An IMF team arrived in Accra on 26 September to work out government policy reform that could be supported by an IMF package. However, with the economy already under pressure, a mounting cost of living crisis, inflation nearing 35% this year, and the cedi having lost 40% of its value since the beginning of the year, time is of the essence.
Senior figures in the opposition National Democratic Congress (NDC) are arguing for an IMF deal, but say they want social programmes and public sector jobs protected. Some may try to exploit these tensions as politically helpful in the run up to elections in 2024.
Meanwhile, many business people in the ruling New Patriotic Party (NPP), who shared Ofori-Atta’s initial scepticism about an IMF deal, still oppose it. They say an agreement with the fund and sub-contracting of economic management would undermine national sovereignty. Ofori-Atta may struggle to bring this base on board.
Although the cabinet is backing Ofori-Atta’s plan, there remains plenty of doubt as to whether government reform aimed at courting the IMF will work. At a forum on Ghana’s debt held by the African Centre for Energy Policy (ACEP) on 23 August in Accra, activists and academics questioned the government’s priorities and its transparency.
“Debt has ballooned astronomically,” Godfred Bokpin, a professor of finance at the University Legon, said at the event. “We have struggled to manage our debt since independence [due to the government’s] unproductive use of funds.”
“Ghana did not want to go to the IMF for a deal because the conditionality that comes with the deal can be quite off-putting,” says Daniel Sodimu, a sub-Saharan Africa Analyst at FrontierView. “Especially for a government that wants to maintain popularity and not necessarily carry out fiscal consolidation measures that can impact their popularity.”
Even so, the rationale for Ofori-Atta’s change of heart looks straightforward: IMF credit is far cheaper than borrowing from the international money markets or local banks, and this year, Ghana has effectively been locked out of the international bond market as interest rates rise globally and investors choose to park their money in safer, more developed economies.
That, alongside increasingly fraught geopolitics, has triggered the flight of over $50bn from emerging markets to western financial centres over the past six months.
[Ghana] borrows too much expensive debt [Eurobonds especially], in the hope that large future oil receipts will make up for this.
Ghana’s current $38bn in debt is due to its burgeoning budget deficit, currency depreciation and borrowing. Huge energy sector debt – which could rise to $12.5.bn in 2023 – continues to plague the country. Moreover, the cost of the financial sector ‘clean-up’, which saw consolidation in the banking sector, combined with the fallout of Covid-19 that throttled growth, all add to the country’s economic woes and ability to pay its debt.
Things have only been made worse following downgrades by the credit agencies S&P, Moody’s and Fitch Ratings to junk. In response, yields on Ghana’s dollar-denominated Eurobonds set to mature in 2029 hit close to 30% towards the end of September, which could push up debt repayments going forward.
“The IMF’s presence will provide some confidence to the creditors that the country’s ability to repay will not face a sudden collapse. However, some debt treatment is likely, given the unsustainability of Ghana’s debt,” says Sodimu, but “a deal is not likely before next year—potentially at the end of Q1 2023,” he says.
“The most recent official figures have total public debt at 78.3% of GDP, with domestic debt at 37.8% of GDP. The government has not included a $1.5bn loan to the state-owned cocoa company or a $2bn loan from the Chinese civil-engineering company, Sinohydro, to the total public figure. The IMF is pushing the government to add these to get a clearer sense of Ghana’s total debts, as it conducts a debt sustainability analysis on the country.”
Cuts to state sending?
At a national labour conference earlier this year, Ofori-Atta’s response to the debt was to cut administrative spending and travel payments in government departments, renegotiate costly power sector contracts and prioritise the ongoing state projects rather than start new ones.
Although Ofori-Atta is targeting leakages in government spending to help shore up government revenue, the government is also expected to raise water and electricity prices by over 20% next month.
Nevertheless, activists fear that an IMF programme could involve more cuts to state spending that could harm citizens. Further cuts could prove difficult in the run-up to elections when Ofori-Atta’s party will be calling for new vote-winning initiatives and trades unions and small business groups say they will defend social programmes on health and education and oppose efforts to raise more tax from poorer Ghanaians.
Lawrence Ali, economist and petroleum geoscientist believes that Ghana and its government needs to think beyond the IMF loan to avoid accumulating generational debt. “It is cheap credit and comes with policy support. In the long term, however, there are structural issues Ghana needs to address fundamentally.
“[Ghana] borrows too much expensive debt [Eurobonds especially], in the hope that large future oil receipts will make up for this. It only seeks external support during economic crises instead of working with multilateral lenders during boom times to put policies in place that will help boost export and savings including FX reserves,” he says.
The blocking of access to the markets is a symptom, not a cause of Ghana’s financial woes, which go to the heart of the country’s economic structure.
The NPP government won the 2016 and 2020 elections on its free secondary education programme and its ambitious programme to modernise the economy via its ‘one-district-one-factory’ strategy.
No one is telling us exactly how much it is going to cost until it is signed. Politicians are just bent on creating more debt, that they won’t even be around to solve
Funding for this was meant to come from a mix of cocoa, gold as well as oil and gas exports, but revenues have lagged far behind spending targets. Meanwhile, activists continue to lambast the government’s management of the oil, gas and energy sector.
Benjamin Boakye, Executive Director of ACEP, says the country’s import of Liquefied Natural Gas (LNG) will have significant consequences for the resource-dependent economy.
Boakye believes that the government’s increased expenditure by $59.5m of LNG imports in 2022, is wholly unnecessary, with the country consistently meeting their domestic gas demand without extra help.
The government also plans to relocate the gas powered Ameri enclave from Aboadze in the Western Region to Kumasi in the Ashanti region because it will even out voltage distribution, a costly affair that has been widely criticised by the Alliance of Civil Society Organisations.
We don’t know how it’s going to be paid for, that information isn’t publicly available and even the institutions of state don’t know about the details
Much of the backlash stems from the lack of clarity surrounding the project, including an unknown amount of taxpayer funds that will be used to move the plant.
Boakye said: “No one is telling us exactly how much it is going to cost until it is signed. Politicians are just bent on creating more debt, that they won’t even be around to solve.”
He argues that increased transparency will attract more investment to the energy sector, as very little is known regarding the specifics of this new project, which will be financed by an obscure private individual.
“It was single-sourced, so certainly the price would be higher than the market value,” says Boakye. “We don’t know how it’s going to be paid for, that information isn’t publicly available and even the institutions of state don’t know about the details.”
Ghana’s electorate will be waiting with bated breath for news of this week’s IMF deal, as the country prepares for elections in 2024.
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