Ghana Seeks an IMF Bailout

Ghana’s economy took a nosedive just a year after it came out of the 16th International Monetary Fund (IMF) programme in 2019. Real GDP growth slowed from an average of 6.9per cent from 2017-2019 to 0.4per cent in 2020 during the COVID-19 pandemic but picked up to 4.7per cent in 2021. Inflationary pressures have remained elevated.

The Ghana Statistical Service (GSS) reported inflation of 29.8per cent in June 2022. This accelerated to 33.9 percent in August 2022, from 31.7 percent in July. By the end of October, 2022 it sky rocketed to 40.4per cent, from 37.2per cent in September 2022.

The October 2022 inflationary rate is the highest since July 2001 . The outlook for Ghana’s inflation is still bleak. The consistent free fall of the Ghana cedi relative to the dollar and other major foreign currencies from the beginning of the year 2022 to-date, has also been part of the bane of the country.

The Monetary Policy Committee (MPC) of the Bank of Ghana note in their October 6, 22 press release that, in the year to September 2022, the Ghana Cedi has depreciated by 37.5 percent, 24.1 percent, and 27.5 percent against the US dollar, the pound, and Euro, respectively.

In comparison with the same period of last year, the Ghana Cedi fared better, depreciating by 1.8 percent and 0.5 percent against the US dollar and the pound, respectively, and appreciated by 4.0 percent against Euro.

Excessive borrowing has also culminated in a looming debt crisis, with Ghana’s public debt stock hitting GH¢402.4 billion, 68per cent of GDP in July 2022, according to figures from the Bank of Ghana.

According to the 2023 budget statement and economic policy, the total gross public debt amounted to GH¢467,371.32 million (US$48,871.34 million) of which 42per cent was domestic debt at end-September 2022, equivalent to 75.9 percent of GDP. The depreciation of the cedi has impacted adversely on the country’s ability to effectively manage its debt.

The debt stock has increased by GHc93 billion this year alone due to the depreciation of the cedi since the beginning of 2022 . The IMF has projected that Ghana will end the year 2022 with a Debt-to-GDP of 90.7 per cent, and the World Bank in October 2022 also projected that Ghana will end 2022 with a Debt –to –GDP ratio of 104per cent. This is way above the internationally accepted threshold of 55 per cent of GDP. T

he Finance Minister, while presenting the 2023 budget confirmed the country is at high risk of debt distress. The Public Debt-to-GDP ratio stood at 75.9 percent at the end of September 2022 . It is estimated that Ghana spends about a third (27per cent) of its expenditures in just servicing debt alone, excluding principal repayments.

The country’s stock of Gross International Reserves also declined to US$6.6 billion, equivalent to 2.9 months of import cover for goods and services in September 2022 from December 2021 position of US$9.7 billion, equivalent to 4.3 months of import cover .

Given growing macroeconomic imbalances, in July 2022, the government of Ghana was compelled to begin discussions with the IMF on a possible 17th programme of up to $3 billion, with the view to restore macroeconomic stability, help to contain the rising debt, and address Balance of Payment (BOP) needs.

The government has outlined three (3) main reasons for seeking IMF support:

i. Addressing Policy Challenges as a result of rising debt and erosion of buffers, worsening financing conditions, high inflation, and exchange rate and BOP pressures.

ii. Balance of payments support: for concessional/cheaper financing to shore up international reserves, stabilize the cedi, continue smooth payments for imports (petroleum products, pharmaceuticals, medical equipment, among others) and restore conditions for strong economic growth (including support for government flagship programmes), while correcting underlying problems; and

iii. Catalytic effect: providing catalytic effect of accessing additional financing from third parties (friendly sovereigns/commercial creditors), including resuming ICM market access sooner than later, facilitating credit rating upgrades.

The Place of Social Protection in an IMF Programme

The deepening poverty and inequality in Ghana due to the current economic challenges have led many people to express grave concerns about the place of Ghana’s social protection in an IMF programme.

The concern is borne from the fact that traditionally, the IMF’s involvement in social protection related issues was quite limited. Social protection was not part of the IMF’s core areas of responsibility, as laid out in the operational guidelines for surveillance (see IMF, 1991).

IMF Staff were not prevented from addressing such issues but were expected to exercise their judgment as to whether the issue was relevant for macroeconomic conditions and prospects. The IMF has thus been criticized as not so friendly to the social sector, and for that matter not paying particular attention to social protection.

Ignoring social protection in a time of economic crisis in any country is likely to lead to growing unrest among the most vulnerable, with adverse impact on macroeconomic stability.

To this end, the IMF has in recent times begun to approach social protection from a “macro-critical” standpoint. The IMF conditionality guidelines were updated in 2014 to incorporate more consideration for social protection.

Besides, in its quest to strengthen social protection, in 2019, the IMF adopted a strategy which sees social spending as a key policy lever for promoting inclusive growth, addressing inequality, and protecting vulnerable groups.

The IMF Social Spending Strategy incorporates education and health as these, in addition to social protection spending, are regarded as significant drivers of inclusive growth.

It is refreshing to note that the IMF Social Spending Strategy supports strengthening quantitative conditionality on social spending using social spending floors.

We believe that this should be the anchor to the ongoing discussions to secure a deal between Ghana and the IMF. Recent IMF country reports (Argentina,2018; Ecuador, 2018 ; Tunisia, 2018) suggests that social spending appears in the list of indicative targets and the incorporation of social protection as quantitative performance criteria.

However, It has been argued that, although social spending targets appear in the conditionality tables of IMF loan reports, their non-binding character has meant that they lack impact on loan disbursements if not attained.

Prioritizing social protection in an IMF programme is critical and necessary for achieving the Sustainable Development Goals (SDGs) as a whole, and for sustained human development of children and women, and for realizing human rights.

The Livelihood Empowerment Against Poverty (LEAP), the School Feeding programme, the capitation programme, the National Health Insurance Scheme (NHIS) and the Labour-Intensive Public Works (LIPW) are good social protection programmes that could contribute greatly to protect the poor and vulnerable from the impact of fiscal adjustments.

Hence, we believe the IMF should encourage the government of Ghana in their programme design to preserve and prioritize spending on social protection programmes, with the view to providing an efficient social safety net for the poor and ensuring that investment spending boosts the economy at a critical time.

Ghana’s previous engagements with the IMF provides evidence that IMF-sponsored programmes and conditionalities have not been positive as far as providing safety net is concerned. Various examples point to adverse implications of IMF programming on the poor and vulnerable.

For instance, ActionAid (2010) reports that the IMF loan and its associated conditionalities had adverse consequences on the social sectors of the Ghanaian economy.

Evidence suggests that in 2009 as a way of aligning with IMF demands, Ghana cut spending on the social sector, particularly in health, education and local development, by deferring statutory payment into the GETFund (for education infrastructure), NHF (healthcare delivery) and DACF (local development), while freezing recruitment into the educational sector.

To meet IMF benchmarks and conditionalities, there were delays of payments into the GETFund and an allocation of GH¢80 million for 2009 was not received . Obviously, this had an adverse impact on poor school children who desperately needed basic school infrastructure.

Ghana’s last IMF-Extended Credit Facility Programme (2015-2018) also saw government freezing employment in the public service, imposing hardships on Ghanaians seeking employment. This also meant that Community-based Health Planning and Services (CHPS) Compounds were without skilled medical personnel, whereas trained nurses were picketing at the Ministry of Health and Ministry of Employment and Labour Relations for jobs.

Based on previous experience with the IMF in Ghana and elsewhere, an important question most Ghanaians have been asking is the place of social protection if Ghana should secure an IMF deal? It is refreshing to note that the President of Ghana and the IMF Executive Director, have both affirmed that the ongoing discussion between Ghana and the IMF will prioritize the need to safeguard efficient social protection delivery, and hence, no social protection programmme will be discontinued on an IMF proramme.

By implication, unlike previous IMF programmes, a new deal will not involve sacrificing spending on social protection to meet IMF conditionalities. This is indeed welcoming news, considering that social protection is a macro-critical sector.

However, of grave concern is the incessant poor budget execution and general delays in the release of funds for social protection programmes including beneficiary grants.

SEND GHANA’s budget credibility analysis over the years and social protection mirror report, 2021 points to the consistently negative variation in the amount of money released as against allocated for social protection programmes, as well as delays in the releases and payment of grants to beneficiaries of such programmes.

The effectiveness of social protection to address poverty and inequality is minimized by erratic, irregular, and frequent delays in fund disbursements. LEAP payments have witnessed consistent delays multiple times for months, often resulting in disruptions of the livelihoods of beneficiary poor and vulnerable families. The GSFP, despite the meager grant size allocation per child, has long suffered recurring delays in releasing feeding grants and payments to caterers.

Delays in paying caterers have resulted in a series of strike actions by caterers, and the consequences thereof are dire, especially on child poverty and malnutrition as well as educational outcomes.

When it comes to the NHIS, the government has literally ‘starved’ the scheme of money for several months due to its failure to transfer statutory funds from the NHIS levy and the SSNIT contribution to the National Health Fund.

This situation has led to the indebtedness of health institutions to medical suppliers across the country, compelling some facilities to demand patients make upfront payments for medical commodities and services.

Yes, the IMF Executive Director and the president of Ghana have both committed to making sure a deal with the fund will not result in suspending implementation of social protection programmes.

This, we strongly believe. However, our concern is not about ‘to suspend or not to suspend’ social protection interventions. Our grave concern is the incessant delays in the disbursement of funds for the implementation of social protection programmes. The poor and vulnerable people are the worst hit by this unfortunate development.

The increasing cost of living in the country, exacerbated by high inflation and worsening cedi depreciation, is projected to push more people into extreme poverty and widen the inequality gap. To reverse this trend, the government needs to implement concrete expenditure measures, including strengthening social protection systems.

Hence, it is recommended that the IMF should as a matter of priority include in its agreement with Ghana a conditionality which causes the Government of Ghana to commit to and ensure timely and adequate release of funding for the implementation of the various social protection programmes.

Mitigating the adverse effects of austerity measures on the poor and vulnerable, and improving social protection spending (timely and adequate release of funding) can be addressed by including social protection spending-related quantitative conditionality.

Such a conditionality will affirm the IMF 2019 strategy, which sees social spending as a key policy lever for promoting inclusive growth, addressing inequality, and protecting vulnerable groups.

Timely and adequate release funds for social protection programme implementation is in line with statutory commitments to accelerate efforts at attaining the Sustainable Development Goals (SDG) 1 (End Poverty), 2 (Zero Hunger), 3 (Good Health and Well-being), and 10 (Reduced Inequalities).