Is The Economy Collapsing?

The International Monetary Fund (IMF), which has been described as a development partner by the Kufuor administration is deeply worried about the future of the Ghanaian economy and it says that if urgent steps are not taken the prospects for 2003, would be very bleak.

In a staff aide memoire prepared for the government of Ghana, the IMF alleges that the debt of the Tema Oil Refinery (TOR) rose by ?800 billio0n this year alone, and virtually eliminated the benefit of last year’s debt restructuring.

It said, “there is now the prospect of the government having to assume at least a further ?1.6 trillion of TOR’s debt that the refinery cannot afford to service itself, imposing a significant additional burden on the budget in 2003. In addition to the fiscal deterioration, domestic petroleum prices have not been adjusted as world crude prices have risen and the cedi depreciated over the past six months or so”.

According to a report carried by “The Insight”, the IMF is also worried about “unbudgeted expenditures” and what it calls policy slippages that have taken place in the past six months and which have rendered more difficult the budgetary outlook for 2003.

It said, “Fiscal and other policy developments in 2002, if left unchecked, do indeed threaten to undermine the government’s economic strategy.

The disciplined monetary policy that has been maintained to date could quickly become unsustainable if government is not reined in, the paper warned.

“The dividends from strengthened tax administration this year, in themselves highly commendable, risk being dissipated in unbudgeted expenditures, rather than funding the government’s staged priority programmes”.

“A further large quasi-fiscal losses will be incurred if petroleum prices are not brought promptly into line with costs and kept there” it said.

On the policy slippages, which have taken place over the last six months, the IMF proposes some urgent measures to minimize any further deterioration in the final quarter of 2002 re-establish a favourable track record of implementation and enhance the prospects next year to a programme that the fund can support.

In very clear terms, the IMF is threatening that if the current situation does not change it would not be able to support the Ghana programme next year.

According to the IMF, government expenditure (excluding foreign financed investment) during January to July 2002 was 9 per cent higher than budgeted.

It said, “Although revenues have been performing well, net domestic financing between January – July was 2.4 per cent of GDP in excess of what was programmed and the outlook for 2002 as a whole is for an overrun of around 4.5 per cent of GDP if adjustment measures are not taken.

It cites a reported overrun in the wage bill, the bulk of which appears to relate to salary hikes in the education sector and which is indicative of a break down in the expenditure control system.

Although the IMF admits that there have been significant short falls in foreign financing it does not provide reasons for this situation.

Amongst measures recommended to the government of Ghana for dealing with this situation are significant increases in utility tariffs, the fast tracking of the divestiture programme and a wage freeze for 2003.

It is clear that these measures would be resisted by organised labour, industry and commerce because it could have negative and serious consequences for future of business and the plight of the already impoverished workers.

In the face of the evidence of failure, apologists of the government have very quickly joined the IMF and World Bank bashing choir. They insist that the stringent conditions of the two institutions are responsible for the sorry plight of the Ghanaian economy.

What the IMF said about Ghana’s economy

1.The progress that has been made in reducing inflation over the past 18 months is the most important economic policy achievement of the Kufuor administration. While many other reforms will be needed to realize the government’s medium-term growth objectives for Ghana. The hard-won advances on the macroeconomic policy front are a since qua non, and it is vital that they not be halted or reversed.

2. Fiscal and other policy developments in 2002, if left unchecked, do indeed threaten to undermine the government’s economic strategy. The disciplined monetary policy that has been maintained to date could quickly become unsustainable if government borrowing is not reined in. the dividends from strengthened tax administration this year, in themselves highly commendable, risk being dissipated in unbudgeted expenditures, rather than funding the government’s stated priority programmes. And further large quasi-fiscal losses will be incurred if petroleum prices are not brought promptly into line with costs and kept there.

3. Already, the policy slippages that have taken place in the past six months have rendered more difficult the budgetary outlook for 2003. This aide memoire proposes some urgent measures to minimize any further deterioration in the final quarter of 2002, re-establish a favorable track record of policy implementation, and enhance the prospects for moving quickly next year to programme that the Fund can support under a new PRGF arrangement. The staff is not yet in a position to offer definitive proposals on the 2003 programme but we do provide below some advice on what the parameters for next year’s budget should look like, as a guide to the expenditure plans which the government has now begun to formulate.

The International Monetary Fund (IMF), which has been described as a development partner by the Kufuor administration is deeply worried about the future of the Ghanaian economy and it says that if urgent steps are not taken the prospects for 2003, would be very bleak.

In a staff aide memoire prepared for the government of Ghana, the IMF alleges that the debt of the Tema Oil Refinery (TOR) rose by ?800 billio0n this year alone, and virtually eliminated the benefit of last year’s debt restructuring.

It said, “there is now the prospect of the government having to assume at least a further ?1.6 trillion of TOR’s debt that the refinery cannot afford to service itself, imposing a significant additional burden on the budget in 2003. In addition to the fiscal deterioration, domestic petroleum prices have not been adjusted as world crude prices have risen and the cedi depreciated over the past six months or so”.

According to a report carried by “The Insight”, the IMF is also worried about “unbudgeted expenditures” and what it calls policy slippages that have taken place in the past six months and which have rendered more difficult the budgetary outlook for 2003.

It said, “Fiscal and other policy developments in 2002, if left unchecked, do indeed threaten to undermine the government’s economic strategy.

The disciplined monetary policy that has been maintained to date could quickly become unsustainable if government is not reined in, the paper warned.

“The dividends from strengthened tax administration this year, in themselves highly commendable, risk being dissipated in unbudgeted expenditures, rather than funding the government’s staged priority programmes”.

“A further large quasi-fiscal losses will be incurred if petroleum prices are not brought promptly into line with costs and kept there” it said.

On the policy slippages, which have taken place over the last six months, the IMF proposes some urgent measures to minimize any further deterioration in the final quarter of 2002 re-establish a favourable track record of implementation and enhance the prospects next year to a programme that the fund can support.

In very clear terms, the IMF is threatening that if the current situation does not change it would not be able to support the Ghana programme next year.

According to the IMF, government expenditure (excluding foreign financed investment) during January to July 2002 was 9 per cent higher than budgeted.

It said, “Although revenues have been performing well, net domestic financing between January – July was 2.4 per cent of GDP in excess of what was programmed and the outlook for 2002 as a whole is for an overrun of around 4.5 per cent of GDP if adjustment measures are not taken.

It cites a reported overrun in the wage bill, the bulk of which appears to relate to salary hikes in the education sector and which is indicative of a break down in the expenditure control system.

Although the IMF admits that there have been significant short falls in foreign financing it does not provide reasons for this situation.

Amongst measures recommended to the government of Ghana for dealing with this situation are significant increases in utility tariffs, the fast tracking of the divestiture programme and a wage freeze for 2003.

It is clear that these measures would be resisted by organised labour, industry and commerce because it could have negative and serious consequences for future of business and the plight of the already impoverished workers.

In the face of the evidence of failure, apologists of the government have very quickly joined the IMF and World Bank bashing choir. They insist that the stringent conditions of the two institutions are responsible for the sorry plight of the Ghanaian economy.

What the IMF said about Ghana’s economy

1.The progress that has been made in reducing inflation over the past 18 months is the most important economic policy achievement of the Kufuor administration. While many other reforms will be needed to realize the government’s medium-term growth objectives for Ghana. The hard-won advances on the macroeconomic policy front are a since qua non, and it is vital that they not be halted or reversed.

2. Fiscal and other policy developments in 2002, if left unchecked, do indeed threaten to undermine the government’s economic strategy. The disciplined monetary policy that has been maintained to date could quickly become unsustainable if government borrowing is not reined in. the dividends from strengthened tax administration this year, in themselves highly commendable, risk being dissipated in unbudgeted expenditures, rather than funding the government’s stated priority programmes. And further large quasi-fiscal losses will be incurred if petroleum prices are not brought promptly into line with costs and kept there.

3. Already, the policy slippages that have taken place in the past six months have rendered more difficult the budgetary outlook for 2003. This aide memoire proposes some urgent measures to minimize any further deterioration in the final quarter of 2002, re-establish a favorable track record of policy implementation, and enhance the prospects for moving quickly next year to programme that the Fund can support under a new PRGF arrangement. The staff is not yet in a position to offer definitive proposals on the 2003 programme but we do provide below some advice on what the parameters for next year’s budget should look like, as a guide to the expenditure plans which the government has now begun to formulate.