services can contribute to the development of human capital within the informal economy, leading to improved productivity and economic growth.

As Ghana navigates the IMF bailout and seeks to restore macroeconomic stability and debt sustainability, it is imperative to carefully consider the impact on the informal economy.

The implementation of severe austerity measures and the absence of a clear-cut policy approach pose significant challenges. However, by recognising the significance of the informal sector and adopting a comprehensive policy framework, Ghana can address the concerns and leverage the potential of the informal economy to foster sustainable economic growth and development.

Trade unions, in collaboration with NGOs and the government, play a crucial role in advocating for the rights and interests of informal workers.

Through social dialogue and joint efforts, comprehensive policies can be developed that prioritise the needs of the informal sector, protect workers’ rights, and provide them with the support and resources necessary for their livelihoods and well-being. By adopting a trade union perspective, Ghana can navigate the IMF bailout in a way that ensures the informal economy continues to contribute positively to employment and poverty reduction, fostering a more inclusive and sustainable economic future.