Ghana ?Freed? From IMF By October

AS ?41TR GAP IN FUNDING EXPOSES CONDITIONALITIES CONSTRAINS

Information available to The Statesman indicates that Ghana will be freed from the strict conditionalities imposed by the International Monetary Fund through the Structural Adjustment Programmes Ghana signed on to in the 1980s.

Thus, Ghana will no longer receive direct financial support from the IMF. The good news is that the country will now be free to go to the international money market to fill in the deep craters in funding our nation?s development.

The seriousness of the situation was highlighted by the Finance Minister Thursday when he told the press that Government needed ?80 trillion ($8.8 billion) to fund its projects this year. But, in the end, the 2006 Budget could only make provisions for ?39 trillion, leaving a much bigger funding gap of ?41 trillion.

Kwadwo Baah-Wiredu said not even half of the sum total needs and requests from the various Ministries could be met by a government that seeks to accelerate growth and attain middle income country status by 2015.

The breakdown of the figures are that ?26 trillion is expected to be raised internally this year mainly from taxes, with ?7 trillion being grants from Ghana?s development partners and ?6 trillion as loans.

The Finance Minister, in an exclusive interview with The Statesman, said some opportunities are beckoning to fill up such a recurring funding gap (like the ?41 trillion).

Ghana?s IMF programme puts a serious check on the country?s maneuverability in contracting credit beyond the usual bilateral and multilateral arrangements. For example, the Ghanaian government, until October, is unable to enter a loan agreement not considered to be on concessionary terms. Moreover, ability to contract commercial loans is limited to $100 million.

The Minister has disclosed that the country will soon be going to the capital market to raise self-amortising funds for critical sectors like the railways, roads, and housing.

He gave notice that government has no intention to allow the country to fall back into the old irresponsible mode of contracting credit without a repayment plan.

?When we borrow from the money market to construct toll roads, for example, we can recover the money,? he said.

He added that another way of bridging the funding gap in desired government expenditure is for government to continue creating economic incentives to ?open up a lot of economic activities.?

The June 5 consultative group meeting between government officials and IMF staff will be putting the closing touches to the country?s Poverty Reductions Strategy. Ghana will then, after October, move into what is termed as ?Policy Support Initiative?, which means the IMF tentacles of conditionalities would be clawed back from our shores.

?Even now government can borrow if it?s self-amortizing,? said Yofi Grant of Databank. He gave the example of the Cocoa Marketing Board which has been using projected proceeds from cocoa exports to borrow from the international market in recent years.

?For the railways, a similar thing can be done for the company, even if state-owned, to go out there and borrow on its own balance sheet. The sovereign will come to play in pricing ? whether at a premium or a discount.?

Mr Grant predicts that Ghana is likely to attract an annual interest rate of Libor plus 375 basis point (3.75 percent) up to about 450 basis on the international market. A five-year Libor is approximately 5.5 percent. ?You look at your sovereign rating and other peer groups and forecast how much it is likely to cost you to borrow on the international market. Ghana?s B+ credit rating is the same as Brazil.?

Considering the pressing financial needs of the country, Mr Grant continued, ?My opinion is that I think we should take the bold step and go to the open market. Our sovereign bond can serve as a benchmark.?

In his view, ?the real important thing is discipline. We need to be more disciplined in how we run our own economy. It is critical we maintain that prudence.?

By the start of the twenty-first century, Africa was poorer than during the 1960s, when the IMF and World Bank arrived on the African scene. The Structural Adjustment Programmes imposed on 36 African countries since 1980 have been blamed for the socio-economic devastation that has blighted the continent.

After 20 years of SAPs, 313 million Africans lived in absolute poverty in 2001 (out of a total population of 682 million), a 63 percent increase over the 200 million figure for 1994.

Life expectancy dropped by 15 percent since 1980, standing at around 47 years today, the lowest in the world. Health care spending in the 42 poorest African countries fell by 50 percent during the 1980s. As a result, health care systems have collapsed across the continent creating near catastrophic conditions. Between 1986 and 1996, per capita education spending in Africa fell by 0.7 percent a year on average. 40 percent of African children are out of school and the adult literacy rate in Sub-Saharan Africa is 60 percent, well below the developing country average of 73 percent. More than 140 million young Africans are illiterate.

But, as Ghana?s long-awaited u-turn shows, there is hope for countries that stayed disciplined and remained true to the social contract with the people. Debt relief has played a major part. Beyond that, Ghana was among 20 developing countries that have now benefited under the IMF?s own Multilateral Debt Relief Initiative, which came into effect at the beginning of this year.

Ghana today has a flexible exchange rate regime, a sound macroeconomic framework, and sustainable levels of public sector debt. The challenge is to make the economy flexible enough to maximise its growth potential in the face of technological change and to respond to changing competitive pressures, according to a leading international economist.