Gov’t gambled on homegrown policies

Government’s decision to pursue its home-grown economic policies, rather than seek a bailout from the International Monetary Fund (IMF), contributed to worsening the country’s macroeconomic situation, Jeff Gable, Head of Non-Equity Research, Barclays Africa Group, has said.

Mr. Gable, speaking to the B&FT on the sidelines of this year’s Barclays Economic Forum, said the signs were already on the wall when government realised it lacked the political will to pursue initiatives that would have acted in the economy’s best interests.

“The imbalances in Ghana have been growing for a while. Part of the solution would have been unpopular; like the removal of subsidies. In a political environment where elections are closely contested, no one wants to be the one to remove this or that subsidy,” he said.

Part of the solution to the economic challenges, he said, is to confront the issue of wage bills with the labour unions which, he added, could make the government unpopular, especially when it has its eye on the next elections.

“There will always be,on the side of government, an incentive to hang on as long as possible in the hopes that the need will go away… In the case of Ghana, we had signals from the domestic interest rate market, from the currency, for at least for a year that something needed to be done -- but of course the twin deficits lasted much longer,” he recounted of the distressed economy that pertained months before the Bretton Woods institution was called in.

Mr. Gable maintained that the economy’s position is a dicey one that is waiting to erupt. According to him: “You find very few examples of countries globally that have run fiscal deficit of more than five percent of GDP and current account deficit of more than five percent of GDP and done so for more than two years; but doing so for more than five years, you find few examples of those countries not facing a sharp macro re-bound later led by pressure on the markets”.

Before announcing the decision to go the Fund, ratings agency Fitch among others was the first to sound the alarm on rising deficit, as well as the central bank heavily financing this deficit. The IMF had also in its earlier country report called for a host of policies to reduce the deficit in the short- to medium-term.

While government insisted that its pursuit of homegrown austerity measures would suffice, the macroeconomic situation did not improve, and the Fund was called in to help salvage the situation.

“In some sense you can see that something needed to be done. The strength the IMF brings is that it can provide the experience and plans to pull the country out of this in a way that would be most friendly over the medium-term to economic growth,” Mr. Gable said.

Three-year IMF deal Government, after engaging the IMF last August, landed a three-year programme that could allow it access around US$918million -- or 180 percent of Ghana’s IMF quota.

The three-year programme is also expected to shore-up international confidence in Ghana's economic management and should nudge the country's donors, who were consulted during the negotiations, to release previously held-back funds. That support, analysts say, will be critical for the budget in these trying times of falling commodity prices and slowing growth.