Ghana still tied to IMF!

John Agyekum Kufuor, President of the Republic of Ghana, is reported to have said that Ghana has decided to wean itself from budgetary support from the International Monetary Fund (IMF) with effect from the next budget, which is expected to be presented in December this year.

According to the report in the ?Daily Graphic? of Friday, September 9, 2005, the President said the resolve to be financially independent means that Ghana will no longer be troubled by conditionalities from the IMF.

Meeting with IMF Executive Director for Ghana

The President is reported to have made these statements when he granted audience to the outgoing Executive Director of the IMF for Ghana, Dr. Abbas Mirakhor.

President Kufuor reportedly told Dr. Mirakhor that with financial independence from the IMF, the government could fully determine the management of the economy and expressed the hope that the decision would make the economy improve faster.

President Kufuor is however reported to have explained that the decision did not mean that Ghana would have nothing to do with the IMF, pointing out that as a full member of the Fund, Ghana would continue to consult and seek advice from it.

Senior Minister J. H. Mensah is reported to have confirmed President Kufuor?s statements at a later speech to journalists by describing the decision to be independent of IMF budgetary support as a watershed in the history of the country?s economic development.

Mr. Mensah is reported to have blamed economic hardships in the past on ?uncontrollable economic circumstances and ineffective management of the economy? and expressed the hope that Ghanaians would have the political stamina and managerial capability? to maintain the new economic dispensation.

Documents available to the ?Ghana Palaver? however shows that all these statements are lies or at best half-truths.

Poverty Reduction and Growth Facility

First of all, the NPP Government has a 3-year Poverty Reduction and Growth Facility (PRGF) programme with the IMF, which was approved by the Board of the IMF in May 2003. That programme, which includes budgetary support to Ghana, ends in May 2006, far beyond the anticipated period of presentation of next year?s budget.

Second, far from weaning itself from the IMF, the NPP Government, at the Article IV consultation and third review meeting of the PRGF programme in March/April this year, asked for a 6-month extension of the PRGF programme which the IMF agreed to. That programme includes IMF budgetary support to Ghana. The Government?s extended PRGF programme with the IMF therefore ends on 31st October 2006.

It is therefore false for the President to say that Ghana is weaning itself from the IMF budgetary support with effect from the next budget, which is expected to be presented in December this year [See Box].

Memorandum of Economic and Financial Policies

Third, in a ?Memorandum of Economic and Financial Policies? jointly signed by the Minister of Finance and Economic Planning, Mr. Kwadwo Baah-Wiredu, and the Governor of the Bank of Ghana, Dr. Paul Acquah, dated May 20, 2005, on behalf of the Government of Ghana, to the Managing Director of the IMF, Mr. Rodrigo de Rato, the Government of Ghana acknowledged the following conditionalities some of which extend beyond 2005:

Performance Criteria:

? End-September 2005. Establish computer integrated personnel and payroll data bases, which will include all employees covered under the Ghana Universal Salary Structure and all subvented agencies (such as the police, universities, and research centres).

? By December 31 2005. Cabinet to approve the final plan for the civil service reform covering human resource policy, reviewing the organisation and structure of the civil service, and addressing wage policy and payroll management (including pensions).

Benchmarks

? Continuous.

Starting January 1, 2006, Bank of Ghana will start to enforce compliance of commercial bank with capital adequacy stipulated in the Bank of Ghana Law and Banking Act. Noncomplying banks must take timely remedial actions, or their licences will be revoked.

? By end-December 2005. The Minister of Finance and Economic Planning will issue an Administrative Directive to expand the mandate of the Non-Tax Revenue Unit at the Ministry of Finance and Economic Planning to monitor ? on a quarterly basis ? the financial and operating performance of the 35 state-owned enterprises that now report to the State Enterprises Commission, as well as any other key public enterprises so determined by the Ministry of Finance and Economic Planning.

Interview with Ghanaian IMF Official

In an interview with a Ghanaian official of the IMF, he said that it was inaccurate for the President to say that weaning ourselves from the IMF budgetary support means ridding ourselves of IMF conditionalities. Two of the IMF crosses that the country has to bear for the next 20 years are the HIPC conditionalities and the conditionalities attached to the G8 Debt Relief facility.

Petroleum deregulation, for example, is one conditionality that Ghana is stuck with for as long as the country remains a HIPC and Debt Relief beneficiary.

Sale of state-owned enterprises is another conditionality.

Cost-recovery in the social sector and for the utilities is yet another, and there are several others.

The Ghana IMF official also explained that getting off IMF budgetary support has serious management consequences for the economy. According to him, once a country is on an IMF programme, a clean bill of health given by the IMF is a trigger for the release of resources from both bilateral and multi-lateral sources.

In the absence of such a programme, the country will have to assure each and very development partner separately that its books are in order and that its economy is healthy.

Thus instead of dealing with one IMF Mission to make a determination of a green light for the Ghanaian economy which all development partners will accept, Ghana will now have to be dealing with separate teams from Italy, Japan, USA, Canada, Germany, World Bank, France, and so on.

In effect, Ghana will have to deal with conditionalities from each of her development partbners instead of the IMF

The effect this will have on the time management of the officials of the Ministry of Finance and Economic Planning is better imagined than described.

Then there is the matter of economic and financial discipline. One advantage for developing countries, which run IMF programmes, according to the IMF official, is that they are not allowed a laissez-faire approach to the management of the economy. Strict economic discipline is insisted on, sometimes at great political cost to the incumbent Government.

The temptations for Governments to allow slippages, especially when the Government comes under intense social pressure such as agitation for wage increases, pressure for political reforms, industrial actions, cat-call strikes, etc, is always very great and many governments of developing countries succumb to those pressures in the absence of the discipline induced by IMF programmes.

That is when you get the phenomena of excessive currency printing, governmental free-spending, and economic favouritism ? phenomena that wrecked the Kutu Acheampong Government in Ghana in the 1970s, the IMF official added.

The IMF official was of the view that this was what Senior Minister J. H. Mensah was alluding to when he expressed the hope that Ghanaians would have the ?political stamina and managerial capability? to maintain the new economic dispensation.

INTERNATIONAL MONETARY FUND GHANA

Staff report for the 2005 Article IV Consultation, Third Review Under the Poverty reduction and Growth Facility, and request for Waiver of Nonobservance of

Performance Criteria and Extension of the Arrangement

Prepared by the African Department

(In consultation with other departments)

Approved by Saul Lizondo and Juha Kahkonen

June 8, 2005

* The 2005 Article IV consultation and third review under the Poverty Reduction and Growth Facility (PRGF) arrangement discussions were held in Accra during March 29-April 14, 2005. Ghana?s economic team was led by Finance and Economic Planning Deputy Minister A. Akoto-Osei, and the mission met with Senior Minister J. H. Mensah, Finance and Economic Planning Minister K. Baah-Wiredu, Bank of Ghana Governor P. Acquah, and other ministers. The mission met with H.E. President Kufuor to review developments, and with representatives of the private sector and nongovernmental organizations.

* The staff team comprised Messrs. Itam (head), Maehle, York, Ms. Chiovakul (EP), Mrs Ellis (staff assistant) (all AFR), Mr Kinoshita (FAD), and Mr Zhan (PDR), and was assisted by Mrs. Muttardy (Resident Representative). The mission liaised with teams from the World Bank and the Multi-Donor Budget Support Group.

* Ghana?s three-year PRGF arrangement was approved on May 9, 2003 in the amount of SDR 184.5 million (50) per cent of quota). The second review of the programme was completed on July 9, 2004 and, at that time, Ghana reached the completion point under the enhanced Heavily Indebted Poor Countries Initiative. Upon completion of the third review, Ghana will be eligible to draw an amount equivalent to SDR 26.35 million (7.1 per cent of quota). Ghana is requesting waivers for the nonobservance of three quantitative and one structural performance criteria. Also, the authorities are requesting a six-month extension of the current PRGF arrangement to October 31, 2006, so that the sixth and final review (based on June 2006 test date) and all disbursements under the arrangement could be completed.

* Ghana maintains a managed floating exchange rate regime, with no pre-announced path for the exchange rate. Ghana has accepted the obligations under Article VIII, Sections 2(a), 3, and 4 of the Fund?s Articles of Agreement.

* President Kufuor was reelected for a second term in December 2004, and his party increased its parliamentary majority.

* Ghana?s relations with the Fund are summarized in Appendix I, IMF-World bank collaboration and Ghana?s financial relations with the World Bank Group in Appendix II, and statistical issues in Appendix III. This report is accompanied by a Letter of Intent, with attached Memorandum of Economic and Financial Policies for 2005 and Technical Memorandum of Understanding (www.imf.org), and a statistical Appendix.

* The authorities have agreed to publish the staff report, Letter of Intent, and the Statistical Appendix. The principal authors of the report are Samuel Itam and Robert York.