“IMF Bailout Hurts Most Because Ghana Has Oil”

Wed, 13 Aug 2014 Source: Ata, Kofi

By Kofi Ata, Cambridge, UK

The above title of an article by Dr Arthur Kennedy appeared on Ghanaweb on Monday August 11, 2014. In it, the former presidential aspirant raised a number of very pertinent questions relating to the current economic mess facing the Mahama led NDC government and the ongoing debate about the government going to the International Monetary Fund (IMF) for a bailout. Though he answered some of the questions, he also left most unanswered, perhaps for obvious reasons. That is, most Ghanaians know the answers to those questions or he was playing the devil’s advocate. Whatever his reasons for leaving most unanswered, most readers may agree with him more on the issues he raised in his article. The questions make interesting reading and I am of the view that there is the need to interrogate further the questions he posed. In this article, I intend to open up other areas for debate on the questions he asked in the said article.

Dr Kennedy posed the following questions: “Why do we keep needing help from the IMF?”

He answered this question (“as the fundamental causes of our underdevelopment- bad leadership, corruption, an over-bloated civil service, an out-sized “do-nothing” Parliament and an overwhelming focus on politics instead of policy”). He is absolutely right and there is not much to add except to say that until Ghana controls her natural resources (gold, diamond, bauxite, manganese, cocoa, timber and now oil), governments and generations after generations will continue to beg for assistance from donor partners and run to IMF for bailouts. Ghana cannot self-finance her development needs as long as foreigners control the lion share of our natural resources and continues to export raw commodities without adding value, especially when commodity prices are determined not by supply and demand factors but by the buyer.

His second question was: “Is this present request for help meant to get more loans or to get policy advice—otherwise known as “apo” or knowledge?” In my view and from what President Mahama is reported to have said in an interview with Bloomberg TV in Washington, the answer is both (see, “We are not desperate for IMF Financial Support – Mahama”, Ghanaweb, August 11, 2014). President Mahama claims his government has already produced what is now known as home grown policy solutions to the falling cedi, soaring inflation, ballooned fiscal expenditure (especially, the out of control public sector wage, unprecedented higher borrowing, debt servicing and non-performing public utilities). However, his government needs to tie its apron to that of IMF in order to gain international recognition for the home grown policies. The IMF checking over the home grown policies will ultimately result in some of their experts working with the government as well as some financial support in the form of loan/s.

Behind this is a bigger agenda or call it sinister agenda if you want to. That is, the reduction of the public sector wage bill through retrenchment or redundancies. The Mahama led government has not got the guts to reduce the huge public sector wage bill through redundancies. For this reason it is running to IMF for cover and to take the difficult but necessary decision. The government is scared of doing it alone but also because the IMF would provide funds to pay off those to be made redundant so that they can establish themselves in business. The government is broke and cannot afford to fund redundancy payments from its own resources.

Third, Dr Kennedy asked, “if public sector wages are this high, was “Single-Spine” a mistake?” The answer is yes, the Single Spine Salary Structure (SSSS) was a big mistake. It was a good policy gone bad or mad due to poor implementation, mismanagement and inefficiency. The Mills/Mahama administration rushed into implementing the policy for political expediency. The policy was implemented without the government costing it. That is, working out how much the total cost would be to the tax payer as well as not knowing the total number of public sector workers who would benefit from the various salary levels. In other words, there was no budget for such an important national exercise. As a result, questions were not asked as to where the funds would come from to pay the huge wage bill.

Moreover, there was no requirement on public sector workers to improve performance and productivity despite the doubling, tripling or quadrupling of their wages in an instant. It was more or less Father Christmas come early for most public sector workers. These students cum politicians then used this poorly implemented policy as a party propaganda tool for the 2012 election campaign as one of their achievements. What they naively did not know was that, injecting that much money into the economy without the corresponding increased productivity equalled hyper inflation and that is exactly what Ghana is now experiencing. The chickens have come home to roost.

Another damaging effect of SSSS on the economy was the fact that, most of the workers who received the bonanza on the implementation of the policy, spent their windfall salaries on goods that were imported such as vehicles, fridges, television sets and others. Such consumption does not directly contribute to expanding Ghana’s economy but rather foreign countries where these products are manufactured, even if it creates some employment for others. In other words, the multiplier effect in terms of economic growth is very limited.

Four, “do our governments find it hard to accept advice from the opposition? Are we going to the IMF to listen to the same advice that has been offered by Bawumia, Akoto-Osei and others? If that is the case, why is the opposition applauding the request to the IMF instead of challenging the government to do what it must do?”

Yes, most governments generally find it difficult to accept advice from oppositions but particularly, NDC and NPP governments because of the bipolar nature of politics in Ghana characterised by boycotts and abstentions on matters of national interests even in parliament. In this particular instance, the Mahama led government does not want their arch-rivals to take credit for any future successful policies and actions.

The main reason why the government is not taking any advice from the opposition NPP but is going to the IMF for a rescue and instead of implementing the home gown solution is lack of confidence. The government has lost confidence in itself and lacks credibility in both Ghana and abroad, especially within the global financial markets. Going to the IMF is not only to seek global approval of the home grown solution but also to gain that international confidence as way of stopping the cedi from further calamity.

On the other hand, NPP is applauding the government for going to IMF for political expediency. They are aware that IMF will compel the government retrench public sector workers, remove subsidies on fuel and utility services such as water and energy. They also know that the IMF programme would not start until at least, six month from now. These policies would be very unpopular in Ghana with the potential for more upheavals in 2015, a year from general elections in December 2016. NPP therefore stand to gain political and electoral advantage from the NDC government going to IMF. If the government implemented the policy recommendations from NPP, then the NDC could equally share the blame with NPP. In other words, though the policy recommendations by the NPP are genuine and necessary, they know it would hurt NDC’s political fortunes in 20016, hence, the encouragement. It’s called self-serving patriotism for electoral gain, which any political party would have taken advantage of.

Five, “if the request to the IMF is for financial help, then what has happened to all the money that has been borrowed since the NDC returned to power in 2009? Sika no wo hen?” We are aware that some of the loans have been wasted on inflated costs of projects, mismanagement and incompetence. With the Chinese loan, the Chinese are reluctant to release funds until they are certain that Chinese companies can win all contracts for infrastructure development projects in Ghana for which the loans were given. With Chinese companies using Chinese workers, including manual workers as well as importing materials and even food for their Chinese workers, the money comes to Ghana and goes straight back to China. Finally, I am sure we are aware of something called corruption in Ghana. Part of the loans is spent on corruption to improve the quality of lives for NDC politicians, their families and cronies.

Six, “should we have been more welcoming of Archbishop Duncan Williams’ offer of prayers?” I am not qualified to answer this question. Nonetheless, I do believe that, God helps those who help themselves. Prayers alone would not save the heartbeat of Ghana’s dysfunctional economy. First, the government must act to control fiscal expenditure by drastically reducing the public sector wage bill. Immediately and as a matter of urgency, the government must identify all ghost workers, arrest those who benefit from such names, prosecute them and recover every pesewa they have illegally received. Second, the government must improve tax revenue collection and plug the loopholes such as Subah Infosolutions contract with Ghana Revenue Authority and finally, the government must improve its management of public resources through efficiency to curtail mismanagement, inefficiency and waste.

Last but not the least, my sincere appreciation to Dr Arthur Kennedy for asking such important questions which should be of interest to all Ghanaians.

Kofi Ata, Cambridge, UK

Columnist: Ata, Kofi