Ghana: John Mahama’s Government On The Ropes

imageThe government risks a repeat of the problems the country faced in the 1980s. the IMF is there to help with loans and a package of painful reforms.
Like a brave and resilient boxer confounding the sceptics, Ghana was steadily climbing through the weight classes in the early 2000s.
After being repeatedly knocked to the canvas by coups and debt crises, Ghana had come back harder and won raucous international plaudits.
The IMF announced it would lend $918m over three years to back a reform programme
Then four years ago, it moved up to the next weight class. Ghana’s graduation from least developed to lower-middle-income country after two decades of economic reform seemed to be the tipping point.
With oil and gas set to contribute revenue and energy to a diversified economy, the country was ready for takeoff.
That year, 2011, Ghana’s gross domestic product (GDP) growth of 15% was one of the fastest in the world.
A year later, the country held multi-party elections after which the losing party took to the Supreme Court – not the streets – to dispute the electoral commission’s declaration that the incumbent, President John Dramani Mahama, had won by a margin of about 3%.
And after nine months of courtroom argumentation, much of it screened live on national television, opposition presidential contender Nana Akufo-Addo immediately accepted the court’s confirmation of the result despite his misgivings.
Foreign investment sluiced through the system, and there was rapid development in the Western Region city of Takoradi, the new oil and gas capital.
Cocoa and gold production were advancing, too, in tandem with telecoms and information technology.
Five top international hotel groups bought land to build luxury hotels in Accra as the conference industry started to boom.
So what went wrong? With the budget and trade deficits hovering around 9%, the national debt spiralling and inflation hitting 17%, the government was running out of money by the end of last year.
Making matters worse, the state electricity company imposed a series of swingeing power cuts across the country.
Poor management of the country’s electricity supply has led to unrelenting power outages that extend to the industrial sector.
On 3 April, the International Monetary Fund (IMF) board announced it would lend $918m to Ghana over three years to back a reform programme that is set to cut state spending, inflation and debt while boosting accountability and governance.
After a glimpse into a future of high growth, industrialisation and fast-rising living standards, Ghana is back on the aid treadmill.
The sort of reforms dutifully announced by the IMF – but not debated at length in parliament – are a throwback to the 1980s.
Then finance minister Kwesi Botchwey presided over several tough adjustment programmes, in which the IMF and World Bank conditioned their financing on public spending cuts.
During that period, inflation was high, the government tax haul weakened and spending on the civil service ate away at investment budgets.
Botchwey is now back leading yet another round of discussions with the IMF.
Cost-cutting measures
According to the IMF’s official statement in April: “Achieving key fiscal objectives will require strict containment of expenditure, in particular of the wage bill and subsidies.”
That’s IMF-speak for cutting jobs in the civil service and increasing fuel and electricity prices.
These are not measures likely to please the public, and presidential and parliamentary elections are but a year away.
However, Mona Quartey, Ghana’s deputy minister of finance, is resolutely optimistic.
In response to claims that some 20-30% of names on the state payroll were ‘ghostworkers,’ she insists the government has been dealing with that.
“We’ve stopped manual payments and have gone to an electronic platform. The system paid according to two things [bank account details and employees’ social security numbers],” she explains.
Before the new system started, Quartey says the accountant general gave state employees three months to validate their bank account details and social security numbers.
“When it kicked in, there were all of a sudden 34,000 people who were not getting their salaries,” she adds.
Many of those validated their details and are back on the payroll, but the remainder vanished into thin air.
The results have been striking, says Quartey: “Since the middle of last year until today, the payroll has moved from 70% of [government] revenues to 46%. The target is 30% over the next three years.”
Thatwill mean more redundancies and a freeze on hiring in most departments, except education and health.
Also targeted is wasteful public spending and inefficient and sometimes corrupt public procurement decisions, says Quartey in response to a damning report by the auditor general’s department.
“There was a committee set up that called people back … there’s been a lot of compliance, sanctioning and we’re also enforcing.”
According to Quartey, the government is also serious about tackling the growing mountain of debt – estimated at 67.2% of GDP in 2014 by Moody’s rating agency.
In late March, Moody’s downgraded Ghana to B3, which is just another unpalatable reality for policymakers.
“They [the ratings agencies] can put up your cost of borrowing, depending on your investors.
They also know the fundamentals of the country and the measures we are putting in place.”
Last year, Ghana floated a $1bn eurobond. Ghana pays more interest on its bond than the governments of Côte d’Ivoire, Kenya and Rwanda do on theirs because of concerns about controls on the Accra government’s public spending.
“That’s why we have come up with a new debt management strategy – it’s all in our budget – smart borrowing,” says Quartey.
That means choosing commercially viable projects and ensuring that social projects are backed by concessional funding.
The IMF deal is likely to unlock more aid and financing.
Quartey says there is no easy exit from the current crisis: “We don’t like where we are. Some of it has been from the vulnerabilities of what we sell, the external shocks of oil, gold and cocoa … We’ve gone through a patch where everything that could go wrong has gone wrong.”
But she insists Ghana will bounce back: “We are cutting back but making sure we don’t compromise on social protection.”
She adds, with a smile, that power minister Kwabena Donkor has promised to resign if he does not turn around the power crisis by the end of the year.
For the next year, it is a race against time – for Quartey but also for the country at large – to stop the country from falling back into the traps of the 1980s.

Leave a Reply

Your email address will not be published. Required fields are marked *