MAHAMA RUNS TO IMF FOR BAIL-OUT...BAWUMIA VINDICATED

Posted on: www.dailyguideghana.com

By William Yaw Owusu

Monday, August 4, 2014

President John Dramani Mahama-led National Democratic Congress (NDC) government has finally decided to seek sanctuary at the International Monetary Fund (IMF) after running down the economy.

Currently, the Ghana Cedi has been ranked as the worst performing currency in the world after the conflict- prone Ukraine by some international financial institutions; and the economy is in tatters as all sectors are virtually grinding to a halt.

The IMF had warned in January when they came to Ghana that by June to August if the Ghana does not come for support the Ghanaian economy will grind to a halt and the signs are ominous leading to President Mahama to abandon his much touted homegrown strategy to revive the dying economy.

Recently, salaries of civil servants have delayed as result of cash squeezed. Furthemore,the Mahama administration has been finding it difficult to meet statutory payments accruing huge arrears.

An astute economist and running mate to Nana Addo Dankwa Akufo-Addo, presidential candidate for the NPP in the 2012 elections, Dr Bawumia said in March that looking at the poor management of the economy, the NDC government may have fall on the IMF for salvation.

"I would like to repeat without exaggeration that the Ghanaian economy is in a crisis. It is time for serious action. If government does not take the right decisions and soon, then Ghana would likely have to approach the IMF for a bail out before the end of the year," Dr. Bawumia, a former deputy Governor of the Bank of Ghana said at a public lecture at the Central University College on March 25, 2014.

The IMF bail-out will come with stringent conditions such as job cuts in the public service in order to reduce the wage bill as well as a cap on the amount of loans Ghana can contract with the public debt now hovering around GH¢65billion (almost 60percent of GDP ratio).

But with all roads appear to be thorny, the President rose from his meeting with his economic advisors eating the humble pie and announced that they are going for the IMF bail-out after his home grown measures to revive the sick economy which was caused by election overspending of 2012 had failed to bring relief to agitating Ghanaians.

A statement confirming the government’s decision to go to the IMF for a bailout was issued in Accra on Saturday, August 2 and signed by Dr. Edward K. Omane Boamah, Minister of Communications.

The statement titled: “Outcome of Presidential Advisory Committee on economy meeting” was released following President John Mahama’s meeting with his economic advisors last Friday at the Peduase Lodge near Aburi in the Eastern region before emplaning to the United States to attend the special African/American Leaders Summit.

Official Confirmation

“The President directed that immediate initiatives be taken to open discussions with the International Monetary Fund and other Development Partners in support of our programme for stabilization and growth,” the statement said.

It explained that Peduase meeting chaired by the President focused on measures aimed at restoring macroeconomic stability, promoting growth and improving the living conditions of the people.

Ghanaians from all walks of live have been up in arms with the government over the poor handling of the economy especially the rapid depreciation of the Cedi.

“Arising out of the deliberations, the President reaffirmed the Government’s continuing commitment to a liberal Foreign Exchange regime that provides, among others, incentives for Ghanaians, both at home and abroad, as well as Foreign Investors to invest in Ghana”.

The statement also said the “President further decided that as a matter of urgency measures be taken to stabilize the Cedi in order to bring about greater predictability to the business environment.”

With this move, Ghana has become the second African country to seek IMF intervention after Zambia in June.

The Zambian kwacha was the worst performing currency in the Africa until the Cedi cruised past it with 40per cent depreciation since the beginning of 2014.

Ghana Left IMF

Ghana had weaned itself out of IMF conditionalities after refusing to renew its agreement with the IMF under the Poverty Reduction & Growth Facility in November, 2006 after the government said it had graduated from the HIPC and enhanced HIPC initiatives.

The NPP government said it had made as much money as it could from the 'acute relief' support offered as a result under the MDRI debt forgiveness programme.

The Permutations

When the NDC came to power in 2009, they managed to argue that the country deserved a one-off balance-of-payments facility of more than $600m without entering into an extended program with the IMF and in fact, pushed for $1billion.

“It is unclear that such a tactic would work this time around. So if the government intends to sign another concessional loan scheme, the real risk is that we may not make much progress in unlocking significant funds this year or in 2015,” an economist who wanted to remain anonymous told DAILY GUIDE.

“This is because most of the low-hanging fruits have already been plucked in previous 'sweet deals' with the IMF and only the hard stuff of hardcore system overhaul/reform remains (offloading liabilities from state-owned enterprises, ending quantitative easing among other things,” he added.

He also said that these initiatives would not debt-restructuring deals and therefore the money tends to be small, and are supposed to serve as a signal to unlock more external fund inflows.

“The problem in our case is that we have so sunk into the depths of a fiscal hole we have dug relentlessly for a while now that we need to first pull ourselves up to show the world that the IMF medicine is working.”

“But if we could do that through mere prodding, we surely would have done it ourselves. If the government has so far struggled to unlock money from the World Bank programmes, it is easy to see how hard it will have to sweat to squeeze cash from the fiercer IMF.”

Bawumia Vindicated

In March, the NPP running mate Dr. Mahamudu Bawumia delivered a lecture on the state of the economy where he said the economy was in crisis but got ‘crucified’ by some NDC appointees.

He had predicted that "if government does not take the right decisions and soon, then Ghana would likely have to approach the IMF for a bail out before the end of the year."

He also predicted that the Cedi was likely to sell at GH¢4.00 to $1 by December 2014 but that even appears to have been short-lived as it is currently selling at GH¢3.38 due to the fact that it has plunged roughly 40% against the dollar in 2014 alone.

Cedi Stability

Dr. Bawumia while on tour in the Upper East Region said the government through the Bank of Ghana since 2009 had spent a whopping $6.5 billion in to stabilize the value of the Cedi but it failed and the currency is now officially, the worst in terms of performance across the world.

He said in eight years of NPP rule, the government had spent $2.5 billion in non-oil foreign exchange sales to stabilize the cedi and by January, 2009, the cedi traded at GH¢1.2 to $1.

Job Cuts

In early May, Daily Guide reported that the NDC government was going to commence the mass retrenchment of public sector workers in 2015 under a killer IMF bail-out programme for Ghana but the report was rubbished by the presidency.

A policy document titled “Economic and Financial Policies for the Medium Term” dated April 14, 2014 was put together to be the blueprint for the exercise which is likely going to spark more labour agitations.

The IMF during its January visit to Ghana warned of dire consequences if the country did not come out with a comprehensive report on the way forward for salvaging the economy for bail out.