Ghana/IMF Deal: Tough but Necessary Adjustments Required
Ghana’s three-year programme with the International Monetary Fund (IMF) will require the implementation of some tough but necessary measures in the next three years, two economists have said.
The Senior Research Fellow at the Institute of Fiscal Studies, Dr Said Boakye, and the Head of Research at GCB Capital, Courage Boti, mentioned for instance, the electricity tariff adjustment, and controls on public sector salaries and employment among other things as some of the measures which will hit hard at citizens, but were necessary to restore the economy.
After 11 months of discussions and negotiations, Ghana finally received approval from the Executive Board of the International Monetary Fund (IMF) for a three-year budget support programme aimed at restoring macro-economic stability and debt sustainability but on condition the government met a number of targets including radical measures to improve revenue generation and block leakages in the system.
The Extended Credit Facility (ECF) which would see the country receive a total of $3billion is also expected to support structural reforms and help the economic recovery of the country after a couple of years of challenges.
Ghana’s IMF programme would be backed by the Post-COVID-19 Programme for Economic Growth (PC-PEG) which is the government’s blue print to address the economic challenges, restore macroeconomic stability, bring debt to sustainable levels in the medium-term, support structural reforms, promote growth and ensure that the poor and vulnerable are protected.
The key objectives of the PC-PEG is to, among others: restore fiscal sustainability as well as minimise fiscal risks including risk from contingent liabilities from state-owned enterprises (SOEs).
It is also expected to re-anchor inflation expectations by achieving low and stable inflation, strengthen the exchange rate regime; and restore investor confidence, regain market access, while unlocking other financing sources.
The PC-PEG is also designed to build buffers to strengthen resilience to economic shocks; improve the country’s sovereign credit ratings and regain international capital market access.
We got what we deserved
In an interview with the Graphic Business, Dr Boakye said the country got what it deserved with regard to the IMF deal.
“I have heard people arguing that the conditionalities are strict but while I have issues with one or two things, overall we got what we deserved.”
“We cannot overspend and think that if we want to get back to normalcy, it won’t require tough measures. You cannot get back to normalcy by following the usual practice.”
“So the conditionalities such as controls on salaries of public workers and employment are a step in the right direction,” he stated.
He said the IFS had long been calling for some of those tough measures, adding that the measures were a reflection of how badly the economy had been managed.
Tough adjustments
Mr Boti, for his part, said with the IMF deal, very tough adjustments were to be implemented over the next three years.
“It looks like some very painful tough adjustments to restore macro-economic stability and debt sustainability.”
“We have adjusted electricity and water tariffs and going forward, this would be done often and we are doing some form of fiscal consolidation which means that between now and 2026 we are expecting some fiscal adjustments and this will mean very tough decisions to be made, tax policies to be implemented and expenditure controls on all sides,” he explained.
He said on the face of it, they look tough but are needed to restore the economy.
“If you are sick of malaria, you must take malaria drugs so for us to correct the imbalances, we have to implement these tough measures.”
“It will be three difficult years ahead of us but one that if we navigate properly, will set the stage for some decent growth going forward,” he stated.