In “the witches dance” dilemma, if you dance backwards you lose your mother and If you dance forward you lose your father.
Albert Einstein could not have put it any better when he said; “The leader is one who out of cluster, brings simplicity, out of discord, harmony and out of difficulty, opportunity”. Being a leader is not an easy task; it involves courage and risk taking. The most famous minister in Ghana over the last couple of months is arguably Ken Ofori Atta; the man who manages the purse of our dear nation.
In fact, he has just survived a parliamentary impeachment amidst calls by all and sundry for him to step down from his position. He must be such a courageous soft-spoken man, who remains determined to manoeuvre his ship through a difficult storm and hoping to dock safely. The question remains, when will that day of economic recovery for the nation begin to show face in an era of increasing predictions of further economic doom and gloom in 2023, where even developed nations such as United States, Russia, Great Britain and Germany among others are recording shrinks in their economies by up to 2% of GDP?
Ghana, through the Ministry of Finance announced a Domestic and Foreign Debt Exchange Programmes coupled with massive haircuts. In clear terms, a Debt Exchange Programme is just a polite way of announcing a total debt default. This is not surprising, especially, when debt to GDP ratio is lingering around 93% coupled with dwindling foreign reserves status.
The announcement by the Finance Minister to seek an IMF bailout back in April, 2022 raised expectations that the country’s economic mess would change and regain momentum in the days to follow. But the hopes of noble citizens were immediately dampened when in the last quarter of 2022, the Cedi experienced severe depreciation against the Dollar—reducing in value on daily basis and as at November, 2022, one needed as much as Gh16 to exchange for US$1. The domestic currency has, so far, lost over 58% of its value; the worst in the continent except Zimbabwe.
This was partly attributable to expatriation by foreign companies, high demand for the dollar by importers to stock goods for the Christmas and new year festivities, as well as political speculations which led to hoarding of the dollar. There was a monumental loss of confidence in the local currency and many people preferred to save their earnings in dollars in order to guard against the depletion of capital stock. It became too critical at a point that traders could no longer estimate how much to increase their prices to prevent losses hence they simply locked up their shops and embarked on a self-serving strike.
It is such a sorry state that the situation was, that still breeds wonders if this, indeed, is the Ghanaian economy pregnant with all types of resources—suffice to say—that the lazy beast called corruption has eaten so much up that the dividends from our resources cannot, at the very least, keep the economy stable.
In the recent history of this nation, inflation reached an incremental height of about 54.1% in December from 50.3% in the prior month. Prof. Steve Hanke of John Hopkins University even mercilessly ballooned the inflation figure at 148% as of November, 2022 and keeps rather, controversially, increasing his digits each month.
One may be tempted to say he has no proven method of calculations and should be disregarded, but an ordinary Ghanaian like myself who paid Gh750 for 12 yards of wiring appliance in October which hitherto would have cost Gh250 or less in March, maybe be tempted to agree with Prof. Hanke.
It is trite learning that when demand rises, prices will rise given supply remains low. Hence, the troubled Cedi can be as a result of the Central Bank’s inability to bring in enough dollars to meet import demands. As the exchange rate remains high, fuel prices will continue to rise, especially, when overburdened with so many burdensome taxes. The cascading effect of this is that salary earners will suffer a significant reduction in the standard of living since real income continues to diminish and this may lead to labour unrest – it has in fact led to labour unrest.
On December 13, 2022, a joint press conference of the Ministry of Finance together with the country’s IMF representatives announcing a staff-level agreement for a credit facility worth US$3 billion brought a sigh of relief to Ghanaians. Little did they know, however, that expecting immediate remedy to the long-term economic crisis amounts to pre-mature ejaculation in that, a staff-level agreement is far from the deal itself.
The situation of Ghana demands that the government demonstrates debt sustainability among a host of other conditionalities. To wit, a total freeze in public sector employment, cutting down subsidies, increase in taxes and cost of public sector services, etc. This is because, without debt sustainability, an IMF programme can do nothing.
The programme is supposed to be production driven, such that, monies realised must be put into productive sectors of the economy in order to yield dividends with the hope of steering the economy back to life. If there is no debt sustainability, that involves suspending interest payments, then the economy will not have any chance to breathe and gain its health, especially, when our interest payments and amortization for foreign debt in 2022 amounted to Gh75 billion. This will simply leave us worse off.
It is exciting to hear that banks and insurance companies have painfully agreed to sign onto the Debt Exchange Programme. Banks also invest through buying of government bonds, and cutting off their interests this year and subsequent years would bring losses. It is already estimated that banks will lose 20% of their capital this year alone.
We must be worried that if citizens’ confidence in our financial sector dampens, we may experience some catastrophic consequences [even] far more than what led to the banking sector cleanup. Individual bondholders are still reluctant to sign onto the debt exchange program, necessitating a further extension of the deadline.
Understandably, individuals depend on the interest on their bonds to pay school fees and feed their families most especially, so signing up will lead to a loss of about 60% of their bond value. Be that as it may, after exempting pension funds from the programme, there is no room for any further reduction in the Gh137.3 billion domestic bonds being floated for exchange.
In all instances, an IMF deal cannot be secured without a haircut of some sort. It is also scary to note that the economic conditions continue to deteriorate, the longer we fail to secure a deal. We may likely experience marginal increases in fuel prices sooner than later, more depreciation of the Cedi, and the worst of it all is that government may not be able to make statutory payments including salaries of public sector workers. In the midst of this economic turmoil, is the livelihood of the Ghanaian citizen.
Citizens must take a stand now: to agree for a haircut and secure an IMF bailout or to refuse the offer and lose out on an IMF deal. Either of which would prove costly but the latter is unbearable, anyway. This, clearly, must be an epitome of “the witches dance” dilemma; but a decision must be taken all the same, and now.
Contributor: Atanga Mathew
Disclaimer: The author is a student at the Kwame Nkrumah University of Science and Technology (KNUST) Faculty of Law. Views expressed in this article are entirely the author’s and do no in anyway represent those of the Media General Group.