IMF AND GHANA – NEW ROUND

imf ghana report july 2021

THERE IS A BIG DISCUSSION IN GHANA AT THE MOMENT ABOUT THE DEBT SITUATION OF THE COUNTRY. THE OPPOSITION ACCUSES THE GOVERNMENT OF RISING DEBTS, AND ALWAYS POINTS OUT THAT THE IMF CLASSIFIES GHANA IN THE LAST STAFF REPORT AS A COUNTRY WITH A “HIGH RISK OF DEBT DISTRESS”. I HAVE TAKEN A DEEPER LOOK AT THE IMF STAFF REPORT OF JULY 2021, AS WELL AS GHANA’S SITUATION IN 2015, AND FOUND OUT THE FOLLOWING:

FIRST OF ALL, I THINK IT IS NECESSARY TO TAKE A LOOK AT THE DEFINITION OF “HIGH RISK OF DEBT DISTRESS”. THIS IS:

“A risk-free rate of return is the theoretical rate of return on an investment that has zero risk associated with it.”[BING, RISK-FREE RATE OF RETURN]

HISTORY

THE INTERNATIONAL MONETARY FUND [IMF] DECLARED GHANA TO HAVE A HIGH RISK OF DEBT DISTRESS ON THE 3RD OF APRIL. THIS IS AFTER THE INSTITUTION GRANTED THE COUNTRY A 918 MILLION US-$ FACILITY [GHANA BUSINESS NEWS, APRIL 3RD, 2015]. THE IMF ALSO BASED ITS DECISION ON LACK OF TRANSPARENCY, FOLLOWING SOME COMPLAINTS. [IBD.]

FROM THEN ON, DEBT ROSE SIGNIFICANTLY EVERY YEAR UNTIL 2020, WHEN IT REACHED 78 PERCENT OF GROSS DOMESTIC PRODUCT [GDP]. https://tradingeconomics.com/ghana/government-debt-to-gdp

ESTIMATES ARE THERE THAT SAY THAT THE DEBT/GDP RATIO MIGHT REACH OVER 80 PERCENT THIS YEAR. THESE ESTIMATES ARE BASED ON ECONOMIC MODELS WHICH MIGHT BE RIGHT OR WRONG.

CURRENT SITUATION

THIS PICTURE SEEMS TO BE RATHER GRIM. BUT WE MUST ALSO CONSIDER THAT THE HIGHEST JUMP IN THE DEBT/GDP RATIO CAME IN 2020, WHEN THE RATIO INCREASED FROM 63.9 TO 78 PERCENT. THIS WAS LARGELY DUE TO THE CORONA VIRUS PANDEMIC WHICH FORCED ALL COUNTRIES ALL OVER THE WORLD TO INCREASE THEIR GOVERNMENT SPENDING. THE SAME ACCOUNTS FOR GHANA, WHERE THE GOVERNMENT TOOK OVER COSTS OF WATER, ELECTRICITY, AND FREE FOOD FOR MANY PROPLE DURING THE FIRST WAVE OF THE PANDEMIC 2020.

THAT DOES NOT MEAN THAT THERE ARE NOT OTHER PROBLEMS APART FROM THE CORONA VIRUS. AS THE BANK OF GHANA [BOG] REGULARLY STATES, THE FISCAL SITUATION NEEDS URGENT IMPROVEMENT, ESPECIALLY BY WIDENING THE TAX NET. STILL, TOO MANY PEOPLE DO NOT PAY TAXES. FURTHERMORE, THE TAX NET IS NOT DEEP ENOUGH FOR ULTRA-RICH PEOPLE [YES, THEY ALSO EXIST IN GHANA!].

WE CAN SEE THAT THERE ARE PROBLEMS IN THE GHANA ECONOMY, BUT THEY SEEM TO BE MANAGEABLE, IF THE POLITICAL WILL IS THERE.

IMF STAFF REPORT JULY 2021

THIS OPINION SEEMS TO BE SHARED BY THE IMF. YES, THE INSTITUTION STILL CONSIDERS THE COUNTRY IN HIGH RISK OF DEBT DISTRESS. BUT ON THE OTHER HAND, IT HAS A RATHER POSITIVE OUTLOOK FOR GHANA [ BESIDES, YOU CAN DOWNLOAD THE COMPLETE STAFF REPORT AT THE BEGINNING OF THIS ARTICLE.]. IT REALISES THAT AN ECONOMY RECOVERY IS ON THE WAY IN GHANA. IT ESTIMATES A BIG JUMP IN THE GDP IN THE NEXT YEARS. IT IS SURE THAT GHANA IS ABLE TO PAY BACK ITS DEBTS WITH THE IMF IN TIME. THIS IS ALTHOUGH THE DEBTS ARE CONSIDERABLY HIGHER THAN IN APRIL 2015 WHEN THE IMF GRANTED THE FACILITY TO THE RECENT GOVERNMENTAL PARTY, WHICH IS NOW IN OPPOSITION.

THE IMF SEES THE RISK WHICH IS MOSTLY RELATED TO A POSSIBLE NEW WAVE OF THE PANDEMIC. BUT THERE IS OBVIOUSLY AN AMOUNT OF TRUST THAT THE CURRENT GOVERNMENT IS ABLE TO OVERCOME THE DIFFICULTIES. THE STAFF REPORT MENTIONS THE EFFORTS THE GOVERNMENT IS TAKING FOR THE DIGITALISATION OF THE ECONOMY. ACCORDING TO THE STAFF REPORT, THIS WILL SURELY – AMONG OTHER PURPOSES – ASSIST THE GOVERNMENT IN GENERATING MORE REVENUE. FURTHERMORE, THE STAFF REPORT ALSO MENTIONS THAT THE GOVERNMENT WAS ABLE TO BRING THE AUTOMOTIVE INDUSTRY TO GHANA.

AS WE  CAN SEE, THE IMF STAFF REPORT CONSIDERS THE REVENUE GENERATION THE MOST IMPORTANT PROBLEM IN GHANA. BUT IT ALSO SEES THE EFFORTS THE GOVERNMENT IS TAKING TO SOLVE THE PROBLEM.

CONCLUSION

THE CONCLUSION IS THAT THE IMF STAFF REPORT DOES NOT PAINT THE PICTUE AS DARK AS SOME PEOPLE OUTSIDE THE GOVERNMENT WANT TO MAKE US BELIEVE. OF COURSE, THERE ARE PROBLEMS, BUT THESE PROBLEMS ARE NOT IMPOSSIBLE TO OVERCOME. WE MUST ONLY RECOGNISE THAT THE GOVERNMENT ALONE CAN NOT SOLVE THESE PROBLEMS. IT NEEDS THE COOPERATION OF ALL STAKEHOLDERS IN THE COUNTRY; THE GOVERNMENT, THE POLITICAL PARTIES, THE TECHNOCRATS, AND, LAST BUT NOT LEAST, THE WHOLE POPULATION.

CAN WE MAKE IT? YES, WE CAN!

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