Ghana, one of the
world's biggest producers of both gold and cocoa, is suffering its worst
economic crisis in a generation, with the price of goods rising at an average
of 41% over the past year.
It has just signed a new bailout programme with the International Monetary Fund
(IMF) worth $3bn (£2.4bn) over three years to help ease the problems and is
expected to receive the first tranche of $600m soon, but how much difference
will that make?
Why is the economy in such a
mess?
Ghana, long seen as one of Africa's best run countries, has been struggling to
recover from the combined effects of the global Covid pandemic and the war in
Ukraine.
President Nana Akufo Addo himself admitted last October that the country was
"in crisis" citing "malevolent forces [that] have come together
at the same time".
But the opposition also blames the crisis on what it calls the "gross
mismanagement" of the economy - an allegation the government has denied.
The rate at which the price of goods is rising, or inflation, is on a downward
path, but it is still very high at 41% and many families are battling to make
ends meet.
The size of Ghana's debt is now almost 90% of the total annual value of its
economy. The government had defaulted in the payment of its loans, and it had
to restructure its debt with creditors to qualify for the IMF bailout.
The country's foreign reserves are virtually empty, making it hard to pay for
imports which are usually priced in US dollars.
It is in this context that many Ghanaians have been feverishly waiting for this
IMF bailout programme.
But this is the 17th time since independence more than six decades ago that
Ghana has opted for an IMF programme.
So will the IMF loan make any
difference?
Despite being one of the world's biggest producers of cocoa and the leading
producer of gold in Africa, one of Ghana's basic problems is that it does not
earn enough through exports to pay for everything it imports.
This is known as the balance of payments deficit and is partly what the IMF
loan is designed to help with. But that is not all.
The programme is also expected to significantly slow the rate of inflation and
ensure a stable local currency. All of this will benefit ordinary Ghanaians
through stable prices of basic commodities including imported ones.
It has been considered risky to lend money to Ghana, but with the new IMF
programme it should mean that the country can borrow again to implement its
policies.
But, as the Reuters news agency reports, it may still have to deal with lengthy
negotiations with creditors if Zambia's experience is anything to go by.
Development partners, including the World Bank, have promised to help the
country come out of its economic quagmire, while investors are now likely to
return without fear of losing their money.
However, if past experience is anything to go by, this cash injection from the
IMF will not necessarily solve the country's long-term economic problems.
Ghana only exited the last IMF programme in 2019 and is already asking for more
money.
Analysts have attributed this regular pattern to mismanagement by successive
governments over the years.
This new bailout programme is for a maximum period of three years and after
that, many are asking whether things will get bad again.
Although many Ghanaians believe the bailout will address current challenges, it
will not lead to poverty reduction, job creation or salary increases, says
economist Professor Godfred Bokpin of the University of Ghana.
He adds that the biggest challenge to implementing the IMF programme will be
next year when Ghana goes to the polls.
Governments in Ghana have a history of massively increasing spending ahead of
elections - in order to show voters what a good job they're doing, even if they
don't always have the money.
"The government will want to spend and the programme will not allow them,
so they either abandon the programme or they trade off the elections,"
says Prof Bokpin.
"It will be interesting to see how the IMF programme will be able to hold
back politicians from spending excessively during the elections."
What are the conditions for the
IMF loan?
Ghana's government will have to increase its income, while reducing spending,
Information Minister Kojo Oppong Nkrumah told the BBC.
This means taxes are likely to rise, along with the price of water, electricity
and fuel, says Prof Bokpin.
The government has already introducednew taxes on things like cigarettes, sweet
drinks, spirits and wine, as well as an increase in income tax - all of which
will hit some pockets hard.
The government admits that the IMF programme is not a panacea.
"We have other programmes to help us to bring back growth, help the
private sector and get the cost of living under control," Mr Nkrumah said.
He told the BBC that the government had plans to boost industry and agriculture
and create more jobs. But the opposition National Democratic Congress remains
sceptical.
The finance minister may also have to look at how to reduce government
spending, but officials have told the BBC that poverty reduction policies will
not be compromised.
Source: BBC