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Comment: Barbarians at the Gate: Ghana and the IMF (Final)

2015-02-01 18:59:22


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The IMF and Ghana

In time, the IMF has become a convenient excuse for problems afflicting the economies of numerous African countries including Ghana. Some have even claimed the IMF exists to enable the West have free access to economies like Ghana’s raw materials. The privatization and austerity measures the IMF usually advocates has also not escaped criticisms. In criticizing the IMF however, the economic conditions that led Ghana to the IMF should serve as the backdrop. What critics must recognize is that the IMF is usually the last resort that Ghana and other African countries are forced to resort to, owing to years of financial mismanagement and other unsafe economic practices. Critics complain, for example, about the austerity measures that are usually recommended by the IMF. Ghana’s current public sector is severely bloated. The public wage bill consumes over 70% of government revenue. Further, the government, whose revenues are consumed primarily by public sector employment, also, until recently, subsidized fuel. In essence, the government relies on aid, and then borrows money it doesn’t have to subsidize fuel. In 2013 for example, the Ghanaian government spent $1.2 billion on fuel subsidies, equaling 3.2% of Ghana’s GDP. This was more than half of Ghana’s allocation for its entire educational sector. A country like Ghana, in what was then its state (and even now), cannot both maintain such a bloated public sector, and also subsidize fuel. Something has to give. There are also significant problems with government-control of state enterprises. They are inefficient, since, among other disincentives, losses incurred are simply borne by tax-payers, loans, and donor aid.

Since independence, the various state-controlled enterprises, which increased under Nkrumah and continued to increase under successive governments, have been bleeding the nation’s coffers, and have seldom been profitable. Examples include the Volta River Authority, the Electricity Company of Ghana (which up till this day, is unable to provide Ghanaians with uninterrupted electricity), then Ghana Telecom, and numerous others. The public sector has been a drain on Ghana’s resources since the days of Nkrumah. Commentators criticize Ghana’s privatization efforts under a cloak of “Pan-Africanism” when Ghana has tried the state-enterprise model for decades since independence with disastrous results. Under the auspices of the IMF, the Rawlings government embarked on the largest privatization effort ever witnessed in Ghana. The privatization of Ghana’s telecommunication industry drew the usual criticisms of “selling of Ghana’s assets” to the West. Prior to privatization, owning a fixed line telephone in Ghana was a luxury. Today, everyone, including the elderly in the hinterlands own mobile phones. Ghanaians have enjoyed the benefits of privatization so much that they now clamor for privatization of other state-agencies like the Electricity Company of Ghana, which would have been inconceivable just a few years ago. The government still has non-functioning or under-producing state-enterprises it is trying to sell but cannot find buyers for.

The argument that Ghana’s raw materials are being auctioned off to Western interests is mind-boggling. By the time Ghana sought help from the IMF, Ghana faced acute electricity challenges. Energy was seen as critical to turning around the Ghanaian economy, but there was no electricity to convert the raw materials into value-added products, even if factories were built for such purposes. Most of the areas that had the raw materials were not served with electricity or fuel. Consequently, the first coherent energy policy framework for Ghana emerged from the negotiations with the IMF. An additional problem was that even with solutions, most of the personnel to help correct the Ghanaian economy were in short supply as many, driven by years of economic mismanagement and its resultant effects, had sought greener pastures abroad. Dr. Wereko-Brobby, a Ghanaian solar engineer and energy expert was brought in, after consultations with the Commonwealth, to help effectuate the new energy policy. The Recovery Plan established the National Electrification Program, whose purpose was to extend electricity to every town with a population of 500 or more within 30 years. Decentralization was seen as key to a turn-around, so decentralization policies and availability of electricity was necessary for this purpose. Consequently, as part of the new energy plan, every district capital was to have electricity within five years. This was important not only for the decentralization efforts, but to stem the unsustainable rural-urban migration from periphery towns to Accra. The energy policy achieved some gains in manufacturing, but the economy was still heavily reliant on gold and cocoa and more restructuring had to be discussed. Alumina and aluminum ingots command higher prices than bauxite in its raw form, and the challenge, as in other areas, was to convert the raw materials into value added products in lieu of exporting and then buying the value-added products. The negotiations and re-negotiations, as well as the involvement of Ghanaians in the formulation of policies with the IMF, deviates from what is often presented in the literature criticizing the IMF’s involvement in economies like Ghana’s. Ghana is often painted as a defenseless guinea pig upon whom economy-stagnating policies are thrust by the IMF. Nothing could be further from the truth.

Another product of the IMF and World Bank involvement in Ghana, as well as the involvement of other donors of a Western orientation, has been the development of democracy in Ghana. A recurring theme in Ghana’s history, prior to 1981, was the unstable political environment, which many commentators consider a factor in Ghana’s economic problems. From Nkrumah up till Rawlings, every democratically-elected government had been overthrown in a military coup. Ghana’s economic conditions forced Rawlings to seek help from the IMF and Western donors, who pressured him to move towards democracy. The results of these efforts were the transition to democracy in Ghana in 1992, and the promulgation of a new constitution which was passed through a plebiscite by the citizens of Ghana. Currently, Ghana has gone through multiple elections without the problems that afflict many other African countries. The citizens of Ghana are largely to be credited with the peaceful transition to democracy and successful changes, but the efforts of the IMF, World Bank, and other donors cannot be overlooked. While we praise Ghana’s democratic achievements, and regurgitate the oft-overstated “success story” narrative, we must recognize the events that led Ghana to its current position, and the efforts of organizations such as the IMF.

It is true that Ghana continues to experience significant problems even after the involvement of the IMF, but those problems are not necessarily related to the IMF. Corruption has been a problem in Ghana since the days of Nkrumah, and increased in the aftermath of his overthrow. The 1979 revolution by Rawlings and his cohorts was supposed to arrest the cancer of rampant corruption that had permeated every fabric of Ghanaian society. Notwithstanding the revolution, corruption continues unabated, and has become institutionalized. Corruption contributed, and still contributes, to the inefficiency of state-enterprises. It will take another series of posts to describe the depths of corruption in Ghana, but perhaps a few examples will help elucidate the point. A recent investigation by Ghana’s Bureau of National Investigation revealed that the Ghana National Service Scheme was paying large sums of money to non-existent personnel on its payroll. There were 22, 612 “ghost names” on the payroll and almost $2.5 million was paid to these non-existent personnel every month . The money remains unaccounted for. The fact that this has been going on for several years should give one an indication of the amount of money that has purportedly vanished into thin air. Ghana is back at the IMF again, and as part of a new round of negotiations, the IMF is helping Ghana clear the “Ghost names” from the public payroll, in an effort to rectify the existing problems in the bloated public sector, which continues to consume 70% of Ghana’s revenue. In July this year, the Controller and Accountant General’s Department announced that it had deleted 3,179 ghost names from public payrolls in the Greater Accra region alone. In January this year, the Deputy Minister in charge of tertiary education, Samuel Okudzeto Ablakwa, announced that the government had deleted over 2,913 ghost names from the Ghana Education Service’s payrolls. In November of 2013, 1,052 staff of the Korle Bu Teaching Hospital (a single government hospital) could not be accounted for after a head count. According to Dr. Abbey, who had been involved in the original 1983 IMF Recovery Program, an average of 100 million Ghana Cedis (about $31 million) was paid to ghost employees every single month in 2012. This is just the tip of the iceberg and concerns one infinitesimal problem in the corruption machinery. How is the IMF responsible for such ineptitude and corruption?

Additionally, Ghana has not always followed the recommendations of the IMF. While it implemented the gradual privatization recommendations, it has still not dealt with its bloated public sector. It is also important to note the relationship between rectifying the public sector problems and privatization. Reduction in the public sector will involve job cuts. It is incumbent on the private sector to absorb some of the people displaced by public sector reforms. The critics complain both about the public sector reforms and the privatization necessary to absorb the spill-over from the public sector reforms. I must also mention that Ghana has had large sums of loans “forgiven” under the World Bank’s Heavily Indebted Poor Countries initiative launched in 1996. Prior to accessing the initiative, years of increased borrowing had brought Ghana’s debt to unsustainable levels, and the government was spending a chunk of its revenue on servicing its debt. For example, Ghana spent around $409.7 million on debt servicing in 1994, which represented 29.6 percent of its exports of goods and non-factor services. In 1995, the country spent US$635 million on debt service, which was 40.2 percent of total export earnings. The HIPC brought relief to Ghana’s debt obligations. In 2002, Ghana received debt relief amounting to US$275.2 million, and in 2003 and 2004, the country enjoyed debt relief of US$290.8 million and US$318.3 million (as at November 2004), respectively. Within a short period, the government has again racked up debt, and is back at the IMF. Ghana’s gross debt stood at 4.9% of its GDP in 2003 (after the HIPC initiative), last year (2013), it had risen to 47.82% of its GDP, with little to show for it. It continues to embark on the same policies that initially led it to the IMF. Granted, some of Ghana’s problems are related to externalities, such as decreases in the price of its major exports (gold and cocoa). Between 1999 and 2000, for example, the world market price of cocoa dropped to a record low of $230-250 per ounce and gold fell to a low of $700 per ton. This was coupled with a rise in oil prices, which depleted foreign reserves and eroded some of the macro-economic stability that had been gained in the years prior. However, every Ghanaian in primary school is aware that Ghana’s reliance on the export of raw materials is a problem. The drop in world prices is not new, and Ghana has gone through numerous cycles of drops in cocoa and gold prices, coupled with increases in the price of oil. It however continues to rely on the export of raw materials and has not instituted any credible policies to wean it off said reliance. Blaming the IMF is a cop-out that detracts from the actual problems and solutions to Ghana’s predicament.

Ghana, as has been shown from its economic history, has long embarked on fiscal mismanagement and other disastrous policies that decimated its economy and forced it to patronize the IMF as a lender of last resort. In response, the IMF, in negotiations with Ghanaian stakeholders, recommends a number of policies to help its economy recover. Most of these policies are aimed at stemming the very policies that led Ghana’s economy into trouble in the first place. What then happens is that Ghana takes the loans (which it is not obliged to take), and other financial help from the IMF and donor agencies, and then critics complain that the IMF imposes conditions that prevent it from continuing the policies that necessitated the loans in the first place. The fuel subsidies and public sector wage bill are unsustainable. A solution will necessarily involve the displacement of workers and introduce hardships, but the solutions are necessary to enable Ghana’s economy recover from years of bad fiscal policies. They are also decisions that require tremendous political will, which incentivizes governments to blame the IMF for the effects, which are inevitable, with or without the IMF. Reasonable people, economists included, can disagree on the utility of austerity in a down economy. However, we must reject the wholesale demonization of the IMF and World Bank and the populist rhetoric that blames the West for “Africa’s” problems. Ghana’s problems were and are largely self-created, and the IMF’s involvement in the affairs of Ghana has been largely positive. The NPP government that followed the PNDC/NDC continued negotiations with the IMF and implemented some of its policies, as did the NDC government of Attah-Mills that followed, and the government of Mahama in the present. It is an admirable sign of political maturity that Ghana has moved away from the policy discontinuity that had afflicted administrations past, and contributed to Ghana’s underdevelopment. It is the continued adherence to good economic policies, some of which were advocated by the IMF, which has propelled Ghana into a “success story” in Africa. If Ghana is to remain the “darling” of Africa, it must stay the course and endeavor to rectify the existing problems with its fiscal policy, while remaining cognizant that there will still be problems, as with all developing economies, and even developed ones. Ghanaians have gone through enough coup d’états and salvation-promising revolutions espousing socialist rhetoric to know better, which is why the country has been more receptive to the IMF than others. The IMF is not the enemy; our enemy is within.
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