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Business News of Thursday, 26 January 2017

Source: B&FT

Gov’t / IMF renegotiation is critical

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Many hold the view that it is an illusion that the International Monetary Fund (IMF) does well to an economy. They believe the lender serves only its purpose than that of bailout nation. When Ghana’s debt condition became a deep hole because of its near bankrupt condition, the erstwhile government went to IMF to sort a bailout and fiscal consolidation but the institution rolled out its policies to hurt many.

The Senior Minister designate, Yaw Osafo Maafo has said that, the new government will insist on renegotiating aspects of the IMF bailout programme to allow fiscal space for rolled out projects. “The NDC did their best to negotiate with the IMF in respect of their policies. Now we have some policies such as the US$1 million per constituency, we need that fiscal space to make it workable,” he said.

Osafo Maafo reiterated that, we need the Fund programme going for, at least, our international image. This statement is a testament that government is not in support of the programme brought on us by the old government. The Fund was brought in to install fiscal discipline after the old government’s audacity in spending through reckless borrowings

The accumulation of debt flourished at a staggering rate under the old regime and the unprecedented hike in public debt foretold a disastrous nervy future. The result of the old administration ill – handling of the public purse is the severity of the measures thus, the reason the new government sees no reason to get itself entangled by the IMF.

When governments are hit in the face with huge pile up debt, IMF comes in to absolve the politicians of their responsibility. Going to the IMF is a way to evade responsibility for their actions. The government gets to easily put the blame on IMF when the conditions hurt the average and the poor who tend to protest against the authorities.

The IMF came to provide medicine to keep the economy healthy but it rather has brought pain on the masses. The bailout totally overlooked microeconomics and overburdened the masses with the introduction of cuts in subsidies, high tarrifs and taxes. The old government over reliance on the bailout conditions is the current predicament of homes trying to make ends meet.

The disappointing result of this marriage with IMF is reason government has to renegotiate the deal for space to invest in projects that would increase productivity. The zero finance policy by BoG for government projects has to be tackled. Satellite nations are different from advanced countries to have such harsh austerity to be forced on the people.

Despite the Fund measures, budget deficit target of 7 percent was still missed in 2016. Public debt stock also jumped to GH120 billion (assumption) at the same period. It implies that, the bailout has failed to meet its purpose since, there was no antidote to reduce Inflation, unemployment and the reckless public spending.

Successive governments have borrowed from the BoG and at this important moment where the government wants to deliver on its promises to the people who think they now have gained their salvation from the IMF burden, it would be suicidal if there is no renegotiation. There has to be renegotiation if prudent spending from all government sectors to boost growth has to be achieved.

Renegotiating with the IMF will provide the economic team enough flexibility to properly implement their policies. This is especially true for ensuring lower taxes, reducing tariffs and bringing down subsidies. Critical to this shift from austerity to spending to increase productivity will decisively push the economy unto a higher growth path.

The main losers of IMF conditionality are the poor. The IMF harsh condition cannot be allowed to continue to impede growth. Economic challenges need prudent reforms not exacerbated worst solutions. Usually, in the Fund’s proclivity to save sinking economies it ends up been morally wrong for the suffering masses.

Certainly, government has a responsibility to hold onto its promises to Ghanaians therefore, the tendency to renegotiate with the IMF team visiting Ghana in February is critical.