The IMF must tighten its Article IV Consultation in Africa

The International Monetary Fund’s economic surveillance strategy called Article IV consultation must be revised in Africa. The Article IV consultation of the IMF involves an in-depth analysis of a country's economy and a set of recommendations to improve its economic performance. The Fund states that “Under Article IV of its Articles of Agreement, the IMF has a mandate to exercise surveillance over the economic, financial and exchange rate policies of its member in order to ensure the effective operation of the international monetary system.” The IMF’s appraisal of such policies involves a comprehensive analysis of the general economic situation and policy strategy of each member country by the Fund’s economists: the IMF’s economists collect and analyze data and hold discussions with government and central bank officials.

African countries regularly visit the Fund for policy advice and policy credibility because African economies have been struggling for decades with structural issues, mismanagement, corruption, and bad governance. Hence, they need effective policy prescriptions that can help them address their economic challenges.

The economies of Africa have made some progress in recent years, but they still face many fundamental structural challenges. The continent has experienced steady economic growth over the past decade. Yet, this growth is insufficient to meet the needs of the rapidly growing population. These economies are highly vulnerable to both internal and external shocks. This vulnerability has been exacerbated by the COVID-19 pandemic and the conflict embarked on by Russia in Ukraine, which has led to a sharp decline in economic activity and a rise in debt levels.

African countries also face structural issues that constrain their economic development. These include inadequate infrastructure, a low level of industrialization, weak institutions, and high levels of corruption. Many African countries have been unable to create a conducive business environment that can attract foreign investment, and this has limited their economic diversification agenda.

The IMF’s critical role of providing technical support to its member countries in Africa, sustains the economies of these member countries on the African continent. The Fund provides technical assistance to these countries to design and implement economic policies that stimulate economic growth and improve economic performance. But the International Monetary Fund’s Article IV consultation as one of its key services being provided to member countries has serious weaknesses in Africa. The consultation involves a wide-ranging analysis of a country's economic policies and economic performance, and prospects. It also proffers solutions to address economic weaknesses and solutions that promote economic growth in member countries.

The IMF’s Article IV consultation, however useful it is in providing policy advice to member countries it visits, does not address specific policy issues or challenges. The Fund focuses on providing generic policy advice that does not help address the critical challenges of member countries. It appears the Fund and the countries it visits in Africa for consultation do not understand the needs and priorities for their economies to guide them in building ownership and support for structural reforms for their economies.

This explains why African countries engage in excessive borrowing and unrestrained fiscal activities that create fiscal imbalances and financial crises for their economies. The Fund’s Article IV consultation must be a tool for “policing” the economic and development policies of African countries. An effective economic surveillance on the economies in Africa should ensure countries accumulate sustainable debts. It is not reasonable for experts from the IMF to examine the books of countries whose debt levels become unstainable a couple of years after such a critical exercise. This occurrence points to a failure or weakness associated with the expert analysis of the economists employed by the IMF to monitor the economic activities of member countries.

The IMF’s Article IV consultation process is weak because the Fund thinks being tough on member countries to implement recommendations after an Article IV consultation may constitute surrendering of economic sovereignty by member countries. African countries mostly act behind the veil of economic sovereignty to engage in excessive borrowing and the accumulation of unsustainable debts.

The recent IMF Article IV consultation in Ghana was in 2021. The IMF Executive Board asserted that there were encouraging signs of an economic recovery. A statement from the Executive Board noted that “risks to Ghana’s capacity to pay have increased.” But the Directors concurred that they are still manageable. A couple of months after this consultation, Ghana’s debts were declared to be unsustainable, and therefore could not be serviced.

This is a classic case of predictive failure of the IMF’s Article IV consultation. Under its key issues in the Press Release after the consultation with the Ghanaian authorities, the IMF remarked that “medium-term prospects remain favourable, driven by opportunities in digitalization, structural transformation, and the expansion of extractive industries.” The expert economic analysis by the economists of the Fund could not predict a likely dire financial situation such as the one Ghana currently experiences. The scope of the IMF’s Article IV consultation must be redefined and repurposed for African economies.

The IMF may not need to engage the Paris Club of creditor nations to give financial assurances to their debtor nations for an IMF bailout if it tightens its Article IV consultations, by making sure countries manage their debts to sustainable levels even if these countries are not under a program of the Fund. It appears clearly that member countries of the International Monetary Fund, especially those in Africa, only adhere to the policy prescriptions of the Fund when they join a program of the international financial institution. The Fund prescribes policy options for member countries after the consultations but these countries do not execute them.

The IMF needs to revise its economic surveillance strategies in Africa by providing actionable and effective solutions that address specific challenges. For instance, the Fund must focus on addressing the fundamental structural problems in Africa through its Article IV consultation. Such proposals must be binding on countries in Africa to implement since they cannot manage their economies prudently on their own.

The IMF may need to develop debt sustainability levels and frameworks with punitive sanctions for African countries. The Fund must develop special debt limits for African economies beyond which they cannot and must not borrow; countries that flout the Fund’s orders must be punished heavily.

The IMF’s Article IV consultation must be used to instill fiscal discipline in its member countries in Africa by imposing sanctions on debtor nations on the African continent who do not borrow within prescribed limits. The traditional method of prescriptions and policy advice employed in its economic surveillance cannot provide the much-needed solutions to resolving the economic difficulties of its member countries in Africa.

Emmanuel Kwabena Wucharey
Economics Tutor, Advocate and Religion Enthusiast.