Delay in IMF deal a major worry

Government’s delay in reaching a deal with the International Monetary Fund (IMF) on an economic programme has the potential to cause irreversible damage to the economy, an economist has warned.

Talks between Ghana and the Bretton Woods institution over a possible fund programme has been ongoing for at least six months, and government is keen on a programme it believes will grant credibility to home-grown economic policies.

So far, talks between the two parties have taken place in both Washington and Accra, and the IMF team is expected in the country today in what is supposed to be the negotiation’s final round of talks.

But economist Dr. Raziel Obeng-Okon, commenting on the deal which both parties expect to be announced by end of the first quarter, said: “The delays might stagnate our progress because our debt-trap has become a vicious cycle that will be difficult to unwind. There are several factors which point to a difficult year for 2015 without an IMF programme.

“The major factors include: the financial burden resulting from the high total debt to GDP ratio; high recurrent expenditure, especially personnel emoluments and administration; corruption within the public sector; negative impact of crude prices on oil revenue; huge cost required to fix the energy crisis among others,” he told the B&FT in Accra.

Currently, analysts have warned that rising public debt -- more than 60 percent of GDP -- as well as an unsustainable debt service strategy begs for an IMF policy that will help steer the country from a debt crisis that is imminent.

The country’s total debt stock as at September last year is about 60.8 percent of GDP, translating to more than GH¢69billion including interest payments -- which puts a severe strain on government’s finances. The country’s total public debt stock as a percentage of GDP increased from 36.3 percent in 2009 to 48.03 percent in 2012, and further to 55.53 percent the year after.

To solve our high financial leverage position requires very strong discipline on the fiscal side and financing on concessionary terms, said Dr. Obeng-Okon who is also a lecturer at GIMPA.

While government is keen on clinching the final deal, a source close to the Fund said the team is still reviewing data to synchronise Ghana’s economic agenda or policies in solving the numerous economic challenges.

“Government is eager to finalise the process, but the IMF team must be convinced of the economic programmes and measures put in place. The road to the IMF is tortuous but necessary due to numerous challenges created by high loans which are not linked to corresponding domestic revenue generation.

“After all, a core responsibility of the IMF is to provide loans to member-countries experiencing financial difficulties. This financial assistance enables countries to rebuild their international reserves, stabilise their currencies, continue paying for imports, and restore conditions for strong economic growth while undertaking policies to correct underlying problems,” Dr. Obeng-Okon said.