IMF report: NPP's economic policies failed in 2002

According to the Report, the 2002 Programme was undermined by weaknesses in expenditure control, non-implementation of the major revenue measure, that is, the 2.5 per cent VAT increase, (insertion supplied by the Ghana Palaver but not in text of the Report, making true the IMF/NPP government secret deal not to mention VAT increase in official documentation), delays in the divestiture plan, and a failure to adjust petroleum prices.

GPRS

The Report admits that the NPP?s 2003-2005 Ghana Poverty Reduction Programme on which the IMF/NPP Programme is based, starting with the 2003 Budget, is ambitious-IMF-speak for unnecessarily difficult- mentioning in particular the proposed VAT increase and other new taxes and new taxes, euphemistically referred to as ?the revenue measures? in the Report, cost recovery in the petroleum sector, non-state intervention in petroleum pricing, and expenditure control measures.

Excessive Taxation

The Report implies that the tax measures are particularly excessive, and that they go beyond what was envisaged for the medium term in the 2002 Budget. In other words, the IMF is serving notice to the NPP government that if there should be any social upheavals arising out of the implementation of the Programme, they should not be the ones to blame!

The Staff Appraisal Report reluctantly accepts the disguised VAT called ?National Health Contribution? as a second-best alternative to increasing the standard VAT rate, but also impliedly admits that it is actually a VAT increase in disguise.

Civil Service wages

The IMF Staff disagrees with the level of civil service wage increases in the 2003 budget, wishing that it had been even lower than 22 per cent factored into the 2003 budget, but acknowledge the political problem the NPP government faced in holding the line on wages at a time when energy prices were rising substantially and taxes were being significantly increased. As a replacement for further civil service wage increases, the IMF staff recommended a reduction in the number of people in the service.

Inflation

The IMF staff thinks that it will be difficult to achieve a single-digit inflation as proposed in the NPP government?s programme, because the civil service pay increases and the increases in energy costs may generate further upward pressure on the general price level, and that this will need to be strenuously resisted, thus providing the perfect explanation for the 29.4 per inflation figure recorded for February 2003, which political prostitute Dr Kwesi Nduom and his NPP government challenged.

The staff also believes that action is required to reverse some of the excess expansion of liquidity in late 2002.

GCB/Valco

Two actions required to strengthen the finances of the major public enterprises are a rapid progress on the divestiture of Ghana Commercial Bank (GCB), and an early resolution to the pricing dispute with Valco, diplomatically described in the Report as ?the major private aluminium company,? on terms that allow VRA, also diplomatically described as ?the electricity generation company,? to cover its costs.

It will be recalled that on assumption of office, the NPP government jettisoned the NDC- renegotiated VRA/Valco Agreement which would have allowed Valco to pay on additional $30m per year to the VRA and has since been unable to renegotiate new terms with Valco.

Programme support

If all these actions and those mentioned in our previous stories can be taken by the NPP government, then the IMF staff would support the NPP government?s request for a three-year Poverty Reduction and Growth Facility in the amount of SDR184.5m, and for additional interim assistance from the Fund under the enhanced HIPC Initiative.

Whether the people of Ghana can bear the hardships involved in these decisions, and whether indeed, these measures can help realise the desired objectives, is the million-dollar question.

Next issue: The text of the letter and the Memorandum of Economic and Financial Policy of the government of Ghana 2003-2005 which the IMF staff has drafted for Yaw Osafo-Maafo, Minister of Finance and Dr Paul Acquah, Governor of the Bank of Ghana, to sign to the Managing Director of the IMF, Horst Kohler.