BEING ON AN IMF PROGRAM: LESSONS FROM GHANA

Thursday, 15th September, 2022 Press Statement issued by
Wakumelo Mataa (Mr)
CSO Debt Alliance Coordinator

PRIOR to 2015, Ghana had experienced strong and broadly inclusive growth over the previous two decades and its medium-term economic prospects were supported by rising hydrocarbon production. However, emergence of large fiscal and external imbalances, compounded by severe electricity shortages, had put Ghana’s prospects at risks. The country struggled to deal with a ballooning wage bill, poorly targeted subsidies and rising interest payments that outpaced rising oil revenue and resulted in double-digit fiscal deficits. These imbalances led to high inflation, a decline in reserves, a significant depreciation of the Ghanaian currency (Cedi) and high interest rates, weighing on growth and job creation.
In early 2015, Ghana turned to the International Monetary Fund (IMF) for a $918 million loan to help stabilize the economy. IMF advisors, working with the Ghanaian government, developed a three-part program which sort to
• Restore debt sustainability: The government limited hiring and wage increases and eliminated subsidies for utilities and petroleum products. To raise revenue, it cracked down on tax evasion and rationalized exemptions. New revenue sources included a tax on luxury cars and increased taxes on high earners.
• Strengthen monetary policy: The authorities agreed to gradually end central bank financing of the budget deficit—a major source of inflation—and to fortify the inflation-targeting regime.
• Clean up the banking system: An asset quality review revealed significant under-capitalization. Some banks were recapitalized, and the Bank of Ghana used its newly enhanced authority to wind down insolvent lenders.
By the end of the program in 2019, Ghana’s economy had begun to recover. The trade and budget deficits were narrowing. The pace of economic growth was poised to rise to 8.8% in 2019 from 2.2% in 2015. The inflation rate was projected to fall to 8% from almost 19%. Cuts to ‘wasteful spending’ made room for much needed social services, such as free secondary education.
However, merely three years after its last IMF program, Ghana has gone back to the IMF, this time proposing its own “Enhanced Domestic Programme” to the IMF, which would last a minimum of three years. Ghana’s authorities insist that there should be no cuts to the administration’s flagship programmes, such as campaign pledges to build hospitals and factories in each of the country’s 216 districts and a free secondary school scheme.
One of the key lessons that Zambia can draw from Ghana’s experience on an ECF emanates from the rapid accumulation of debt that comes due to the improvements in credit ratings as investor confidence improves. While the IMF program helped Ghana to resolve some of its key macroeconomic challenges, it also meant that Ghana could now access more credit and this led to the country’s debt stock more than doubling since 2015, steadily climbing from 54.2% of GDP that year to 76.6% at the end of 2021. What this in tells is that Zambia may have similar access to such advantages, and as it strives to grow and stabilize its macroeconomic outlook, the privilege of investor confidence and access to financing should be capitalised upon and be used as partner and key ingredient to the economic recovery agenda. Care should be taken to adhere to the debt ceilings being proposed in the program. There is need to ensure that while we borrow to cushion our current challenges, the large expenditure of these funds should be used to enhance traceable avenues of resource mobilisation for it to create its own sustainable financing that is consistent with addressing and supporting Zambia’s challenges and plans beyond the IMF program. Ghana’s problems were predominantly fiscal, as it utilized continuously greater loans to plug its double-digit fiscal deficit and this could be avoided by Zambia if expenditure plans are consistently aligned with available resources but with a target for creation of further sources of revenue, especially during the implementation of the program.
Finally, what was noted from Ghana is that there was very little transparency and engagement with key stakeholders such as the CSOs and citizens, the programme was since carried out in exclusion of key partners that the government much needed to make it a success. A lesson for Zambia from this is that there will be need for intensified stakeholder engagements, including Civil Society Organizations to enhance accountability to ensure this program results in an inclusive success for all Zambians.