Part II of Duffuor’s Letter of Intent.

Setting the records straight: Ghana’s “Structural Conditionality under the PRGF Arrangement, 2009–2010.

Kwesi Atta-Krufi Hayford

In the first part of this paper I laid bare the unadulterated account of what Dr Duffuor and Mr. Paul Acquah wrote in a “Letter of Intent, [dated] June 26, 2009” to the IMF in which they described the policies that Ghana intends to implement in the context of its request for financial support from the IMF. I will in a moment share with you the Table 2 of the letter which discusses Ghana’s “Structural Conditionality under the PRGF Arrangement, 2009–2010. In other words what the NDC has in store for Ghanaians or the cost of going back to the IMF and compare it with PAMSCAD under the PNDC. I will ask you if the NDC are asking for another Kume Preko (Kill-me-one-time) in 2010.

In the meantime however, based on this Duffuor’s letter and the IMF’s own assessment of Ghana their executive board have by their own Public Information Notice (PIN) No. 09/86 dated July 17, 2009 made the following assessments on Ghana. [Read on]

“Ghana’s economic growth rose to a two-decade high of 7.3 percent in 2008. This reflected expansionary fiscal policies combined with an upswing in private sector activity based on strong credit expansion, buoyant remittances, and strong agricultural yields.

Inflation rose on account of external shocks and strong domestic demand. After falling briefly to single-digits in 2006, inflation rose through 2007–08, reflecting global food and fuel price shocks, strong domestic demand, and the pass through from currency depreciation. In January-May 2009, inflation stabilized in the 20 percent range.

The fiscal deficit surged to 14.5 percent of GDP in 2008, reflecting rapid public spending growth, with capital spending, energy subsidies, and wage and salaries each rising by more than 1 percentage point of GDP. The 2008 fiscal deficit drew on exceptional foreign financing amounting to 7.3 percent of GDP, comprising resources from the late-2007 Eurobond issue and proceeds from the sale of Ghana Telecom. In addition, the central bank provided financing equivalent to more than 3 percent of GDP.

Monetary policy was tightened in response to rising inflation. The Bank of Ghana increased its benchmark lending rate by 6 percentage points between October 2007 and February 2009, and market conditions tightened by more, as reflected in interbank and treasury bill rates. The policy rate was left unchanged in May 2009 on an assessment that inflationary pressures were easing. Notwithstanding interest rate increases, the prime rate has been lower than annual inflation since early-2008, while real interbank rates have been only slightly positive. The banking sector has continued to register strong asset growth, with private sector credit up 56 percent in the year to April 2009. This expansion continues to reflect local deposit mobilization, with broad money up 28 percent on the same basis.

Ghana’s overall financial system remains stable. The regulatory and supervisory framework is strong, backed by a modern payment and settlement infrastructure. Financial Soundness Indicators (FSIs) point to a banking system that is liquid and with capital above statutory levels. However, some recent deterioration is evident: non-performing assets are high and rising (9.6 percent in March 2009); profitability is declining; and a few banks are financially strained. The Bank of Ghana has required banks to raise their minimum capital to GHC 60 million (about $40 million) to allow them to play a larger role in the rapidly growing economy. The non-banking sector (insurance, pensions and capital markets) has continued to perform well”.

[Source: IMF Executive Board Concludes Article IV Consultation with Ghana Public Information Notice (PIN) No. 09/86 July 17, 2009]

This account can be compared with what our own President “yours truly” Atta-Mills had to say to the press last week "the economy we inherited was in very bad shape. With the domestic balance in the negative, this is a government which did not care about housekeeping, spending far in excess of what they were collecting. Our foreign reserves are gone. The economy is nothing to write home about. The only reason why we were not shouting from the rooftops is that we did not want to discourage investors. Moreover, at that point in time, we were not in possession of all the details. As time goes on, we are discovering more details which were hidden from us. But I can promise Ghanaians that at the appropriate time, we will let the Ghanaian public know the exact state of the economy." Source Daily Dispatch]

Short of sheer politics, this statement does not sound like coming from a president who is in sync with his own economy. What is even more worrisome is what was contained in Table 2 of Duffuor’s letter which explains to IMF Ghana’s Structural Conditionality under the PRGF Arrangement for 2009–2010. In order words they explain the cost of the loan of US$602.6 million from the IMF. Apart from the positives that the NDC government intends to “preserve the macroeconomic stability” [started under the NPP administration].and avoid crowding out private sector credit, the government intends in 2009-2010:

? Selective public sector hiring freeze, with exemptions mainly limited to health and education trainees. This means there will be no new jobs created in Ghana except in health and education sectors.

? To strengthen control of the high and growing public payroll. This means salary raises will be frozen and the Fair Wage Commissions report shelved.

? Reinstatement of automatic bi-weekly price adjustments for petroleum and utility products. This simply means the re-introduction of stealth taxation through surreptitious price hikes every two weeks in electricity, water, gas, and petroleum products.

? To eliminate energy subsidies. To explain the reality of this, you may see that today’s petroleum product prices in Ghana, at a time crude is selling at $60 per barrel is the same as it was when crude oil shot to $147 per barrel. The government has removed subsidies already.

? To complete comprehensive reviews of zero-rated VAT items and the nature and scope of tax exemptions and discretionary waivers. This means VAT will be extended to food and rinks items which were zero-rated items. In fact they want to increase VAT from 17.5% to 20% to finance their one-time NHIS premium. Readers may remember when the NPP wanted to borrow 2% of SSNIT contributions as the seed money for the NHIS, the NDC cried blood and boycotted Parliament and refused to be part of the NHIS law, accusing the government of stealing money from workers. The chickens will be coming home to roost very soon.

The end result of all these heart wrenching policies from a supposed “social democratic” party, the government hopes, is to yield at least 1.0 percent of GDP to offset projected expenditure over-runs in the 2009 budget. The NDC’s projected GDP growth is 5.9% according to this year’s budget compared to the actual 7.3% and therefore the best they can hope for is 6.9% in 2010 when we are already at 7.3% in 2008. This is pathetic. For 1% of GDP rise we risk unemployment, pay freeze, stealth petroleum taxes, removal of energy and utility subsidies and extension of VAT to all products including food and drinks and a possible increase to 20%. Another Kume Preko (Kill-me-one-time) is in the offing, I bet you.

I will rest my case here. Make your won assessments but I surely will return

Kwesi Atta-Krufi Hayford.