On Friday July 1, government announced President Nana Addo Dankwa Akufo-Addo has directed the Minister of Finance, Ken Ofori Otta, to roll Ghana on an IMF programme to help fiscal consolidation.
Ghana’s latest return to the Fund follows unprecedented global economic crisis emanating from the covid-19 pandemic and the more recent Russia-Ukraine war.
Ghana is listed among several countries in the world, which are seeking IMF support in the midst of the unprecedented crisis, which is ravaging economies.
How have these two primary reasons; covid-19 and Russia-Ukraine war led to the Government of Ghana seeking IMF’s intervention to support the economy?
Here are the reasons:
- Ghana recorded a Solid performance by end of 2019.
Inflation was down to 7.1% and the fiscal deficit and debt were sustainable.
– Government undertook Major reforms since 2017 to transform the economy including:
- Free SHS, PFJ, IDIF, etc
- Unfortunately the government had to spend an unbudgeted GHC 25 billion to rescue the Banking sector COVID-19 resulted in the worst global depression since 1930 – increase in prices, decline in growth
- Government Increased borrowing to save lives and protect the livelihoods of Ghanaians
- Free electricity , water, support to businesses, support for health workers, free PPEs to schools, etc.
- We should note that Ghana was accessing $3billion annually from the international capital markets to fill the financing gap prior to COVID-19
- There was an expectation that the COVID will be over and the world would come back to normal soon
- Unfortunately that did not turn out to be the case
- February 2022 – Russia- Ukraine War:
- Energy and Food prices skyrocketed.
- Shipping costs skyrocketed, – -Global supply chains disrupted
- Global inflation at 40 Year highs
– Government Revenue projections in 2022 budget did not materialize, including the e-levy.
- Capital markets shut to emerging markets and Ghana was unable to access the $3billion annual inflow from the capital markets.
- Domestic Borrowing increased
- Foreign exchange reserves declined
- Credit ratings downgrade
- Pressure on the exchange rate
- Balance of Payments support needed to stabilize the economy and create space to implement structural reforms and restore debt sustainability in the face of the ramifications of the Russia-Ukraine conflict
- Hence Decision to seek IMF support.
– Over 100 countries in the world have sought IMF support since 2020 in response to the global crisis.
– African Countries That Have Gone To IMF For Bailouts Due To COVID and Ukraine &Russia War in 2022 so far are:
- Sierra Leone
- Dr. Congo
- Guinea Bissau
- Sao Tome and Principe
- The Gambia
- Equatorial Guinea
- The central African Republic
- This should tell us that the problem is a global one and is in no way close to the situation in 2014 (when Ghana sought IMF support) when a total of 10 countries globally and only one in Africa (Tunisia) sought new support from the IMF.