Bankers endorse IMF intervention

Some stakeholders in the financial services industry are confident that imminent intervention by the International Monetary Fund (IMF) in the government’s fiscal policy space will help to restore stability and confidence in the economy.

Dr. Kwame Baah-Nuakoh, Senior Vice President, Strategic Planning, Research and Corporate Affairs at the Royal Bank, believes that the IMF’s intervention is encouraging even though the country could have used domestic measures to solve its current economic challenges.

“The move toward the IMF is to basically shore-up confidence in the market because the IMF has the capacity to ensure that government engages in the fiscal discipline as required. It is a good move for the market, because the government will be more or less ‘forced’ to do the right thing.”

Currently, a team from the IMF is scheduled to begin talks with government today on how the Fund can help to restore stability in the Ghanaian economy after months of uncertainties in the business operating environment -- with the cedi estimated to have depreciated by 30 percent as per Bank of Ghana data, while other economists have pegged the rate of depreciation at 40%.

Inflation is also at a four-year high of 15.9 percent and the prices of critical household needs have been rising relentlessly. Chief among them is petrol, whose price has risen by 40 percent since January.

The Deputy Managing Director of Societe Generale Ghana Borut Vuj?i? believes that the IMF’s prescriptions, no matter how tough, will help to restore confidence and stability to the economy and hopefully reduce inflation and interest rates.

“We must be honest; everybody will be affected. The government will be because it has to implement unpopular policies; the economy will be affected because it has to absorb these unpopular policies; and the ordinary people will be affected because the economy will be affected.

“So everything is connected and everybody will have to take his/her own portion of hardship, and this has always been the case. The IMF will try to give the Ghanaian government advice and support to keep this unavoidable hardship as short as possible.

We must understand that if some tough measures are not taken, the hardship could get worse and for longer. It is like a therapy that might be a little painful, but you will be in a better condition than before. We have to see the IMF as a tool to improve the situation, and you cannot improve the situation without some hardship,” he said.

The imminent IMF assistance programme will be two years after the country completed its last stabilisation programme with the Bretton-Woods lender.

The IMF in a May country report called for higher taxes on fuel and real-estate, government workforce reduction, and spending cuts on wages and the Ghana National Petroleum Corporation, among others.

These measures, according to the Fund, will contain government borrowing and cause the budget deficit to contract to 8.5 percent of GDP in 2014, 6.3 percent in 2015, and a more sustainable 4.5 percent of GDP in 2016.

Some groups including the Ghana Chamber of Commerce and Industry and politicians from the main opposition party, New Patriotic Party (NPP), have kicked against government’s latest attempt to court the IMF in the country’s economic management programme -- arguing that the Fund as part of its reform programme will push government to undertake policies which will be insensitive to Ghanaian’s plight.

According to the Finance Minster, Seth Terkper, government has opted to seek the IMF’s assistance in a bid to stem the slide of the cedi, dampening hopes for government’s own “home-grown” solutions.

Dr. Baah-Nuakoh said intervention of the IMF would have been needless had policymakers stuck to the home-grown solutions proffered by the National Development Planning Committee, as well as the popular Senchi Summit.

“They wouldn’t have to come if we ourselves believed we were doing the right thing, and we had built enough confidence in the market, and could ensure fiscal discipline.

“Consultants offer advice and I don’t see much difference between what these consultants offer through the NDPC process, what was done at Senchi and what the IMF will be telling us. It is the same thing: fiscal discipline. The only thing is that the IMF has the capacity to insist on us doing the right thing,” he noted.

An industry analyst and Executive Head, School of Banking & Management at the Osei Tutu II Centre for Executive Education & Research in Kumasi, Nana Otuo Acheampong, has urged government to see the central bank as an advisory body and not one that implement what the government wants.

“Government should treat the Bank of Ghana (BoG) as an advisory unit on the economy and consult it (BoG) before taking decision -- and not telling BoG to implement some of the government’s rather populist decisions which are not the best for the economy,” he said.

The central bank stated in July that it was helpless in the decision by the government to implement VAT on financial services, in reference to the fact that the regulator was not consulted before a decision was taken by the executive and hurriedly approved by the legislature.

Nana Otuo Acheampong added that under previous regimes the governor of the Bank of Ghana was always consulted, and he advised on decisions that were taken and his inputs were critical to the successful implementation of both monetary and fiscal policy; but the same cannot be said of this government.

Mr. Vuj?i? added that the banking system can only appreciate what contributes to the stability of the economy and country in general.

“Even if it sounds strange, as a banker I cannot be happy with the high-interest rate because it is obviously not sustainable for the economy; and what is not good for the economy is not good for the banks in the long-run.

“Actually, I hope that IMF in collaboration with government will find a way to reduce interest and inflation rates and stabilise the currency, because all these will contribute to better opportunities and developments for the economy,” he said.

He believes that for the time being it is very difficult for companies to invest because money is very expensive, and the market is volatile, hence making economic decisions rather difficult and impacting on the economy’s performance.

“We are optimistic that this will help to achieve the targets. The IMF has the tools to do this, but it cannot work without support from the Ghanaian government.

“For the banking sector, it won’t be a big problem. If the cost of the risk is reducing then we can easily reduce interest rates. From this point of view I am not worried, the more the economy is stable the lower is the credit risk. Indirectly, it is better for us because what the banking industry needs is a performing economy.”

Dr. Baah-Nuakoh also believes that when interest rates come down, not only do banks benefit but all Ghanaians also.

“What is the use of earning salaries when you are not sure how high prices will go, which can influence interest rates?

“As bankers we need to put in strategies because low-interest rate regimes convince a lot of customers to come onboard. We will prepare and take advantage of that. High-interest rate regimes do not allow you to make profits on the masses but only a few people; but when you have a low-interest rate regime, the numbers come onboard and the banks can also make money.”