Ghana’s financial outlook, according to government sources, is in tottering stages and unless urgent steps are taken, the government will find it difficult honouring the electoral promises based on which Ghanaians voted for it. Just days after assuming office, the World Bank in a confidential letter to President John Mills warned him of the dire state of the economy.
Country Director Ishac Diwan, who signed the letter indicated that the state of the economy as at December 2008 was very weak, suggesting that a number of measures must be taken to be able to reverse the trend.
Among others, and despite the claims by the Kufuor administration that the Ghanaian economy was resilient and doing well, the country’s fiscal and external account deficits widened, inflation rate rose significantly, and the foreign reserve position was weakened. All these were prior to January 2009.
The World Bank, which came under some criticism over that letter, also indicated that it is ready and willing to offer financial assistance to government to help undertake its social programmes to alleviate ordinary Ghanaians from their economic difficulties. There were strong reactions to the offer as some interpreted the letter as a deliberate attempt to lure the new Mills administration.
Government was soon to realize however that the economy was indeed in a very bad shape, with some describing it as broke and others choosing the more diplomatic option that the economy is challenged. As it turned out, the country’s gross International reserves [Import Cover] had fallen to below two months with a which is interpreted as the excess of expenditure over revenue of GH¢2.5 billion in 2008, more than 15% of GDP, which simply means that the country spent far more than what it earned.
The country’s external deficit or balance of payments for 2008 was estimated at GH¢3.42 billion or 18% of GDP. This means again that the country spent more money on foreign goods and services than we earned. The rate of inflation jumped from 12.7% at the end of 2007 to 18.1% at the end of December 2008, while between 2006 and 2008 alone, the country’s external debt stock went up from $2.2 billion to $3.9 billion. This increased the overall national debt to $7.6 billion in 2008. This debt situation is in spite of over $5 billion debt write-off enjoyed from 2001.
Finance Minister Dr. Kwabena Duffuor in his budget statement to parliament restated the above and confirmed the president’s earlier announcement that a number of austerity measures and other decisions have to be implemented to help bring the economy to life.
At his first press conference as president, John Mills said the economic situation after further analysis and evaluation has been found to be in a worse state than initially envisaged, but added that his Economic Management Team is working to reverse the trend. And to reverse this trend, suggestions are that the government should look in the direction of the International Monetary Fund (IMF) and grab part of the recently announced stimulus package to stabilize an economy whose currency has been depreciating on a daily basis against major international currencies like the dollar. The current inflation rate, although the rate of increase has reduced, does not look good for the country, adding up to the worsening situation of the economy.
The challenges are taking place against the backdrop of serious falls in the prices of commodities like cocoa and gold, internationally.
When the Kufuor administration took office in 2001, one of the major things the government did was to sign on to the Highly Indebted Poor Countries (HIPC) initiative which resulted in the writing off of several debts accumulated by government over the years. The decision to go HIPC came after several public discussions especially looking at how the economies of countries like Tanzania and Uganda were reported to have been negatively affected. But the government took the bold step and signed on it.
Again, the government benefited from several loans and grants concessions. The government also benefited from the revenues generated from the sale of state assets as well as proceeds from the Eurobond. The dispensation however is different for the NDC government who are left with nothing to sell, even if they want to in order to support the economy.
The National Democratic Congress, ideologically, are opposed to some of the measures taken by lending institutions especially considering how much of their stimulus packages, in the past, have often been cited as the cause of the collapse of several companies in the country. Their packages have often come with stringent conditions which, most often, end up stifling the development initiatives of the very countries they profess supporting.
Ghana has not escaped from these measures as evidence alludes to. However, the current economic conditions in the country means the government will have to stomach the pain and go for the money, argues some financial analysts. But they’ll have to be reasonable in their approach and take advantage of the stimulus package announced by the G20 leaders at their summit in London this month to crawl back from the woods.
At their meeting in London the world leaders especially from developed countries pledge their support to combat the rising financial crisis with measures estimated at $1.1 trillion (£681bn). The leaders also pledged to treble the resources available to the IMF to the tune of $750bn which includes a new overdraft facility, or special drawing rights allocation, of $250bn. They also pledged additional resources of $6bn from agreed IMF gold sales which would be made available for lending to the poorest countries including Ghana.
“The G20 also supports increased lending to the world's poorest countries of at least $100bn by the multilateral development banks.”
As part of the provision of stimulus packages to developing economies, the IMF, since March, has reviewed the terms of lending to beneficiary countries. The fund said the its intention is to “do away with procedures that have hampered dialogue with some countries, and prevented other countries from seeking financial assistance because of the perceived stigma in some regions of the world of being involved with the Fund.”
“We arrived at these reforms by listening to our membership, consulting with a variety of stakeholders, and reviewing past experiences,” John Lipsky, the IMF’s First Deputy Managing Director, said. “These reforms will pave the way for countries to work more effectively with the Fund on crisis prevention and crisis resolution.”
Despite the relaxing of the lending terms, officials of both lending institutions who spoke to the dailyEXPRESS as part of its fact finding visits, said the Ghanaian government will have to do its homework well and present credible and “bankable” programmes targeted at alleviating ordinary people from the economic difficulties. The officials, who refused to be quoted, also urged the government to adhere to the tenets of transparency and accountability by explaining to Ghanaians the detailed work plan involved in the process in order to benefit from the “soft” loans.
According to them, the government should not hesitate to go forward and take advantage of the proposition from the fund in order to benefit from some “billions of dollars” to support its programmes. The fund has approved an amount of $47 billion for Mexico, which happens to be the first country to have benefited from the facility since the new instrument designed to bolster strong performing economies against fallout from the current global economic crisis came into being.
Colombia is also reported to be the other country in line hoping to benefit from a facility of $10.4 billion to support its economy.
Already, a leading member of the ruling NDC Dr. J. Tony Aidoo has given a thumbs up to any decision to go to the IMF for support, arguing that there’s nothing wrong with seeking the help of the Fund. He told JoyFM that Ghana must present to the IMF a credible rescue plan which they can buy into in order to support the country, dismissing assertions that Ghana will be constrained by the IMF conditionality, saying, with a good negotiating ability the country will be better off.
Meanwhile, the World Bank has also promised to assist the government with a credit facility estimated between US$1.2 billion-US$1.35 billions for the next three years.
By Osabutey ANNY
News Editor, dailyEXPRESS Newspaper