Like many nations, Ghana has been steering a complex economic landscape from the outset of the COVID-19 Pandemic. While the global economy shows signs of recovery, adverse geopolitical events threaten to interrupt this progress.
The International Monetary Fund (IMF) has come to the aid of many nations including Ghana. Yet, the potential impact of it on Ghana has to be felt, especially by citizens.
In early 2022, the erstwhile Minister of Finance, on his roadshows to garner support for the “infamous” E-levy, said, that despite the economic downturns, he did not see Ghana going to the IMF.
“Ghana won’t go to IMF; we’re a proud nation,” Ken Ofori-Atta, the former Minister of Finance said.
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But that soon changed. In March 2023, the IMF Board approved a US$3 Billion extended credit facility arrangement for Ghana. The country had sought a loan disbursement to support its economic recovery program and address persistent fiscal imbalances.
The World Bank’s July 2023 Economic Update projected a growth rate of a meagre 2.8% for Ghana in 2024. With the current situation in Ghana, experts believed that the IMF loan complemented with domestic reforms, could provide the much-needed boost for economic recovery and stabilise the Ghana Cedi among others.
Questions that most people would subsequently ask are: “Until when will we be completely weaned off IMF bailouts?”, “We’ve been there before, what makes us think we will make headway if we do not indeed change and adopt a maintenance culture?”. Indeed, these are some legitimate concerns of a cross-section of not only citizens but several parties with an interest in Ghana at heart.
Ghana received the first tranche, $600m of the $3 billion IMF loan last year, however, most people claim they saw no visible improvement. The only one we can speak of is the stabilisation of the dollar in some way. After the shot up from GH¢11 – GH¢13 in the early part of the year, it has been floating around GH¢12-GH¢13.
The country started experiencing power outages and water shortages (something we do not talk about much) somewhere last year, so one concerned citizen would have thought the loan would have visibly been budgeted into the correction of these prevailing problems. But that was not the case. It is a fair point to note that the power outages began after the IMF loan chit-chat, however, we were witnessing glimpses late last year. But this year it has taken an uncomfortable turn that is affecting business. That being said when the second tranche of $600m was received in January of this year, many hoped it would go into solving the basic amenities issues of the country, i.e. Lights and Water, but to no avail.
What is the Potential Impact on Businesses and the Economy
With the approval of the IMF loan, some believe that the country’s fortunes could turn around and move in a positive direction. Others still think otherwise. For instance, the approval of the IMF loan implies increased government spending which could stimulate economic activity, potentially leading to higher demand for goods and services.
Businesses could also benefit from improved access to credit as a result of greater investor confidence. Sceptics, however, believe the funds could be mismanaged by the ruling party in an election year.
Regardless of the opinions of everyone, it is an undeniable fact that the impact will depend on how the loan funds are utilised. If the government commits to transparent and accountable use of the funds for plausible projects and social programs, the positive impact of the loans will be evident to all.
As concerned Ghanaians knowing the economic history of the country, another question is this: “Will the government commit to the responsible use of the funds, cut expenditure into non-critical areas of the economy by properly prioritising expenses and meting out punishments to scape-goats caught up in acts that amount to gross or wilful mismanagement of public funds?
Geopolitical Battle
Despite the IMF bailout, it is undeniable that Ghana’s economic recovery remains fragile amidst the global turmoil. The war in Ukraine has disrupted supply chains, worsened energy price hikes, and heightened global food insecurity.
In Ghana and with the automatic adjustment formula in place used by Oil Marketing Companies (OMCs) for pricing petroleum products, the effects of energy price hikes are felt directly and throughout the Ghanaian economy. Once fuel prices increase, the prices of the majority of goods in Ghana follow an upward trend as well. These factors could further dampen Ghana’s economic recovery prospects or even hopes of it.
Generally, rising global food and energy prices pose a significant challenge for Ghana. The country relies on imports for a substantial portion of its food needs. Higher import costs could lead to inflation, eroding household real purchasing power, and potentially dampening consumer spending which could all result in a recession or at best a technical one.
Path to Recovery
The success of Ghana’s economic recovery hinges on its ability to manoeuvre these challenges and its commitment to maintaining fiscal discipline and overcoming the lures of splashing cash that are associated with elections in Ghana. Effective use of potential IMF loan funds, combined with prudent fiscal management and targeted reforms, is critical. Additionally, implementing immediate steps to mitigate the impact of global factors on domestic food and energy security will be crucial to the entire recovery process.
Ghana’s economic future remains uncertain. While the IMF loan offers a potential lifeline, the ongoing global turmoil poses significant risks worsened by local factors such as possible mismanagement of the funds to fund political party campaigns. The country can only increase its chances of achieving sustainable economic growth by adapting to the changing global environment, taking the bull of economic mismanagement by its horns, and dealing with the problem once and for all.
However, with all being said, Ghana can receive all the money in the world but nothing will change if we do not deal with corruption and mismanagement first.