Reveals How NPP Malfunctioning Economy Rushed For Bailout In 2002
The Herald’s trails into the claim of former President John Kufuor that the decision by the Mahama administration to seek a bailout from the International Monetary Fund (IMF) is a sign of incompetence, but a 2002 IMF document, has revealed traces of double standards in the ex-Ghanaian leader and some of his party’s men, Dr. Anthony Akoto Osei and Dr. Mahamudu Bawumia.
In his view, the US$918 million dollars from the IMF over the next three years, would not have been necessary if the economy had been managed properly, adding the bailout request is demeaning to Ghana.
The 2002, document forked out from the IMF offices by The Herald, reveals how the John Kufuor administration with Yaw Osafo Marfo as Finance Minister, also dealt with the Fund, including swallowing some bitterest pills as the cure to a better economic management.
The details of the document dated December 18, 2002 is nothing strikingly different from what the same institution mentioned in its April 3, 2015 announcement that the IMF Executive Board has “approved a US$918 million loan to Ghana to support a reform program aimed at faster growth and job creation while protecting social spending”.
The confidential document submitted to the then IMF Managing Director, Horst Köhler and many Deputy Managing Directors, was prepared by an officer called A. Bio-Tchanè after an official visit to Ghana and after a crucial meeting with Ghanaian officials, where certain government programmes were assessed and rated, as happened recently with the John Mahama government.
Among the recommendations that the Kufuor government acceded to were, an increment in Value Added Tax (VAT), avoid increment of salaries for civil servants, increment in petroleum prices, easing pressure on interest rates and facilitate the attainment of single –digit inflation by the end of 2003 amongst other things.
Another very striking point in the document titled “Ghana-Back-to-Office Report” is that the Kufuor government, had agreed with the IMF to “rebrand” a 5 percentage increment in VAT “to make it politically palatable”.
But ex-President John Kufuor in an interview with Starr News, gave the impression as though his government never dealt with the IMF.
He said “I think it’s unfortunate that we have had to go back to the IMF because of the malfunctioning economy. “We weaned Ghana out of the IMF tutelage to give dignity to the country and that’s what is meant by self-government”.
“It’s a bit demeaning, but it’s a phase and we must enlighten our people to understand that next time when they come across people who can manage the economy, they should pay healthy regards to them,” he stated.
The document started by saying “As indicated in Mr. Bredenkamp’s back-to-office report, attached, the mission to Ghana made good progress in discussions on a program that could be supported under a new three year PRGF arrangement”.
“The atmosphere in the discussions was, from the outset, friendly, constructive, and forward-looking, with no limit of the earlier disagreements over what had gone awry in implementation of the 2002 program”.
The authority gave promising indications of their policy intentions in the key program areas:
• The 2003 budget would avoid recourse to net domestic financing, so as to reduce the domestic debt interest burden, ease pressure in interest rates, and facilitate the attainment of single-digit inflation by end-2003.
• The budget would incorporate a 5 percent point increase in the VAT rate, albert “rebranded” to make it politically more palatable and would limit the civil service wage increase to what could be afforded within the domestic financing constraint.
• Petroleum price would be brought into line with the automatic formula in early January, and would be liberalized sometime after the 2003 budget.
• The public expenditure monitoring and control system would be strengthened and crucially, the hard budget constraint to ministries would explicitly encompass the wage bill.
• A number of reforms are slated for 2003 that would improve the banking system’s ability to extend credit to the private sector.
Barring unforeseen developments, it is hoped that program discussion could be concluded during a follow-up mission in late January, and that the request for the PRGF arrangement (and Article IV report) could be brought to the Board after passage of the budget in April.
No management action is required at this time.
Below is the full text of the IMF announcement dated April 3, 2015 on the release of the US$918 million loan to Ghana to support a reform programme.
Ghana Gets $918 Million IMF Loan to Back Growth, Jobs Plan
April 3, 2015
• Economic prospects at risk from fiscal, external imbalances, power shortages
• Reforms aim at tighter fiscal discipline, stronger public finances, lower inflation
• Government committed to safeguard social, other priority spending
The IMF Executive Board approved a $918 million loan to Ghana to support a reform programme aimed at faster growth and job creation while protecting social spending.
The financing package extends over three years under the IMF’s Extended Credit Facility, backing a plan that was agreed by an IMF staff team in February.
The reform programme seeks to boost growth and help cut poverty by restoring macroeconomic stability through tighter fiscal discipline, strengthened public finances, and slowing inflation. The reform measures are expected to dampen non-oil growth initially in 2015 ahead of a projected growth rebound in subsequent years.
The government’s programme projects an economic growth pickup to start in 2016, driven by expected large increases in Ghana’s hydrocarbon production. The West African country started oil production from offshore wells in 2010.
Lower inflation and interest rates, combined with a more stable exchange rate, would help support private sector activity. Increased oil exports and lower oil imports on the back of domestic gas production would help improve the current account and support reserves over the medium term.
Ghana is one of Africa’s frontier emerging markets, having entered the global capital market for the first time in September 2007. Its past wealth lay in gold and cocoa―commodities that have remained in high demand, and which have helped the country weather the recent global recession.
Imbalances, power shortages
Ghana’s economic growth rate topped 9 percent in 2011, but three difficult years followed that were characterized by slowing activity, accelerating inflation, and rising debt levels and financial vulnerabilities. The country’s economic prospects were put at risk by the emergence of large fiscal and external imbalances, as well as by electricity shortages.
Growth decelerated markedly in 2014, to an estimated 4.2 percent, driven by a sharp contraction in the industrial and service sectors. This was due to the negative impact of the currency depreciation on input costs, declining domestic demand, and increasing power outages.
Inflationary pressures rose on the back of a large depreciation of the cedi and the financing of the fiscal deficit by the Bank of Ghana. Despite several hikes in policy interest rates in 2014, which brought them to 21 percent, headline inflation reached 17 percent at end-2014, well above the 8 +/- 2 percent official target range.
The main pillars of the reform program are
• A sizeable and frontloaded fiscal adjustment to restore debt sustainability, focusing on containing expenditures through wage restraint and limited net hiring, as well as on measures to mobilize additional revenues;
• Structural reforms to strengthen public finances and fiscal discipline by improving budget transparency, cleaning up and controlling the payroll, right-sizing the civil service, and improving revenue collection;
• Restoring the effectiveness of the inflation targeting framework to help bring inflation back into single digit territory; and
• Preserving financial sector stability.
Social spending safeguarded
To alleviate the potential adverse impact of the strong fiscal adjustment on the most vulnerable in society, the government is committed to use part of the resulting fiscal space to safeguard social and other priority spending under the program, including expanding the targeted social safety nets.
Social programs will be expanded to restore real incomes of the poor, which were dented by three years of high inflation, and to mitigate the adverse impact of the fiscal consolidation.
On the fiscal side, the reform program seeks to expand revenue collection and restrain the wage bill and other primary expenditures, while making space for priority spending and for clearing all domestic arrears.