Resorting to borrowing or seeking funds elsewhere has always been a daunting task for any government or developing country.
For many, that would never be an option, but for some, once the reasons or rationale meets the eye, that should be enough grounds for borrowing.
On 14 July 2022, the Vice President Dr Mahamudu Bawumia explained the government’s reasons for going back to the International Monetary Fund (IMF) when notoble personalities from the Akufo-Addo led administration had constantly said it was never going to IMF.
The Finance Minister, Ken Ofori Atta, Assin Central MP, Kennedy Agyapong, and other party faithfuls had led the ‘No IMF’ rhetoric. But, today, that is not the case.
This article will, therefore look critically at the government’s reasons for going to the IMF, take a step back to why the erstwhile Mahama administration resorted to IMF and finally compare both instances and let you decide if the Veep reasons are enough grounds to go back to the IMF.
“If you ask a carpenter to roof your house and suddenly the roof collapses without any wind or rainfall, will you not blame the carpenter who did the roofing?
“But if a carpenter roofs your house and the roof collapses because of a tornado and a storm which has also blown away the roofs, windows and walls of many houses, will you blame the carpenter?”
Does this quote ring a bell? This is the analogy that the Vice President, Dr. Mahamudu Bawumia gave at a speech he delivered at the Accra Business school when he addressed the decision to seek for support from the IMF.
One will ask, did Dr. Bawumia claim that the Mahama government in 2015 sought for IMF support with no challenges to the economy?
Driving the import out of this analogy, it seeks to allude that the ruling New Patroitic Party (NPP) led administration has a course to seek for IMF bail-out but the erstwhile National Democratic Congress (NDC) government had no substantive reasons to go for support from IMF.
The phrase “Economic mismanagement” has become a catch-word for the past months since the Akuffo-Addo led government decided to seek for IMF support.
Political communicators, Business scholars and analyst have most often used this phrase to describe the government when it blamed covid-19, Russia- Ukraine war and the Mahama government for the decision to seek for the bail-out.
Why go to IMF in 2015?
The esrtwhile Mahama administration did not only seek for IMF support on economic mismanagement as being purported by Dr. Bawumia.
Power outages started intermittently in 2012 but heightened in the early part of 2015.
In 2015, Ghana’s generating capacity was 400-600 megawatts, less than what the country needed. Ghanaian electricity distributors regularly shed load with rolling blackouts. At the beginning of 2015, the ‘dumsor’ to wit ‘On and Off’ schedule went from 24 hours with light and 12 without to 12 hours with light and 24 without.
This power outages crippled business and dwindled others.
It disrupted communications, water and transportation.
Retail businesses were closed, grocery stores, gas stations, ATMs, banks and other services were also on the hang.
Food spoilage and water contamination were not left out at the time.
This brought untold hardship on Ghanaians who could not afford for an alternative power supply.
Now, the Vice President, Dr. Mahamud Bawumia in his speech ascribed government’s decision to seek for support from IMF to the fiscal impact of quadruple whammy of;
o Energy Sector Excess Capacity Payments,
o Banking Sector Clean-Up,
o the Russia- Ukraine war.
The Vice President suggested that if you take out the impact of the four isuues, Ghana will not be going to the IMF for support because our fiscal, debt and balance of payments outlook would be sustainable.
” Of the four factors, two (COVID-19 and the Russia Ukraine war) were external and the other two (the banking sector clean up and the excess capacity payments) were the result of policies of the previous government.
“Today , all over the world, fuel prices are rising in virtually every country, food prices are rising, inflation is at a high for many years, currencies are falling in value, fiscal deficits are increasing, debt levels are increasing, etc. This tells us that what we are dealing with is a global phenomenon,” the Vice President said.
Is there an iota of truth in Veep’s analogy?
The Akufo-Addo-Bawumia led government has for three years now been pretending that it is taking reforms seriously and that it has strong policies to address the issues that took the Mahama administration to the IMF in 2015.
Instead, it has done very little to address weak institutions, poor spending choices and low public revenue growth. It was under this government that we saw the collapse of several indigenous bank.
Ghana’s previous engagements with IMF had showed that countries with structural debt-and-deficit problems face more protracted negotiations with the IMF than those dealing with simpler balance-of-payments challenges.
Here is what I think?
IMF will not fix economic mismanagement by governments no matter who holds the mantle — either NPP or NDC. Repeating any treatment for the 17th time cannot be an occasion for celebration.
Whether the roof on your house collapses with a cause or not, if it lands you with the same carpenter, then you need to check your house instead of the carpenter.
An IMF program is merely an opportunity to attempt a reset of specific fiscal dials. It does not transform national governance culture wholesale on any level. The eventual transformation of Ghana’s economy to one of sustainable growth and widespread prosperity cannot be delegated to technical interventions by international organisations.
It shall only come about as a product of the nation-building struggle.
IMF will come and go. It is not a savior from poor economic leadership. But neither should it be treated as a convenient scapegoat for homebrewed failures. The fight for true economic liberation remains that of Ghanaian citizens alone.
About the IMF
The International Monetary Fund (IMF) works to achieve sustainable growth and prosperity for all of its 190-member countries.
It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being.
The IMF provides broad support to low-income countries (LICs) through surveillance and capacity-building activities, as well as concessional financial support to help them achieve, maintain, or restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.
The IMF in principle provide two outstanding benefits;
First, it works to reduce risk of international or global financial crises by serving as a quasi-lender-of-last-resort.
Second, it can provide information, accounting, and financial standards that reduce costs of acquiring information.
Specifically, measurable conditions for IMF lending are always related to macroeconomic variables under the control of governments and authorities. Such variables include monetary and credit aggregates, international reserves, fiscal balances, and external borrowing.