Published on : 14/07/2022 – 11:56
The IMF is again at the bedside of Ghana. A humiliation for President Nana Akufo-Addo. He was elected in 2016, promising to do without international aid from now on.
An IMF team completed a first needs assessment mission on Wednesday. This is the fund’s 17th intervention since Ghana’s independence. The robust growth of recent years had given Ghanaians hope of achieving rapid emergence. It is on this basis that the president had given a course to his country: Ghana Beyond Aid, Ghana Beyond Aid. But this largely debt-financed prosperity was fragile. The Ghanaian economy has not succeeded in moving out of the informal sector: out of 13 million jobs, only 2.4 million are declared and therefore subject to tax.
The Covid and then the war in Ukraine have damaged the Ghanaian economy
Events that have swung all the indicators into the red this year. Growth is sluggish, well below what is needed to bring in tax revenue. Public debt has soared, it represents 80% of GDP. According to the latest figures published yesterday, inflation is close to 30%. Ghana is one of the African countries hardest hit by this brutal price spike. The cedi, the national currency, has collapsed. Its value has fallen 20% against the dollar since the start of the year. Ghanaians are now struggling to make ends meet for food and fuel, and they are vocally demonstrating their discontent in the streets. But the government can no longer help them, the coffers are empty and the current balance of payments deficit has exploded, which complicates imports.
What means to stem the crisis?
To stem inflation, the Central Bank has already raised its key rate twice, it is now at 19%. But these decisions must infuse several months before their effect is felt. The state has introduced a new tax on electronic payments over 100 cedis, the equivalent of $13. A highly criticized 1.5% tax, which is far from sufficient to quickly bail out the state coffers. The Ghanaian Parliament is now without a majority, so it is impossible under these conditions to pass reforms. President Nana Akufo-Addo therefore ended up resolving to turn to the IMF, which he wanted so badly to do without. It is also paying the price for its past mistakes: expenditure financed by recourse to debt has too often been used to make gifts during the election period or to launch pharaonic projects without any real impact on the economy.
Is Ghana taking the same path as Sri Lanka?
The threat of default is less imminent than it was for the archipelago because its large debt maturities are due in 2023 instead. But the cost of debt has soared and since the start of the l year, the State is in fact unable to turn to the market for financing. At an impasse, Accra therefore urgently needs fresh money from the IMF. The fund, of course, will require effort, spending cuts or new taxes. A bitter potion that Ghanaians are not ready to swallow with their eyes closed.
► And bref
The IMF reactivates its aid program for Pakistan, releasing a loan of 1 billion 170 million dollars.
Vital help for this country, which is also on the verge of default. In exchange, the government agreed to remove a number of energy subsidies and the price of fuel went up by 50%. Measures that the previous government had pushed back. In total, current IMF assistance amounts to more than $4 billion.