The International Monetary Fund (IMF) is the commercial bank unit of the Bretton Woods Institutions, while the International Bank for Reconstruction and Development (IBRD) or the World Bank is the development bank unit.
The Bretton Woods Institutions have played a major role in the finance and economic life of this our God blessed homeland, Ghana.
The role of the Bretton Woods Institutions among others is to pre-finance member countries who are facing economic and financial challenges. And Ghana has been having such challenges seasonally.
In 1957, Ghana started in the blue with a credit balance on account of £240 million or $672 million. By 1965, Ghana’s credit balance shrunk to £500,000.00 or $1.4 million. What exactly did Nkrumah do with the £240 million? Ghana borrowed to construct the Tema harbour, the Tema motorway and the Akosombo dam.
Aside corruptions, the bulk of this amount was spent on African nations fighting for independence and sponsoring of anti-capitalist rebels in independent African nations which opted for capitalism as against socialism.
When Nkrumah’s government of the CPP was overthrown in 1966, Ghana had an external debt of £ 357 million or $1 billion. Since 1966, no government came to inherit a credit balance on account.
To instil fiscal discipline, the new government of the National Liberation Council (NLC) went to the IMF in May 1966 and invited the Bretton Woods Institution to supervise the privatization of state institutions in order to turn these loss-making institutions into profitable ones.
Ghana received a financial bailout on a standby arrangement from 1966 to 1969. The NLC visited the IMF, three more times before handing over governance to a civilian administration.
On January 10, 1979, under SMC II, Ghana went to the IMF for bailout and solutions to corruption, economic mismanagement and slow economic growth.
In late 1979, during the Limann administration, Ghana went back to the IMF for standby arrangement to help manage the problems of the economy. This was as the result of the previous regime of AFRC led by Rawlings, which collapsed private businesses.
Rawlings came back in 1981 and sounded out loud and clear that Ghana was not going to do business with the Imperialist West. Due to gross mismanagement of the economy and with little or no support from the Socialist East, Rawlings between 1983 and 1988 visited the IMF four times.
Rawlings had to replace the socialist state-control and command economy with the capitalist free market economy. Inflation which rocketed 142% in 1983 went down to 10% in 1991.
During the NDC I and NDC II era, under Rawlings, Ghana went to the IMF twice, in 1995 and 1999 to formalise the country’s decision to assess the HIPC Initiative. This decision was very important because the economy was falling flat.
When he took over the reins of governance of this country in 2001, President Kufuor of the NPP, accepted the HIPC Initiative programme undertaken by the previous NDC government.
In 2003, Ghana went back to the IMF to formally access the HIPC Initiative and with good bargaining power, Ghana was giving HIPC III Initiative, the best initiative. It is on record that the NPP Kufuor Administration was the best performer in finance and economy.
The external debt Kufuor inherited was $6.7 billion and at the end of his eight years, he reduced Ghana’s external debt to $4.7 billion. This was the second time a government reduced the external debt it inherited. The NLC inherited $1 billion and handed over an external debt of $572 million to the Busia Administration of the Progress Party government.
In about two years and three months, his administration was truncated and the military government of National Redemption Council inherited $602 million external debt.
After seven years, the NRC/SMC I/SMC II and to some degree, the AFRC governments handed an external debt of $1.3 billion to the civilian administration of Limann’s PNP. The PNP was ousted by Rawlings in December 1981 and his PNDC inherited an external debt of $1.5 billion.
After nineteen years, the PNDC handed over to a civilian administration of the National Democratic Congress also led by Rawlings, and inherited an external debt of $4.5 billion; and after eight years, the NDC left behind an external debt of $6.7 billion for the New Patriotic Party government led by Kufuor.
In 2008 the NPP left behind $4.7 billion for the Mills/Mahama NDC government, who in turn took the country’s external debt up to $21 billion and this was what the Nana Addo’s administration of the NPP came to inherited.
The NDC’s Mills Administration took over a buoyance economy from NPP’s Kufuor’s. To justify the untruths smeared at the previous NPP administration during the run-up to Elections 2008, the new government told Ghanaians and the world that Ghana was broke.
This affected external trading, when Ghana’s trading partners refused to do deals with Letters of Credit. That meant, for any transaction involving money, Ghana must find the cash in dollars, or no deal.
The dollar started galloping and by June 2009, the Ghana cedi depreciated from GH¢1.27 to $1.00 in December 2008 to GH¢1.50 to $1.00. Ghana went to the IMF for a $602 million bailout.
In addition to programme targets, some structural conditionalities termed benchmarks were attached to the loan.
These included: a net hiring freeze in non priority sectors (no employment); inflation targeting and monetary tightening; bringing average tariff to cost recovery levels; implementing actions to strengthen revenue collection by the Electricity Company of Ghana; and adoption of plans to restructure the balance sheets of utility companies during 2010-11.
In addition, the Fund granted some waivers to Ghana after the country failed to meet some of the agreed programme targets relative to inflation and budget deficit.
Ghana entered into an economic mismanagement again after the IMF programme. Energy and power mismanagement plunged the country into power outages for four years. Power crisis popularly known as dumsor threw Ghana into economic challenges under the John Mahama government.
Ghana’s economy was in trouble, hobbled by widening current account and budget deficits, rampant inflation, and a depreciating currency. Credit dried up as interest rates rose and banks’ bad loans piled up. At the root of Ghana’s woes was out-of-control government spending, largely to pay salaries of an overgrown civil service.
In early 2015, Ghana turned to the IMF for a $918 million loan to help stabilize the economy. IMF advisors, working with the Ghanaian government, developed a three-part program, which included the restoring of debt sustainability: Government was to freeze hiring, limit wage increases and eliminate subsidies on utilities and petroleum products, among others.
In 2017, the NPP formed government led by Nana Akufo-Addo. It inherited an inflation of 17.45% and with efficient economic management, inflation fell to 12.37% in 2017 and entered into the single digits from 2018 to 2021 even during the first global economic crunch of Covid-19.
With the second global economic crunch of the Russia-Ukraine war, Ghana’s economy crumbled and average inflation for 2022 rose to 31.89%.
All the same, Ghana recorded trade surpluses for the first time in the Fourth Republic, with $2 billion in 2020, $1 billion in 2021 and during the most difficult year of 2022, a trade surplus of $450 million was recorded.
To raise revenue internally, the NPP proposed a 1.50% E-Levy on financial transactions, especially through the usage of mobile phones. With the numbers in Parliament, the NDC frustrated this policy and at the same time started saying that the government will have to go to the IMF.
With no way out, Ghana returned to the IMF, firstly to be able to restore macroeconomic stability and to ensure the debt is put on a sustainable path; and thirdly to lay the foundations for stronger and more inclusive growth.
In May 2023, the IMF gave the highest bailout ever to Ghana with a $3 billion under the following conditionalities: Removal of VAT exemptions; phasing out tax holidays and exemptions; reduction of customs exemptions; increment of income taxes; automatically adjusting fuel levies by exchange rate movement and inflation; quarterly tariff adjustment including electricity and water tariffs; government to employ not more than 0.5% of the current labour force; limit to salary increment of public sector workers; tax-to-GDP ratio of 18% before the end of the programme and a second debt restructuring exercise – Domestic Debt Exchange Programme “Part II.”
With the seventeen times Ghana visited the IMF, the record stands, NLC – 4 times; SMC – Once; PNDC – 6 times; NDC under Rawlings – Twice; NDC under Mills/Mahama – Twice and NPP – Twice (once under Kufuor and Once under Nana Addo).
With the formulated horror stories about IMF conditionalities being spread about by the NDC and other opponents of this government, it is obvious that the IMF believed in the economic management of this country under the current administration.
The Bretton Woods Institution admitted that all was going well until Covid-19 and the Russia-Ukraine which brought untold hardships worldwide tampered with Ghana’s economic growth. In the eyes of the IMF, had the global economic crunch not surfaced, Ghana would be recording strong economic figures in the world.
The IMF had faith and trusted in this current administration and awarded $3 billion bailout and its conditionalities also aimed at strengthening the economy and not weakening it.
Government will gain more revenue when tax exemptions are removed and tax holidays and exemptions are phased out, among others.
Of the seventeen times Ghana visited the IMF, the NPP had the best offers. Kufuor had HIPC III Initiative and Nana Addo had the conditionalities which will help earn more revenue to the state.
After this, will Ghana ever go back to the IMF? Maybe not, which will only be possible if the NPP breaks the eight.
Hon Daniel Dugan