Setting the records straight: What Duffuor wrote to the IMF

- Part I

Kwesi Atta-Krufi Hayford

In the run up to the December 2008 elections the NDC disingenuously put out propaganda machinery through the likes of Fiifi Kwetey and Okudzeto Ablakwa to rubbish every economic achievement that Ghana had chalked under Former President Kufuor’s administration. In the bulletins entitled “setting the records straight” they put out falsehoods which were interesting to their listening public but were clearly not in the interest of the public image of Ghana. They lied their way into power and President Mills has rewarded them with ministerial positions.

Again under the NPP administration every state of the nation address the President gave was sharply followed by the “The true state of the nation” address by Hon Alban Bagbin in which he would seek to debunk the achievements as tailored by the then President. Well the NPP quite naively thought this political gimmickry would be seen through by the Ghanaian voting public who were “very discerning”. They did not and the government paid dearly by surrendering Ghana once again to the hands of the out-of-control NDC elements. The “political defamation” these people caused and continue to cause even in government has put and continues to put the NPP in a bad shape in the eyes of many Ghanaians and the world at large.

Well on 16th of June 2009, the NDC had to come clean before the IMF before they could secure the loan of US$602.6 million PRGF. They have been forced to set the real records straight and the true state of the nation’s finances devoid of the traditional NDC colours. Dr. Duffuor the NDC Minister of Finance and Mr Paul Acquah, Governor of the Bank of Ghana in a “Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding [dated] June 26, 2009”, they describe the policies that Ghana intends to implement in the context of its request for financial support from the IMF. The document is described as the property of Ghana, and is made available on the IMF website by agreement with Ghana as a service to users of the IMF website. In the first attachment to the covering letter Dr. Duffuor states the memorandum of economic and financial policies, 2009-12 in which he straightened the records of achievement of the Kufuor administration which had been badly maligned by his government. The man who said with his President that “Ghana was broke” had this to write. Read on:

1. The Government of Ghana has adopted a comprehensive program of macroeconomic Stabilization and reform. This memorandum sets out Ghana’s economic and financial policies for the period July 2009-June 2012, to be supported by the International Monetary Fund under a three-year PRGF arrangement.

2. Ghana successfully went through a keenly contested presidential and parliamentary elections in December 2008. A clear winner emerged after two rounds of balloting in the presidential elections with a slim majority. There was, subsequently, a smooth handover of power from the New Patriotic Party to the National Democratic Congress, the second such transfer since Ghana ushered in multi-party democratic governance in 1992. This outcome is a manifestation of the consolidation of the democratic gains, making Ghana a strong functioning democracy in Africa, and stands as the single most remarkable achievement in the country’s governance history.

Recent economic and social achievements

3. Real GDP growth increased steadily from 3.7 percent in 2000 to 7.3 percent in 2008.

This growth was fostered by significant debt relief which provided the country with fiscal space to embark on critical infrastructure investments, particularly in the energy and road sectors, as well as targeted social spending, all under the Ghana Poverty Reduction Strategy (GPRS). The combination of higher output growth, declining inflation, and improved social spending under the GPRS framework contributed significantly to lower poverty levels. The national incidence of poverty declined from 39.5 percent in 1998/99 to 28.5 percent in 2005/06. At this rate, Ghana is poised to achieve the Millennium Development Goal (MDG) of halving extreme poverty ahead of 2015.

4. In the education sector, gross enrolment ratios have increased. A major initiative for improved enrolment ratios was the abolition of mandatory school fees for basic education and the introduction of capitation grants in the 2005–06 academic year. 5. In the health sector, there have been progressive improvements in the delivery of a number of important outputs. Most notable are: increase in life expectancy from 55 years in 2003 to 57.9 in 2006; the introduction of a pre-paid National Health Insurance Scheme in 2004; and the introduction of free maternal care for expectant mothers. These, together, have put healthcare within the reach of the poor and vulnerable groups.

6. Gender disparities are gradually declining in some areas of service provision, such as in primary education, where the country has almost achieved gender parity. Recent estimates suggest that gross enrolment ratios have been higher for girls than for boys putting Ghana on track to achieve MDG 3 (gender parity in primary enrolment).

7. The improved macroeconomic environment during the period paved the way for Ghana to make a debut on the international capital markets in October 2007, raising US$750 million as additional capital targeted at infrastructural development for growth, especially in the key area of energy.

8. In the financial sector, important structural and institutional reforms have also been undertaken recently. In particular, a comprehensive legal and regulatory framework and strengthened risked-based prudential supervision policies have been put in place to further deepen the financial sector and safeguard the safety and soundness of the financial system. Macroeconomic stress during 2007–08

9. In spite of the progress in the macroeconomic and structural areas, the economy has come under severe stress since 2006. The macroeconomic situation deteriorated sharply on the back of both domestic and external shocks. In 2006–07, Ghana suffered a severe energy crisis as a result of severe drought, leading to a significant shift from a predominant hydro to thermal power generation at a time of rising crude oil prices, with adverse impacts on the economy.

10. The global food and fuel price increases in 2007–08 adversely impacted most sub- Saharan African countries, including Ghana. In the context of these global shocks and the 2008 elections, public sector spending increased substantially, raising the fiscal deficit from 7.5 percent of GDP in 2006 to 14.5 percent of GDP in 2008. Contributing to the strong fiscal expansion were high energy-related subsidies, increased infrastructure investment, higher wages and salaries, and a rise in social mitigation expenditures to dampen the effects of the global price shocks.

11. The global financial crisis has contributed to further balance of payments pressures. While export proceeds have not, thus far, been significantly impacted, private remittances are slowing, there has been some outflow of portfolio investments, and the outlook for foreign direct investment is not encouraging. Official access to global market financing is now extremely limited. This has reinforced the urgency of macroeconomic adjustment and efforts to identify new external financing from development partners.

12. Strong public spending growth, combined with rapid credit expansion and rising oil import costs contributed to a widening of the external current account deficit from 9.9 percent of GDP in 2006 to 19.3 percent of GDP in 2008. In 2008, the overall balance of payments recorded a deficit of US$941 million compared with a surplus of US$413 million in 2007 (inclusive of the balances on sovereign bond proceeds). The 2008 deficit was mainly financed by a drawdown of reserves, leading to a decline in the stock of gross international reserves, by US$800 million to US$2,036 million at the end of 2008, equivalent to 2.2 months of import cover.

13. Real GDP growth for 2008 remained strong at an estimated 7.3 percent, up from 5.7 percent in 2007. The pass through from higher global commodity price shocks, combined with fiscal expansion, resulted in a rise in headline inflation from 12.7 percent in December 2007 to 18.1 per cent by end-2008. The Bank of Ghana responded by increasing the prime rate by a cumulative 350 basis points in 2008, ending the year at 17 percent.

14. Inflationary pressures have remained strong in the first four months of 2009, with 12-month inflation in the 20 percent range from January through April 2009. This reflects sharp increases in some components of the non-food category of the inflation basket, mainly as a result of sharp depreciation of the cedi against the major international currencies in the first quarter. The prime rate was further increased by another 150 basis points to 18.5 percent in February 2009, and the Bank of Ghana stands ready to tighten further as needed.

14.. The banking system remains sound, well capitalized and fairly liquid. In 2008, the sector witnessed a reduction in concentration, intensified competition and expansion in branch networks.

Does this sound like an economy that is broken? Does this sound like the records “set straight” by Fiifi Kwetey, then in opposition?. As a Deputy Minister at the Finance Ministry he would have had an input in preparing the document. He must have cringed when he had to compare the truth with his half baked lies. The President definitely had to peruse the document before it was sent out. The fact of the matter is if they did not state the right records and give an indication of Ghana’s ability to repay its debts because of our strong micro-economic indicators they would not get any assistance from the IMF.

Well look out for the Part II where I will share with you the Table 2 of the letter which discusses Ghana’s “Structural Conditionality under the PRGF Arrangement, 2009–2010 1/ Measures Timing Macroeconomic rationale (MEFP). 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 be back

Kwesi Atta-Krufi Hayford