Ghana’s Economy Deteriorated In 2022 Despite $1bn SDR Utilization– ACEP Report

Contrary to general expectation that the utilization of the 707.3 million (equivalent to US$1 billion) Special Drawing Rights (SDR) received from the International Monetary Fund (IMF) in 2021 will boost the macroeconomic stability of Ghana, the situation rather deteriorated in 2022, a report by the Africa Centre for Energy Policy (ACEP) has stated.

Ghana, like other member countries of the IMF benefited from the unconditional windfall to be expended in the economic recovery efforts from the devastating impacts of COVID-19.

Despites the absence of strict restriction, the Fund provided some guidance notes to aid beneficiary countries in the utilization of their benefits as they implement macroeconomic measures to recover from the shocks of the COVID-19 pandemic back to the path of growth.

The Ghanaian government announced it was going to use its share of the SDR for budget expenditure support through the Ghc100 billion Ghana CARES Obatanpa post-COVID-19 recovery Programme.

Out of the total SDR allocation, the country decided to access the first tranche of over $300 million in December 2021 to support the fiscal defecit of the budget.

Ghana again took delivery of the second tranche of over $600 million in May 2022, totalling over some $930 million.

However, an initial report of analysis conducted by ACEP into the over $930 million which represents over ninety percent (90%) utilization of the SDR receipts by government as at May 2022 shows that, Ghana does not have much to show for the ‘free money’ it receives from the IMF.

According to ACEP, despite the unconditional nature of the SDR, Ghana would have gain much from the allocation if had adhered to the guidelines provided by the IMF with regards the utilisation of the proceeds.

The Head, Monitoring and Evaluation/Senior Policy Analyst at ACEP, Mabel Acquaye revealed these in a presentation during an engagement with members of the Parliamentary Press Corps on Ghana’s IMF SDR Allocation Utilization held on Monday April 22, 2024 in Accra.

She blamed government for not adopting a well-defined fiscal structural framework to ensure fiscal prudence and responsibility in guarding how the SDR was spent.

This is because the country was not expecting the SDR at the time hence, the existence of such a framework would have ensure prudence in the SDR expenditure.

“What we were expecting is that, after using it (refering to the first tranche) to finance the budget deficit, still in line with the guidance note, we were expecting that, that expenditure would have be done within a framework of fiscal structure, a well-defined comprehensive one, so that it would not just be a mere expenditure but within a well define strategy to ensure that we uphold fiscal prudence and fiscal responsibility in the way we spend, because were not expecting that money, that money just came, it was approved in August 2021, so it was around that period we knew we would be getting something from IMF,so we could have started making those provisions we knew we were channeling the money into financing our fiscal deficit, we could have come up with a more comprehensive fiscal framework to guide how the money would be spent and not just to finace the fiscal gap, that’s the challenge that we had” madam Acquaye stated.

Additionally, the report noted Ghana failured to implement a swift debt management structure even though it choses to use its SDR for a debt sustainability measure contrary to the recommendation of the IMF guidance note.

It indicated Ghana started applying its SDR on budget financing in Decmber 2021 without the necessary debt management measures that could have helped it achieve macroeconomic sustaibility.

Instead of applying the recommended measures in late 2021 or early 2022, government failed and also did not adjust its preannounced initiatives considering prevailing circumstances at the time.

The report agreed with government’s decision in utilizing the first tranche of the SDR amounting to a little over $300million to support the budget as signs of recovery were obvious in 2021 with generally improving macroeconic indicators as growth rate improves, exchange rate stabilizes at 4.!% by close of that same year and stable inflation.

However, instead of government realigning the second tranche of the SDR to support counter cyclical monetary policy due the depreciating cedi and increasing exchange rates among others at the time in accordance with the recommendation of the IMF guidance note, Ghana again applied it to pre-announced purpose of budgetary financing.

As a result, Ghana’s economy did not witnessed any meaningful recoveries despites the utilizations but instead deteriorated.

ACEP could not specifically identified what the SDR was used for since it was just expended on general budgetary support to fill the gaps which had other counterpart funding sources.

The country was nevertheless forced to adopt some of those abandoned measures at the last quarter of 2022 as conditions for the IMF credit facility.

ACEP therefore recommends that for developing countries such as Ghana without robust structures, future SDRs should come with requirements such as fiscal and debt sustainability frameworks to ensure compliance.

It also proposed the formulation and implementation of a comprehensive mechanism for monitoring allocation and disbursements of such facilities in future due to weak institutional architecture of developing countries.

The report further notes that the general lack of IMF visibility on such general SDRs allocations alienates civic monitoring and undermines accountability thereby creating an incentives for abuse. it subsequently proposed the prrsnence of the fund to help police utilization of windfalls in future.

It also challenged civil society organizations and the media to develop interest in how such winfalls are expended.

Additionally, ACEP calls on government to exercise prudent fiscal management by prioritizing and align expenses with available resources.

It urges the country to pay attention to such windfalls by re-aligning expenditure and not to see it an opportunity to spend.

In a discussion on Optimizing the Utilization of Windfalls for Macroeconomic Development, the Policy Lead, Climate Change and Energy Transition at ACEP, Dr Charles Gyamfi Ofori raised concerns about the efficiency gaps in state institutions, lack of transparency in borrowings and mechanisms to track same, efficient procurement practices among others.

He expressed worry about the fact that 85% of the value of public procurements between 2011 and 2020 were done through restricted and sole sourcing basis.

Dr Ofori urged the need for investments to be made in capital projects to help recoup the debts owed by the country.

Participants urged parliament to play its oversight role responsibly even as they raised concerns about the partisan nature of parliamentary business which does not ensure effective checks and balances.

They also urged the need to address political party and campaign financing to help address the challenges of procurement in the country.

Source: Christian Kpesese