IMF & GHANA’S ‘LOVE AFFAIR’

The IMF’s roles span Policy Advice, Financial Assistance and Capacity Development for its 190 member countries.

Anytime our economy is in dire straits or the doldrums, the IMF is called upon to bail us out. There is a certain level of unease or misgiving when there is a whiff of Ghana ‘going to the IMF’ (approaching the Fund for assistance).

In this piece, I delve into the workings of the IMF within the context of Ghana’s relationship with the Fund.

Before we begin, let us start with this!

“I can say; we are not going to the IMF. Whatever we do, we are not. the consequences are dire, we are a proud nation, we have the resources, we have the capacity. We are not people of short-sight, but we have to move on. So let’s think of who we are as strong proud people, the shining star of Africa, and we have the capacity to do whatever we want to do if we speak one language and ensure that we share the burden in the issues ahead.”- Honourable Minister for Finance, Ken Ofori-Atta at the 3rd Town Hall Meeting on the Electronic Transfer Levy (E-Levy), Tamale, Northern Region, Ghana. Circa 10th February 2022.

Fast forward……

“A lot of work has gone on behind the scenes for almost 6 months when Government formally announced its intention to engage the IMF for an IMF-supported programme, to enable us reach this Staff Level Agreement (SLA) today which paves the way for the IMF’s Management and Executive Board to approve Ghana’s programme request early next year.”- Honourable Minister for Finance, Ken Ofori-Atta at a Joint Press Conference by the IMF, Ministry of Finance and the Bank of Ghana. Circa December 13th, 2022

Is this (2 excerpts above) akin to a love-sick relationship? Where Ghana says I am not going back to you, then in the blink of an eye, ‘wheeeee’ I am back in your arms (The IMF)! LoL! Anyway!

The first excerpt captures the Finance Minister’s comments during their push for the E-levy as they went around the country, attempting to convince Ghanaians to buy into it amidst significant resistance from the public and the minority in Parliament. The E-levy was positioned as a game-changing revenue handle. In the end, it was not.

The second excerpt captures the Finance Minister’s comments after the country had reached a Staff-Level agreement (SLA) with the Fund. The SLA is a precursor to the Executive Board Approval which gives a Fund programme the final backing. This came after public pronunciations of the country not going to the IMF. 6 months is a long time yet even in that time some were arguing we were not going back to the IMF. Drastic economic situation? International pressure?

Humble pie-eating moment?

The question on everyone’s tongue at the time was, WHAT CHANGED between February and December?

I will leave the analysis to you and delve into our discussion for today.

Within certain dispensations, Ghana’s relationship with the IMF is described as an unrequited affair. Ghana gives all and gets nothing back (The level of Austerity and reforms do not Match the level of Financial assistance from the Fund)

Other schools of thought have espoused a more controversial point of view, a heavy-handed judge who simultaneously plays the role of a jury and executioner, meting out punishment to a nation under the guise of economic assistance. 

In other circles, it is viewed as the teacher that looks on, compelling a student to complete an assignment that the student is either too inept or lazy to do.

The metaphorical descriptions can go on and on but it’s clear there is a lack of communication and clear understanding of the IMF’s relationship with Ghana and its role in our economic and political architecture.

The International Monetary Fund (IMF) has had a relationship with Ghana stretching far back to our Independence year (1957). Records show on September 20, 1957, the then Gold Coast put ‘pen to paper’ and became a member of the Bretton Woods Institution.

Bretton Woods simply describes a group of institutions (IBRD now part of the World Bank Group & IMF) formed after World War 2 to ensure global integration by promoting economic cooperation. 44 Allied nations met in Bretton Woods, New Hampshire in July 1944 to bring this idea of institutions spearheading the charge on global economic stability to fruition.

Since we became members of the Fund we have had 17 arrangements. (Sure you have heard it bandied around in the media). Arrangements here simply mean loans to Ghana and the concomitant programmes or what people have come to know as conditionalities. (Freeze public sector hiring, restructure debt etc. before you access portions of your loan or loan is disbursed to you)

Apart from these arrangements, as members of the Fund, we are subject to Article IV Consultation or SURVEILLANCE- The IMF visits a country to assess its economic and financial situation, identifies lapses and ‘proffers solutions’. The IMF’s mandate is global economic stability.

Below is a table (with the information source below that), showing Ghana’s arrangements with the Fund since it became a member. For emphasis, I am going to list each year.

• 1966
• 1967
• 1968
• 1969
• 1979
• 1983
• 1984
• 1986
• 1987(SAFC)
• 1987(EFF)
• 1988
• 1995
• 1999
• 2003
• 2009
• 2015
• 2020

POINTS TO NOTE ABOUT THE TABLE SHOWS GHANA’S ARRANGEMENTS WITH THE FUND

1. The IMF has what is called a lending toolkit and thus each year comes with a different lending arrangement depending on the peculiar economic problem.
2. The IMF uses what is called Special Drawing Rights (SDR) which is a basket of currencies, as its accounting unit. In very crude explanatory terms, because they are a Multilateral Institution, these currencies come together to give the IMF its unit of measure for transacting business with countries.
3. The currencies in the basket are the CHINESE YUAN, EURO, JAPANESE YEN, US DOLLAR & UK POUND.

Find below what the IMF itself says about the SDR and the rate/valuation.

‘Special Drawing Rights (SDRs) are an asset, though not money in the classic sense because they can’t be used to buy things. The value of an SDR is based on a basket of the world’s five leading currencies – the US dollar, euro, yuan, yen and the UK pound. The SDR is an accounting unit for IMF transactions with member countries – and a stable asset in countries’ international reserves.’

‘The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of a basket of major currencies (the U.S. dollar, Euro, Japanese yen, pound sterling and the Chinese renminbi). The SDR currency value is calculated daily (except on IMF holidays or whenever the IMF is closed for business) and the valuation basket is reviewed and adjusted every five years.’

Thus, the table showing Ghana’s arrangements with the Fund shows the SDR values and not $ or any other.

Ghana, per the table above, has serviced all its debts (paid its loans to the IMF) apart from an outstanding balance of the 2015 and 2020 Facilities which comes down to 1,285,965,000 SDR which is approximately equivalent to $4.1 Billion per conversion rate site I used on Saturday, 4th February 2022 which is 3.233. However, if you used an online conversion tool you will arrive at a figure of $ 1.7 Billion. I am not clear on which computation is right, I have however put both there to give an idea. (DISCLAIMER) If anyone knows how the Fund does this, do let me know.

Economic and Financial Literature is awash with examples of technical assistance from the IMF, capacity development and many more that have supported Ghana’s journey to ‘economic success’. Placing specific examples here will make this piece a very lengthy one. Perhaps will do that another day.

In my opinion, the success of an IMF programme depends on the politics of the day. How willing are the political officeholders and the political class ready to accept and implement these changes?

Again some arguments capture IMF Arrangements as Government of Ghana (GoG) programmes sponsored/supported by the IMF, others may argue it is IMF telling us what to do behind the scenes. SEMANTICS?

Which one sounds more plausible to you? We are not privy to the meetings and rely on what they jointly or individually put out, so perhaps we may not be able to know for sure which way the coin falls.

The problems that take us to the fund are well-documented and the biggest question asked is should, we have to be told to do the right thing before we can?

I believe it is a matter of POLITICAL WILL. Arguments have been espoused on why this very IMF Engagement(ongoing) is different to the others. The effects of the Russia-Ukraine war and COVID have been advanced as the reasons for our decision to go to the Fund. Some disagree and say the writing was on the wall and these 2 external factors have only brought to the surface what was palpable but hidden beneath.

To sum it up, the IMF has and continues to do more than just being tagged as an entity that the good people of Ghana can do without even in an economic crisis. The IMF is not a harbinger of our economic doom. We are a developing nation, operating in an internationally constructed financial system. We may not like it, but when we make our economic & political bed we should make it well, lest we make a mess of it and start looking at other options for some semblance of economic normalcy. As we tarry in putting our economic and political foot down, the ships of political will which is the lifeblood for development will set sail, outdistance and leave us at the ports of emptiness and malaise and we will have no option but to run back to the arms of an institution such as the IMF, seeking international salvation and redemption, when we have the answers in the palm of our hand.

FUN FACTS

Andorra is the newest member of the IMF. the IMF had 189 members for quite some time till Andorra joined in 2020 bringing the number to 190.

Cuba, East Timor, North Korea, Liechtenstein, Monaco, Taiwan, and the Vatican all have one thing in common. They are not members of the IMF.

Nigeria, our ‘friendly rival neighbour’ has had only 5 arrangements since its membership began in March 1961. But they have had oil to prop their economy for decades, let us not forget that.

CASE STUDY- GHANA’S 2015 IMF PROGRAMME

PROBLEM

‘The emergence of large fiscal and external imbalances since 2012, however, has created significant challenges. A swift return to macroeconomic stability in 2013 was thwarted by weaker external and domestic conditions. Reflecting lower gold and cocoa exports, the current account deficit exceeded 12 percent, of GDP.

At the same time, the economy’s continued large twin deficits, and high financing needs, leave it vulnerable to a deterioration of external conditions.’

REQUEST

Extended Credit Facility Arrangement (ECF). The Ghanaian authorities have requested a three-year arrangement under the ECF in an amount of SDR 664.20 million (180 percent of quota) in support of their medium-term economic reform program.

Program Framework. The authorities’ three-yearGhana Ghana ECF-supported program, anchored on their second Ghana Shared Growth and Development Agenda (GSGDA II), aims at a sizeable and frontloaded fiscal adjustment to restore debt sustainability, rebuild external buffers, and eliminate fiscal dominance of monetary policy while safeguarding financial sector stability.’

OUTCOME

In early 2015, Ghana turned to the IMF for a $918 million loan to help stabilize the economy. IMF advisors, working with the Ghanaian government, developed a three-part program: Restore debt sustainability, Strengthen monetary policy and Clean up the banking system.

This piece is by no means exhaustive as further reading and analysis are needed. This piece cannot contain it all as it will make reading cumbersome and a handful.

“DISCLAIMER: The views expressed here are my own and do not reflect the views of any institution I work with. This opinion piece is also meant to educate, enlighten and inform, it is not meant to be a political piece or policy prescription. Thank you.”