Can Ghana win its return match with the IMF…and Uruguay?

By Jonas Nyabor
Posted on Wednesday, 30 November 2022 10:31

Ghana soccer fans celebrate their win in the World Cup group H soccer match between Ghana and South Korea, played in Doha, next to a video screen erected outside the state broadcaster in the capital Accra, Ghana, Monday, Nov. 28, 2022. (AP Photo/Misper Apawu)

As Ghana's finance minister Ken Ofori-Atta struggles to win over the markets and the IMF, the Black Stars want to banish the memory of their defeat in the World Cup in 2010.

Winning is all about credibility. So far this week, Ghana’s national team, the Black Stars, with their 3-2 victory against South Korea on Monday in the World Cup in Qatar is beating the track record of embattled finance minister Ken Ofori-Atta.

Both are trying to relegate some bad results to history. The Black Stars felt cheated out of a path to victory by a well-timed Uruguay handball in the 2010 World Cup.

And economists in Accra think Ghana was cheated out of a developmental leap forward by bad policies in 1999 which forced it down a path of austerity and debt restructuring.

So two questions are dominating the airwaves in Accra this week: can the Black Stars prevail in their return duel with Uruguay on Friday? And is Ofori-Atta’s budget tough enough to persuade the IMF to open the purse strings and agree to a $3bn bailout?

A straw poll of economists suggests the Black Stars are better starred for success than Ofori-Atta this week.

IMF at the centre

The core issue is that the IMF and the financial markets that are now shunning Ghana want to see sweeping cuts in discretionary spending.

And they want to see more credible projections for government revenues.

On both counts, Ofori-Atta has been accused of falling short.

Bright Simons, a leading analyst at the IMANI Centre in Accra, isn’t convinced by the government’s projection that it can increase spending to 28% of GDP next year up from 25% of GDP in 2021.

Government spending is forecast to rise from GH¢137bn in 2022 to GH¢227bn in 2023.

That is based on a doubling of state revenues to about GH¢143bn up from GH¢85bn this year or over 65% increase in revenues over the next year.

Simons, along with many others, questions the realism of such forecasting given the context – falling economic demand, faltering confidence and sluggish growth.

But Ofori-Atta is having none of that, telling parliament: “We are confident that the measures outlined in this 2023 Budget will redirect us on the path of macroeconomic stability and growth”

And he remains confident of inking a deal with the IMF: “In the immediate term, we will work towards securing an agreement with the International Monetary Fund, execute the debt exchange programme, improve the management of foreign exchange, and support our local production capacity for food security.”

2023 Budget

Under his 2023 budget measures, the government will not hire any more people for the civil and public service from January and will increase VAT rate from 12.5% to 15%.

The government will end tax waivers for foreign companies. Companies in mining, oil and gas who already have such waivers, such as AngloGold Ashanti, will have them reviewed.

The remainders of the 13-point spending cuts programmes include;

  • 50% cut on fuel allocations to political appointees
  • Freeze on importation of vehicles and limited allocation for purchase of domestically assembled vehicles
  • A ban on the use of V8s-V6s vehicles for intra-regional travels
  • Ban on non-essential foreign travels
  • Suspension of housing, utilities and clothing allowances for political appointees

The government hiked the VAT rate to generate extra revenue of GH¢2.7bn a year.

The electronic transfer levy, initially rejected this year has been cut from a rate of 1.5% to 1% of the transaction value. And the GH¢100 daily limit exemption has been removed.

A missed opportunity

Simons describes the budget as a missed opportunity because its cuts aren’t tough enough to save the economy. Nor do they tackle some of the government’s favoured but economically questionable projects.

“It is evident from this budget design that the government is not keen on contractionary policy at this time,” said Simons.

For Godfred Bokpin, a senior lecturer at the University of Ghana Business School, the country’s debt crisis requires more radical spending cuts.

“The expenditure cuts announced by the Finance Minister were disappointing,” he said on Accra-based Joy News.

Difficult 2023

Ghana’s statistics agency measured October inflation at a record 40.4%. Together with a 53.8% currency depreciation against the US dollar, Ghanaians are facing some of the harshest conditions in decades.

Civil society groups have been organising serial protests in Accra over the cost of living crisis.

“When you look at the measures announced you will see that the government is not serious. Citizens will be paying double what they spend this year.

“For an economy where people are struggling to make ends meet and people’s businesses are collapsing, the government is being insensitive by increasing the existing tax instead of decreasing their expenditure,” Isaac Adongo an MP for the opposition National Democratic Congress, tells The Africa Report.

Adongo adds that Ofori-Atta’s plan of raising revenue by over 65% in 2023 can only be seen as “wishful thinking” amidst the low investor confidence and slowed economic growth of the economy.

Caught between a censure motion against him by opposition MPs and calls for his resignation by MPs from his own New Patriotic Party, Ofori-Atta faces a difficult week trying to win approval for his 2023 budget.

But he remains resolutely optimistic about the prospects. “A successful passage of the 2023 budget, a successful conclusion of negotiations with the IMF… [will] bring this most challenging year to a very successful end,” the finance minister told parliament.

But the route to one possible fix – swapping the country’s gold reserves for oil imports – appears to be blocked for now.

Pressure on cedi

Last week Vice-President Mahamudu Bawumia floated his plan to demand that the country’s biggest gold producers surrender 20% of their output to the central bank at a government-determined price to allow the government to barter the metal directly with oil producers in the Gulf.

Bawumia thinks the scheme would reduce pressure on the local cedi currency which has resulted in it becoming the world’s worst-performing currency, losing over 45% of its value against the dollar this year, according to Bloomberg News.

And by removing the dollar input into local pump prices, the scheme could reduce the effect of the weakening cedi on retail fuel prices which in turn could cut headline inflation.

But the plan would raise all manner of questions about transparency and accountability, given rapid fluctuations in both oil and gold prices.

And then on 29 November came more bad news for the plan with a statement from Dubai’s state-owned Emirates National Oil Company that, contrary to government claims, it had not agreed on an oil-for-gold barter deal with the government.

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