IMF: Gov’t is facing credibility deficit – John Kwakye

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The Director of Research at the Institute of Economic Affairs (IEA) Dr John Kwakye has said that the government is currently going through some credibility deficits.

This, he said, is due to the sharp U-Turn to the International Monetary Fund (IMF) for support at a time the government had told all Ghanaians that it would not head to the Fund.

The government announced on Friday July 1 that it was heading to the Fund for support. Accordingly, the IMF team, led by Carlo Sdralevich arrived into the country on July 6, to meet government officials. The team concluded its visit on Wednesday July 13.

They met with Vice President Dr Mahamudu BawumiaFinance Minister Ken Ofori-Atta, and Governor Ernest Addison of the Bank of Ghana.

They also met with the Parliament’s Finance Committee, civil society organizations, and development partners, including UNICEF and the World Bank to engage on social spending.

At the conclusion of the mission, Mr. Sdralevich issued the following statement said “Ghana is facing a challenging economic and social situation amid an increasingly difficult global environment. The fiscal and debt situation has severely worsened following the COVID-19 pandemic. At the same time, investors’ concerns have triggered credit rating downgrades, capital outflows, loss of external market access, and rising domestic borrowing costs.

“In addition, the global economic shock caused by the war in Ukraine is hitting Ghana at a time when the country is still recovering from the Covid-19 pandemic shock and with limited room for maneuver. These adverse developments have contributed to slowing economic growth, accumulation of unpaid bills, a large exchange rate depreciation, and a surge in inflation.

“The IMF team held initial discussions on a comprehensive reform package to restore macroeconomic stability and anchor debt sustainability. The team made progress in assessing the economic situation and identifying policy priorities in the near term. The discussions focused on improving fiscal balances in a sustainable way while protecting the vulnerable and poor; ensuring credibility of the monetary policy and exchange rate regimes; preserving financial sector stability; and designing reforms to enhance growth, create jobs, and strengthen governance.

“IMF staff will continue to monitor the economic and social situation closely and engage in the coming weeks with the authorities on the formulation of their Enhanced Domestic Program that could be supported by an IMF arrangement and with broad stakeholders’ consultation

“We reaffirm our commitment to support Ghana at this difficult time, consistent with the IMF’s policies.

“Staff express their gratitude to the authorities, civil society, and development partners for their constructive engagement and support during the mission.”

On Thursday July 14, the Vice President Dr Mahamudu Bawumia who is also Head of the Economic Management Team, in a public address at the launch of the Accra Business School IT programme in Accra, attributed the decision to go to the IMF to impact of the ongoing Russia-Ukraine war and also the Covid-19.

“Some commentators and analysts have argued that the Covid 19 expenditure by the government alone could not be the reason for the increase in the fiscal deficits and the debt stock. In fact, they are right, Covid 19 expenditures alone were not the reasons for the large increase in Ghana’s debt stock by the end of 2021.

“In fact, as I stated in my April 7 lecture, this year, in addition to Covid-19, there are two major items of expenditure that are critical in understanding the evolution of the fiscal deficits and the debt stock. These two items are the banking sector cleanup and the Energy Sector excess capacity payment.

“The excess capacity payment of 17bn cedis relates to the legacy of take-or-pay contract that saddled our economy with annual excess capacity charges of closed to 1bilion US dollars a year. These were basically contracted to supply energy to Ghana in excess of our requirements at the time. We were obligated to pay for the power whether we used it or not.

“The excess capacity payment of this 17billion includes the 7 billion cedi payment for gas resulting from signing of an off-take agreement for a fixed quantity of gas with ENI, Sankofa on take-or-pay basis which was way in excess of what we needed at the time.”

He added “Following the Russia-Ukraine war, energy and food prices skyrocketed globally. In many advanced economies, inflation reached 30 and 40 year high. Inflation in Ghana has increased 29.8 per cent in June 2022, things were disrupted and shipping cost increased by over 1000 per cent, economic growth slowed down,” he said during the launch of the Accra Business School IT programme in Accra on Thursday.

“Ladies and gentlemen, we are talking now about about a different government, Ghana that is being rapidly transformed. The underlying systems are being dramatically changed through digitalization and other policies that will transform the structure of the economy which will enhance fiscal discipline and structural reforms to restore debts sustainability and growth.

“We should emerge stronger than we have from the previous seventeen IMF programme but it will take hard work and difficult decisions.”

Reacting to his address, while speaking on the Hot Edition with Eric Mawuena Egbeta on 3FM Thursday July 14, Dr John Kwakye said “I can grant some of them, the impact of Covid 19, the impact of the Russia-Ukraine war. Of course, the NPP came to meet a channeling economic situation when they took over in January 2017, there were a lot of arrears, the energy sector arrears, arrears to contractors and then of course they implemented the financial sector bailouts which also brought additional cost to the budget .

“But we were in an IMF programme and then we exited from the programme, so one would have thought that when we exited at least we were in a pretty comfortable position, that is why we exited. So I am not comfortable that we have to go back five and a half years and bring things that happened so many years ago to the present.”

Dr Kwakye added “I think the IMF, after their preliminary discussions with the government issued a statement and then they made it very clear, I think they were even quite generous to the authority, so I will go by the reason that IMF gave for the situation that we are in. I am comfortable with the IMF statement but of course, when politicians speak, they like to do some kind of equalization and all that.

“There is a credibility deficit here because the government, they knew all these problems but not long ago, all their officials were telling us that going to the IMF was no option, the president has said it, the Vice president has said it, the Minister of Finance has said it, his deputy has said it. So, if they knew all these problems why were they telling us that going to the IMF was not an option and suddenly they do an about turn and try to rationalize it in terms of all these previous and so on.”

By Laud Nartey||Ghana

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