Ghana’s Economic Recovery Path

The Government of Ghana and the International Monetary Fund have reached a Staff Level Agreement, in a swift manner. The reason for reaching such an agreement with speed can be found in the IMF’s understanding of the dire financial situation of Ghana, and the need to save the economy of Ghana quickly from further financial deterioration.

The policies outlined by the Government of Ghana as part of the austerity measures to access the loan facility of the Fund are temporary. Such measures are designed by countries to enable them repay a facility that will be extended to them by the Fund. This point is clearly underscored by the Fund itself in its statement: “When a country borrows from the IMF, its government agrees to adjust its economic policies to overcome the problems that led it to seek financial aid. These policy adjustments are conditions for IMF loans and serve to ensure that the country will be able to repay the IMF. This system of conditionality is designed to promote national ownership of strong and effective policies.”

The measures outlined by the Government of Ghana to restore macroeconomic stability and save the ailing economy from further decline are not effective measures for building a resilient economy, and to overcome the causes of the challenges that led to the economic predicaments which form the basis for seeking financial aid from the Fund. These are well-known policy measures that a member country needs to pursue to enable it access a loan facility and repay the Fund. The measures announced by the Government of Ghana are to give assurances to the Fund that the loan will be repaid.

The Government of Ghana is planning to introduce structural reforms to underpin its fiscal strategy and ensure a durable consolidation. The government’s statement equally indicated making efforts “to strengthen public expenditure commitment controls, improve fiscal transparency, improve the management of public enterprises and tackle structural challenges in the energy and cocoa sectors.”

The authorities do not have, and have not shown, any special desire to strengthen public expenditure commitment controls and to improve the management of public enterprises. The government has not shown it has the toughness and willingness to correct detected vulnerabilities of the MDAs, which are reported perennially. There are not also workable guidelines to make public enterprises effective and efficient. The poor management of the public enterprises of Ghana contributes immensely to the overall inefficiency regarding the management of the public finances of the country.

The management of public finances is the epicentre of crisis in many countries. If the management of the public finances of a country becomes severely impaired, it trickles down to all other sectors. That is why it is important to have effective controls for managing public expenditure and public enterprises. The IMF stated in its press lease that “the fiscal strategy relies on frontloaded measures to increase domestic resource mobilization and streamline expenditure.” The solution to addressing fiscal imbalances does not require increasing revenue mobilisation alone, it also demands putting enough effective control measures that put a check on waste of public finances.

There should be enough self-imposed conditionalities in spending at the MDAs. The cyclical reports of financial malfeasance at the Ministries, Departments and Agencies expose the unconsolidated nature of the government’s strategy to develop a practical framework that can safeguard public finances using controls. Resilient economies do not only need to have huge reserves, but equally manage its finances prudently to achieve set targets.

Resilient economies are those that can withstand or absorb both internal and external shocks, or implement policies to quickly recover from a shock. The capacity to implement policies to counteract the effects of a shock depends more largely on internally-programmed policies than those prescribed by external institutions. The IMF-supported program may only address the symptoms of a severe economic ailment.

Capital flight affects an economy’s resilience and increases its vulnerability to shocks. Capital flight and exchange rate volatilities expose the economy of Ghana to severe shocks. The Central Bank has therefore planned to pursue policies that will increase the country’s external buffers. Such measures should be effective at addressing the problem of the country as exchange rate volatilities worsen the country’s exposure to shocks. There must be strict rules on capital flows and exchange rate controls.

Supply chain interruptions are sources of shocks: they cause exchange rate volatilities and increase in inflation. The authorities often declare their intentions to produce some commodities locally, through the 1D1F, Planting for Food and Jobs and other initiatives. Yet, these programs have not been effective since their inception.

The economy of Ghana is too exposed to both internal and external shocks that the policy measures to addressing them require more stringent plans than those outlined by the government of Ghana which seem to address the symptoms of a much deeper problem.

The government, in its 2023 budget, plans to spend more than it can generate in revenue (projected expenditure will exceed projected revenue). The debt exchange programme of the government will further block the country from the International Capital Market, which will worsen the capacity of the country to repay its debt of about $3 billion next year.

The objective to quickly recover from the current shock demands efficiency in financial resources allocation and utilization, and not only strengthening revenue mobilisation strategies. There must be practical measures to prevent wasteful public sector expenditures: The Auditor-General reports huge malfeasance yearly, which do not give adequate assurance that public expenditure controls will be effective.

Emmanuel Kwabena Wucharey
Economics Tutor, Advocate and Religion Enthusiast