July 20th, 2022 at 11:39 am
IMF and Ghana: Different this time
Ghana’s return to the IMF has been met with a lot of controversies and arguments. But that should not cause tension amongst ourselves.
Although the country was in financial woes and all pointed out that the country will need financial assistance from the IMF, finance minister Ken Ofori Ataa constantly pledged that the country will not go for assistance from the IMF. Why then did the country reverse its course and what could be different this time around.
WHY NOW HAS GHANA GONE TO THE IMF
Ghana has gone to the IMF to seek assistance because the country needs to meet its payment to the rest of the world and restore the financial health of the government.
The government in outlining its plans to approach the IMF blamed its predicament on the recent external forces which include COVID-19, the Ukraine-Russia crisis, and American and Chinese economic slumps.
In May, Finance Minister Ken Ofori Ataa while addressing members of Parliament stated that the expenditure spent on combating the coronavirus amounted to 18.19 billion cedis ($2.26 billion) as of May 2022. The IMF and World Bank contributed $1.23 billion to the Covid fund at the time.
The prices of imported goods like cereals also skyrocketed to 20% of their normal price. Also, the price of Petroleum has kept doubling.
THE DEPTH OF OF GHANA’S MESS
Ghana’s real GDP growth slowed to an average of 6.9% from 2017-2019 to 0.4% in 2020 during the pandemic but picked up to 4.7% in 2021. The growth in 2022 is expected to be lower because of the constant price hikes.
Also due to these rising prices, the country’s central bank has increased its policy rate from 4.5% to 19% in order to tame inflation.
In addition, the country’s currency has depreciated by 20% against the US Dollar and that has caused importing goods to be more expensive, shooting the prices of goods and services.
Our reliance on portfolio flow has worsened the country’s economic plight. Also, the country’s fiscal policy-making has shown partiality towards the overspending of the government with little being saved to help when there are downturns or external shocks.
WHAT IS GHANA DOING DIFFERENTLY THIS TIME?
This time around, Ghana proposed its own “Enhanced Domestic Programme” to the IMF, this is expected to last for a minimum of three years. In this program, the IMF is not going to cancel some of the government’s flagship programs like building hospitals and factories in each of the country’s 216 districts and the free secondary school scheme.
Also, the finance ministry has stated that it does not need any debt restructuring although the debt servicing cost of the 2021 revenue is under 48%.
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