IMF bailout to deal fatal blow to businesses

Some conditionalities contained in government’s recently announced bailout programme could add to the woes of businesses as they battle a weak currency, unending power crisis and rising inflation -- which could eventually lead to a host of them folding-up and job-losses, a research has forecasted.

GN Research in its 2015 first-quarter economic report said the central bank’s pursuit of a tight monetary policy as prescribed by the Fund, as well as increasing interest rates, will stifle productive investments and make savings into short-run financial assets preferable to long-term productive assets.

According to the forecast in the 15-page document, “The cost of credit to the private sector will increase and attract mostly risky borrowers with an equally high probability of default. Many businesses are likely to shut down due to low demand for goods and services, and some workers will lose their jobs in both the private and public sectors”.

Currently, businesses pay not less than 30 percent as cost of credit -- one of the highest in the sub-region -- in addition to rising cost of raw materials, exchange rate volatilities and power shortages.

Insatiable borrowing

Already, government’s heavy borrowing on the domestic market has left businesses struggling to raise capital from the market -- denying businesses much-needed resources to expand operations that could see more jobs.

During the first-quarter of 2015 alone, government borrowed a total of GH¢16.08 billion from the domestic market, which included contingent liability from the central bank as well as the Ghana Cocoa Board.

Although government was expected to comply with its targets for first quarter by borrowing GH¢12.71 billion, it however overshot it targets by GH¢3.37billion.

Government is to borrow GH¢25.42billion from the domestic market by end of first-half of the year. Government’s inability to manage its borrowing culture, the research firm said, clearly depicts a struggling government’s appetite for funds.

“This increase in domestic borrowing gives clear indication that government expenditure is not likely to slow down any time soon. More so, this action is contrary to the government's claim of reducing domestic borrowing to free-up funds for the private sector this year,” GN Research said.

But the firm said that should the central bank proceed with its plan of raising GH¢25.42billion through the issuance of short- and medium-term bills by first half of 2015 to support government expenditure, the inflation rate will end the second quarter at 17 percent in spite of any tight monetary policy stance or IMF assistance.

The country’s total public debt as at December 2014 stood at GH¢76.1billion (representing 67.6% of GDP) from the GH¢51.9billion recorded in December 2013. Total domestic debt amounted to GH¢34.6billion while total external debt stood at GH¢41.5billion as at end of last year.