Bailout may not bail Ghana

An economic consultant, Mr. Kwamena Essilfie Adjaye, has warned that the $918m credit facility the International Monetary Fund (IMF) has decided to extend to Ghana would not help solve the financial woes of the country, if the government fails to discipline itself in terms of its financial management.

Though he admits that the bailout will help to boost investor confidence in the economy, a lot would depend on how the government handles the situation.

The government announced during the Easter holidays that the IMF has finally approved a credit facility of $918m, which will be released in tranches to help stabilize the economy.

According to the report, the first tranche, which is $114 million, would soon be released, after the IMF board had met to approve of the bailout plan.

A Deputy Minister of Finance, Mr. Cassiel Ato Forson, in an interview he granted to Joy FM, noted that the cedi will be one of the immediate or major beneficiary of the first tranche of the bailout programme. To him, the fortunes of the cedi should improve “greatly” when the $114 million is released to the Bank of Ghana.

Early last year, the government and one of its wholly owned companies, Ghana Cocoa Board (COCOBOD), went onto the capital market to borrow a record $2.7 billion, One billion dollars out of the amount came from the Eurobond, whilst the remaining was from the syndicated loan secured by the COCOBOD to purchase cocoa for the 2014 and 2015 crop season.

Despite this heavy capital injection into the economy, the cedi is still depreciating against the dollar. This experience has cast doubt over claims being made by Ato Forson that the currency, which had already depreciated by 4.3% this year, would bounce back after the injection of $114 million, which is the first tranche of the IMF bailout.

Mr. Adjaye, who was speaking in an interview with The Chronicle, would not respond to the claim being made by the Deputy Minister.

He, however, noted that the $918 million dollars would certainly not be the panacea to our economic woes and that the government must rather be prudent in the management of the economy.

According to him, when the government and COCOBOD secured the $2.7bn last year, which no doubt helped to slow down the free fall of the cedi against the major currencies, he and some other economists warned that the development would not be sustainable if the foreign inflows ceased, and this is exactly what has happened.

The financial consultant further told The Chronicle that getting to the end of every year, and the early part of the following year, the cedi always comes under attack due to heavy importation among others for the yuletide.

To him, what the government needs to do is to come out with a policy that would support massive export of goods and services to rake in more forex to stabilize the cedi and the economy as a whole.

So if $2.7 billion could not help to stabilize the cedi and the economy, what will a mere $918 million do? This was a question The Chronicle posed to the renowned economist, but he responded that looking at the $918m, it is nothing to write home about but its cascading benefit would help to shore up the economy.

According to him, the IMF intervention would definitely inspire investor confidence because of the assurance that the government would be disciplined in her financial dealings.

This means that they (investors) would release credit facilities they would have otherwise withheld if the Briton Woods Institution had not intervened. Players in the international finance market would also be willing to extend credit to Ghanaian companies.

The founding president of Imani, Franklin Cudjoe, on his part told The Chronicle that the government can rejoice about the $114 million first tranche of the bailout if that would help boost investor confidence in the economy.

He noted that rice importation alone within a month would swallow the $114 million. So what happens afterwards, he asked? Cudjoe charged the government to be financially disciplined, otherwise, the rush to the IMF would not help the situation.