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The government's U-turn on a bailout boosts the opposition in the short term but raises bigger questions about the economy's structure
On 13 July, after six days of talks with the government, the International Monetary Fund referred to Ghana's 'challenging economic and social situation' – code for the multiplicity of political problems and spending battles to come if negotiations on a bailout are to lead anywhere.
Negotiations could drag on for another six months, particularly after the Finance Ministry in Accra announced that it may seek a finance package of up to US$2.5 billion, over double the forecast sum (AC Vol 63 No 14, A reluctant reversion to the IMF). That would suggest a much more comprehensive set of economic reforms than first mooted.
The opening of negotiations with the IMF announced on 1 July followed weeks of anguished debate within the cabinet. One faction, led by Finance Minister Ken Ofori-Atta, was resolutely opposed to turning to the IMF but the majority resigned itself to the 'least bad option' after policy choices narrowed sharply (AC Vol 63 No 4, Ofori-Atta bets on the E-Levy, rejects IMF). Government insiders spoke of raising an extra $3bn for state spending and debt servicing in 2022-23 and claimed that the IMF would offer the most viable route.
Along with the tough spending cuts to be negotiated, President Nana Addo Dankwa Akufo-Addo faces high political costs. Many in the ruling New Patriotic Party (NPP) see resorting to the IMF as shameful and a gift to the opposition National Democratic Congress (NDC) ahead of national elections in 2024.
Under Akufo-Addo, the NPP has tried to distinguish itself from the NDC by favouring business, from where it has drawn its strongest support, and social market policies. The NPP's repeated promise to voters was that it would 'never go back to the IMF'; the NDC has resorted to Bretton Woods funding seven times, under all three NDC presidents of the Fourth Republic, starting with Jerry Rawlings. Under Akufo-Addo, the 'no to the IMF' mantra was held up as a testament to its competent economic management.
But the state has been running on empty. Between 2017 and 2019, when Ghana had free access to the capital markets, it borrowed ($5 billion in Eurobonds alone) and spent liberally. The country's debt-to-GDP ratio is above 78%, payments to National Service trainees are serially months in arrears, inflation is running just under 30%, domestic banks are unable to meet more than a third of the dollar demand to cover essential fuel imports, and a long list of trade unions is threatening strike action. On 28 June a demonstration in Accra against the rising cost of living by the Arise Ghana! protest group led to clashes with police, and more are promised.
The NDC's likely presidential candidate in 2024, Akufo-Addo's predecessor John Dramani Mahama, lambasted the NPP's economic record on 30 June the day before Akufo-Addo announced the recourse to the IMF. Targeting Akufo-Addo, Vice-President Mahamudu Bawumia and Ghana's 'Economic Management Team', Mahama demanded Ofori-Atta's sacking and dismissed his plans to raise $1bn in syndicated loans as irresponsible. Ghana's economy was entering a 'dizzying tailspin' of severe inflation, fiscal deficit, debt struggles, corruption, cedi depreciation and lost investor confidence, added Mahama.
It was a political role reversal for Mahama. He was President from 2011 to 2016 when borrowing to finance recurrent spending soared, driving his government to take on an IMF programme in 2015 – for which his opponents in the NPP heavily criticised him (AC Vol 56 No 18, A helping hand from the Washington twins).
Earlier, Mahama's Finance Minister Seth Terkper accused the government of wasting money on projects such as the national cathedral in Accra. Ofori-Atta now says the cathedral will cost around $350m, much higher than previous official estimates, from a mixture of private and state resources. Critics warn it could cost $1bn or more.
Having bowed to the cabinet's view on the IMF deal, finance ministry officials are keeping a low profile on the issue, as is Akufo-Addo. Ofori-Atta has not spoken in public since the 1 July announcement.
Bawumia, the frontrunner to be the NPP's presidential candidate in 2024, broke the government's official silence on 14 July with a policy speech at the Accra Business School putting the most upbeat spin on the IMF talks.
'With enhanced fiscal discipline and structural reforms to restore debt sustainability and growth, we should emerge stronger than we have with the previous 17 IMF programmes,' he said.
Criticising policy to date, Bawumia added: 'The focus of governments since independence has been on crisis management… factors such as the collapse in commodity prices, increase in oil prices, debt unsustainability, political instability, macroeconomic instability.' This, argued Bawumia, had been at the expense of 'building systems and institutions' that drive sustainable growth.
Listening carefully to Bawumia would have been the Governor of the Bank of Ghana, Ernest Addison, who is known to differ with top members of the Economic Management Team. Certainly, the opposition NDC has won the first round in the fight over the IMF talks. But the government hopes that if it can tie up a deal quickly, using it to improve fiscal discipline and debt sustainability, that could allow Ghana's return to the Eurobond market and start to turn around the economy ahead.
Perceptions about the government's options have changed rapidly. London-based Tellimer's head of sovereign/fixed income research Stuart Culverhouse, who in February viewed a return to the IMF as an absolute 'last resort', suggests that a quick agreement of a programme with the IMF could produce some benefits ahead of the next elections. He also takes the view that – depending on the IMF's view and updated 'debt sustainability analysis' calculations – a restructuring of Ghana's debts under the IMF/G20-backed 'Common Framework' may not be required.
Standard Chartered's Chief Economist for Africa and the Middle East, Razia Khan, suggests that recent events and past policy-choices have left Ghana with little option but to approach the IMF, and that, in the event the IMF pushes for formal debt restructuring, Ghana could potentially receive a 'fresh start' with diminished debt overhang and the 'fiscal anchor' of an IMF programme. Yet, Ghana is yet to submit a formal letter of intent for a funded programme, both staff-level and IMF executive board-level approvals will be required, and that process could take much of the rest of this year.
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