The Ghanaian economy is debt trapped with a public debt stock of Ghs344.5bn (78.4% of GDP), prices are unstable, the cedikeeps depreciating, there’s no fiscal space for capital investment, and the budget deficit is 15.7% as it stands now. This macroeconomic distress has forced the government to introduce the controversial Electronic Transaction Levy (E- Levy) which has taken over the air waves in recent times.
The government is bent on introducing this E-Levy despite strong opposition from industry players, academic gurus, citizens and more significantly the biggest opposition party; the NDC. The Finance minister and his team from the Ministry of Finance and Economic Policy (MOFEP) together with officials of the NPP are doing their best to convince the Ghanaian populace to accept the 1.75% E-Levy on electronic transactions. This new levy is projected to rope in about Ghs6.9bn to create some fiscal space and reduce our budget deficit. As it stands now our budget deficit is about Ghs30bn. Ghs6.9bn may not be able to do much considering our history of fiscal indiscipline but let’s assume, without admitting that it can do some magic. The government can decide to withdraw the E-Levy bill which is from parliament to enable them undertake a broader stakeholder consultation to calm nerves before they reintroduce it sometime later.
The IMF seeing that the Ghanaian economic is in distress has offered a helping hand. But as to whether the government will go to them for financial bailout we are not certain about that. When a country goes to the IMF for a bailout they are literally saying “you know what, we are stacked, we have tried our best but nothing seems to be working. Give us some loan we are ready to stick to your conditionalities to help us bounce back”.
While some Ghanaians and Economic Experts think it is high time we swallowed our pride and went back to the IMF others think that it the not the best decision to take at this point. In 1966 Dr. Kwame Nkrumah went to the IMF for a bailout after our international reserve dwindled. This caused a drastic reduction in imports because the international markets did not want to export to Ghana with the fear that we would not be able to pay for the goods they export to our country. Inflation rateand public debt had also increased at the time but after the deal was approved he pulled out because he didn’t like the conditionalities that were outlined by the Bretton Wood Institution. The first time Ghana successfully went for IMF bailout was in 1983 under the Provisional National Defense Council (PNDC). Since then Ghana has gone back to them 16 times. It does not look like our economic problems have been solved after all these IMF programs. If we go there again as some people are contemplating, it would be our 17th time.
The first and the most obvious reason why I think this government will not go to the IMF is the position they took in 2015 when the NDC government applied for the Structural Adjustment Program (SAP) of the IMF. Under that program the NDC turned to the IMF for a $918m loan to stabilize the economy. The NPP were vehemently against this move at the time and it became one of their campaign promises in the run-up to the 2016 election to cancel the agreement immediately they capture power. Well, they won the 2016 election but extended the agreement for a short period.
The second reason is that the IMF has just one bitter medicine they use to “cure” macroeconomics instability in the short to medium term which is their austerity measures. These measures are strict and difficult macroeconomics and structural policies put in place to reduce public expenditure and public debt. Since they are giving you their resource (loan) they ask you to put in measures they believe will result in balance of payment viability and macroeconomics stability. Most of these IMF loans are paid out in installments or trenches and it is intended to track or monitor the country’s progress in implementing these measures.
Some of these neoliberal and neo classical measures include 1. Reduction in wages 2. Cutting down pension rates 3. Reducing government employees 4. Maintenance of a certain minimum level of international reserves 5. Eliminating tax exemptions and preferential treatments 6. Removing price controls 7. Ceiling on government borrowing 8. Minimum on federal government primary balance 9. Minimum domestic revenue collection 10. Budget consistent with fiscal framework 11. Cutting down expenditure on social interventions etc
This measures are based on the neoclassical credence thatmismanaged government interventions brings the economy to a strife. They posit that when these structural adjustment programs are well implemented, they have the capacity to improve overall economic conditions. However they overlook the political, microeconomic and sociocultural implications of these measures. As a matter of fact, these pills are very difficult to swallow. Hence, there are some economists and financial analysts who believe that IMF Structural Adjustment Programs does more harm than good. Whether the government will be going to the IMF for a bailout or not is a mystery to be demystified
BY: EBENEZER OTU OKLEY
