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Opinions of Monday, 13 July 2015

Columnist: Arkoh Isaac

The IMF or the people

We cannot afford to forget that public order, personal security, economic and social progress, and prosperity are not natural order of things; that they depend on ceaseless effort and attention from an honest and effective government that the people must elect. (Lee Kwan Yew).

What should it do to attract more private equity and how can it convert the illicit financial flows to funds for domestic resource mobilization, these are pertinent issues which affect the long term development of the African economies. Financing developmental efforts in Africa has always proved difficult. Overreliance on overseas development assistance (ODA) does not seem to be the solution.

Article one of the 1992 constitution of the republic of Ghana says the sovereignty of Ghana resides in the people of Ghana in whose name and for whose welfare the powers of government are to be exercised in a manner and within the limits laid down in the constitution.

This clearly means power emanates from the people and not anybody or institutions. President mahama and the national security asserts that youth unemployment continues to pose as the single biggest threat to the peace and stability of Ghana.

Falling commodity prices, rising interest rates, mounting inflation, a trailing currency against the major foreign currencies have combined with acute power crisis and revenue shortfalls to sap business confidence, plunging them into hard times.

Business surveys by the Bank of Ghana (BoG), Institute of Economic Affairs (IEA) and the Association of Ghana Industries (AGI) show increasing concerns of the deteriorating business environment and the worsening state of the business confidence leading to job losses.
The BoG business confidence index shows a dip from 99.2 per cent in December last year to 88.9 per cent in March this year.

The question is would the G8 nations of this world agree to freeze employment in the public sector for five years for any amount of money? Definitely no? No nation can claim to be independent and self-sufficient but are interdependent for mutual benefits.

Undeniably, Africa is stack to neo-liberal policies to austerity recommended by the World Bank and IMF as early as 1983.The poisonous package which saw the 31st December revolution as the only way out of the economic mess was to embark on policies such as retrenchment of labour, wages freeze and privatization of state enterprises.

Other measures implemented were the massive devaluation of the cedi, the withdrawal of the subsidy on social services and hikes in petroleum and utility services.

While economists say the tightening would do little to anchor the currency in the short term, some said the move could renew investor confidence by providing evidence of the government’s commitment to fiscal consolidation demanded by the IMF.

Unfortunately, the fuel price increment comes at a time that businesses can hardly get some relief from the harsh economic situation. Business operations are currently surviving on generators at high fuel cost and this is also being stifled with an increase in fuel prices.
In 2003, however, Ghana opted for debt relief under the highly indebted poor countries (HIPC) among other poor nations. Zambia is one of these nations whose history is no different from Ghana.

Zambia entered the HIPC initiative programme in 2000. According to the agreement with the IMF and the World Bank, the country was supposed to have reached the ‘’completion point’’- the point at which debt relief would actively be delivered in December 2003. This would have meant Zambia being relieved of about US$6.8billion.

Despite being on good track record for the first two years ( according to the fund and the world bank), Zambia was removed from the fund’s credit in April 2003 after it was discovered that the country was not meeting limitations on public sector salaries set up by the fund.
Consequently, Zambia had put on a staff monitored programme (SMP) until June 2004, instead of the conventional poverty reduction and growth facility (PRGF).

During their period, should Zambia fail to satisfy the conditions of the IMF and World Bank the Country would not reach the "completion point". This meant it would have to pay close to US$300million in debt in 2004, with the figure rising in subsequent year.

Unlike Ghana, the Zambian government is the country’s biggest employer. However, remuneration in the civil service cannot be compared to what people with similar qualifications in the private sector earn, or even neighboring countries. Many professionals had been leaving the civil service to go work elsewhere.

In the hope of retaining its professional staff, the government introduced a housing allowance system. As a result, the ration of public sector wages to gross domestic product (GDP) reached 9? Exceeding the 8% agreed with the found in the budget. Because of this, Zambia was removed from the PRGF and put on a staff monitored prrogramme.

To meet the 8% agreement in 2004 budget there was no salary increment for any civil servant despite rising price levels linked and import duties.
Housing allowances had been reduced to unacceptable levels. No new civil servants are to be employed for the next one and half years despite a shortage of doctors or teachers in government –run institutions. These measures were supposed to be operational by April 2004. SMPs

The Zambia SMP started in July 2003, and run to June 2004. The fund had assigned six economists to monitor the Zambian economy. Each is an ‘’expert’’ in fiscal, monetary or external sectors. Some of the "experts" used were recent college graduates with little or no knowledge of the Zambian economy.

Under the PRGS, agreement, the IMF only made two visits in a year and later increased to four. Progress in implementation of SMP was monitored monthly. Targets were defined in a technical memorandum of understanding on which the government had to justify its expenditure.

To graduate out of the SMP, Zambia had to meet certain conditions. It included reducing the budget deficit to the agreed upon target of not more than 3% of GDP and maintaining a public sector wage to GDP ratio of not more than 8%.

Additionally, Zambia was expected to privatize the remaining public utilities in the energy and telecommunication sectors. To make matters worse, the monies realized from the sale of the parastatals must be used for the debt servicing and not for investment or consumption purposes.
In Zambia the government was at crossroads. If it pleases the IMF and World Bank, by going along with proposed measures in the letter of intent, it goes with the will of the people; the country would have to pay hundreds of millions of dollars in debt servicing.

It has now become very obvious that Africa has been electing dishonest and ineffective government in elections; and we are paying the price for that. In modern governance, we have seen leaders who have inherited very poor economic and social conditions of their people but through the instruments of honesty and efficiency, have turned the conditions around for the better. No nation and its people anywhere in the world have been totally satisfied with the state in which they find themselves.

Arkoh Isaac-Broadcast Journalist
Tel: 02304649889
Email: arkohisaac@ymail.com