Recent economic developments have been discouraging in Ghana, a West African country that borders Burkina Faso, Cote d’Ivoire, Togo, and the Atlantic Ocean.
Pre Covid, Ghana’s growth was deemed more resilient than in most other African countries, with real GDP averaging 7% (2017-2019), compared with about 4% average in other African economies.
In 2022, the economy of Ghana has seen a growth of 3.3% from a year earlier in the first quarter of 2022, slowing from a 7% expansion in the previous period. It marks the weakest pace of growth since the last quarter of 2020, as activity slowed markedly in the industrial sector (1.3% vs 4.8% in Q4) due to a decline in the production of oil and gas. Slower growth was also recorded in services (3.7% vs 8.1%) and agriculture (5.6% vs 8.2%). Source: Ghana Statistical Service
The nation is currently facing inflationary challenges due to exchange rate, food, and non-food price hikes, being the highest level in over a decade.
In recent events and engagements, conversations are beginning to build up on the need for the country to seek external support from the International Monetary Fund (IMF). This comes at the back of a recent discovery that the government’s expectation on raking in revenue from the E-Levy to help boost the economy is highly unlikely to materialize.
The E-Levy was expected to generate GH¢4.5 billion revised from an initial GH¢6.9 billion, following the reduction in the rate from 1.75% to 1.5% and the delay in the implementation; announced by the Commissioner-General of the GRA, Dr Owusu-Amoah. However, the electronic transactions levy (e-levy) introduced to generate cash for the government to assist in providing remedies to Ghana’s economic woes is raking in only 10% of estimated revenue, a close government associate revealed in a tweet.
Prior to the implementation of the E-levy, the government of Ghana was faced a dilemma in addressing the challenged growth of the economy. The already passed E-levy and support from the IMF were the two popular options, with E-levy being the preferred choice of the government. The Minister of Finance, Mr Ken Ofori-Atta, in response to a question at a townhall meeting organized by the government in Wa, the Upper West Regional capital said, “Ghanaians must embrace the E-Levy policy since it will prevent the government from seeking support from the IMF”.
With the recent disclosure about the E-levy not likely to meet its target after passage, hence becoming very difficult to address the purpose for which it was established, is Ghana at a crossroad where it has no option but to seek support from the IMF? Why is there the reluctance on the part of government to seek IMF’s support? These are questions many seek answers to.
The IMF in its position is known to help member countries run their own economies better. IMF primarily provides financial support in times of difficulties and furnishes member countries with technical assistance in terms of banking, fiscal affairs, and exchange matters.
In 2020, when COVID was deemed to have peaked and the lockdown effected in most countries, the IMF has been very visible and compassionate, especially to African countries. Since the onset of the pandemic in March 2020, it has disbursed nearly US$90 billion, including more than US$16 billion to Africa. This was in line with the organization’s efforts where it more than 100 per cent increased the capacity of its two programmes meant primarily for disaster relief – the Rapid Financing Instrument and the Rapid Credit Facility (source: https://www.cfr.org/backgrounder/imf-worlds-controversial-financial-firefighter). The IMF aside these “creamy” packages is tagged to be a very strong supervisor and places tight guidelines along the provisions of financial support. For example, as at February 2021, in Equatorial Guinea, the IMF was withholding more than 85% of a $280 million loan until the country implements a number of good governance reforms.
These actions should be good news to Africans, Ghanaians inclusive; however, the IMF’s actions in various circumstances have mostly not been favorable in Africa’s macroeconomic history. The IMF is known to tie African countries with conditionalities that play a role in economic stagnation, with extremely serious social implications. These conditionalities were established around neoliberal theories; generally associated with policies of economic liberalization, including privatization, deregulation, globalization, free trade, monetarism, austerity, and reductions in government spending to increase the role of the private sector in the economy and society.
The conditionalities relied heavily on privatizing state-owned enterprises and reducing jobs, wages, and pensions in the civil service. For example, a study (The impact of IMF conditionality on government health expenditure) revealed that IMF policy reforms reduce fiscal space for investment in health, limit staff expansion of doctors and nurses, and lead to budget execution challenges in health systems. The findings suggested that IMF conditionality impedes progress toward the attainment of universal health coverage.
Taking this into context, Government of Ghana’s flagship programs like the Free SHS policy, Nation Builders Corps (NABCO), School Feeding, Planting for food and Jobs among others will be at the mercy of very strong IMF conditionalities. Resorting to the IMF, the Government of Ghana anticipates a cut in expenditure for these flagship programs if not totally scrapped, as witnessed in 2015; when the then government limited hiring and wage increases and eliminated subsidies for utilities and petroleum products.
Notwithstanding, going to the IMF will put the nation in a position to create avenues for raising revenue, meaning cracking down on tax evasion and rationalize exemptions; and if likely explore areas to tax as seen in 2015 where new revenue sources included a tax on luxury cars and increased taxes on high earners. This voids the perception that going to the IMF entirely prevents the government from taxing more.
On the positive side, to put Ghana’s finances on a sounder footing, going to the IMF will call for improved accounting standards, procedures, and technology.
The Ghana Government must act decisively if it hopes for a speedy and prosperous recovery. Where the IMF may come in, then IMF must also act to overcome the ideological aversion that exists towards it by member nations.