Gov’ts credibility on the line over IMF deal

Skepticism about government’s commitment to the IMF deal is rising among the international business community amidst predictions that the substantial fiscal tightening that the Fund has prescribed will prove politically difficult to implement.

A growing number of international institutions- that the Finance Minister wants to court their endorsement for the government’s own homegrown policies with the IMF programme- are doubtful the three year programme would be followed through as the country goes to the polls next year.

The Economists Intelligence Unit (EIU) is the latest organization to express concern about the government’s assurance to adhere and implement the ‘painful’ measures in the face of the 2016 general presidential and parliamentary elections.

The concerns come on the heels of earlier reservations expressed by global rating agency, Fitch, which is unconvinced by government’s assurances that next year’s elections will not derail the “ambitious” three-year economic stability programme with the IMF.

The position of Fitch is backed by The Economists Intelligence Unit, which believes implementing the IMF programme will be difficult for the government as slippages ahead of the elections will delay progress and, while likely, longer-term economic stability is not assured.

“Public resentment will be elevated by the poor performance of the economy, something that could well cost the current administration power at the 2016 elections.

“The agreement of an assistance package with the IMF in late February should help improve policymaking, but is not in itself an answer to all of Ghana’s troubles.

“The government will find it politically tricky to make the cuts to fiscal spending needed, while an adverse outlook for commodity prices will dent export performance,” the Unit said in its latest forecast of Ghana’s economy.

Last week, the government and the IMF reached an agreement at the staff level for a three-year budgetary support programme for Ghana worth around US$940 million, with the package expected to be in place in April, pending final approval from the IMF Board.

The deal foresees Ghana tackling its deficit and debt problems: scaling back public sector wages and salaries, restructuring and cutting funding of state-owned enterprises, and that old standby, better tax collection and more efficient administration. The Fund also wants further structural reform.

The IMF also expects the government to hike taxes, freeze new tax exemptions and undertake more robust assessment of large taxpayers.

Additionally, the Fund wants the government to scrap its subsidies programmes, reduce the wage bill, and also freeze public sector employment into non-critical areas but health and education.

While government has made efforts to cut its expenditure, implementing further cuts in a country where elections are won on infrastructure projects executed in the final months of an electioneering year will prove tricky.

This is starkly the case as Ghana has a record of fiscal indiscipline in election years in the Fourth Republic, characterised by expenditure over-runs and growth in borrowing which often led to an expansion of the budget deficit and distorted the balance of the macroeconomy.

In Ghana last general elections in 2012, for instance, a budget deficit of 4.8% became 6.7% in the supplementary budget and eventually ballooned to 11.8% in December 2012.

However, the Finance Minister, Seth Terkper insists the huge overruns were largely necessitated by oil revenue shortfall and a huge compensation bill and not reckless spending.