18 January 2017

Govt cautioned on renegotiating IMF deal

Prof Peter

The Head of Economics Department of the University of Ghana, Professor Peter Quartey, has cautioned government not to ask for radical changes in the three-year extended credit facility (ECF) programme with the International Monetary Fund (IMF), should it decide to renegotiate the deal.

The President, Nana Addo Dankwa Akufo-Addo, during his campaign said he was going to renegotiate some terms under the IMF deal if it becomes necessary, and a leading member of the Finance Committee of the New Patriotic Party (NPP) in the Sixth Parliament, Dr Mark Assibey-Yeboah, in an interview with the GRAPHIC BUSINESS on January 10, 2017, hinted that government would renegotiate portions of the deal.Prof. Quartey, however, said renegotiating too much out of what had been agreed would lead to the loss of policy credibility on the part of the country.“It is because of this credibility issue that we went to the IMF. We were fast losing credibility. We were missing our targets and the macro economy was very unstable,” he stated.

“But the coming on board of IMF ensured some credibility and that helped in the currency stability,” he added.

“So in going back to renegotiate, we have to very careful not to be very unreasonable and not ask for things that will be too outrageous and will shake our credibility in the international community.”

He said such a situation would have serious repercussions on the economy.

Prof. Quartey, however, said the government had every right to renegotiate the deal.

“It is something they can do. If it is rejected, that is fine, but you have the option to request for a renegotiation,” he stated.

“We have targets like the budget deficits which we have missed under the deal so if we don’t renegotiate quickly, it could attract sanctions. We have to renegotiate if we have not been able to achieve certain targets,” he noted.

Reason for the renegotiation

Dr Assibey-Yeboah, who is the Member of Parliament for New Juaben South, said every IMF programme was accompanied by targets which mostly included lowering the deficit, reducing debts and bringing inflation down.

Unfortunately, however, the MP said, “Our debts, deficits and inflation have not come down the way we wanted to see.”

“Under this very IMF programme, the deficits and the debt stock have rather been growing,” he added.

That, he said, meant that there was something wrong with the fiscal consolidation programme under the deal, hence the need to renegotiate that aspect of the deal.

“We will not leave the IMF programme but we can renegotiate some of the terms in the programme,” he noted.

The fiscal deficit of the country decreased from 10.2 per cent of gross domestic product (GDP) in 2014 to 6.3 per cent in 2015, with a projection to reduce to five per cent in 2016.

On the other hand, interest payments, which stood at GH₵1.03 billion, representing 2.8 per cent of GDP in 2009, had by 2012, reached GH₵2.44 billion, representing 3.2 per cent of GDP, and GH₵4.40 billion, representing 4.7 per cent of GDP, in 2013.

The out-turn of total interest payments in 2014 was GH₵7.08 billion, equivalent to 6.2 per cent of GDP; that of 2015 was GH₵9.08 billion, representing 6.5 per cent, while that of 2016 was projected at GH₵10.5 billion, representing 6.3 per cent of GDP.

IMF programme

In April 2015, the Executive Board of the IMF approved a three-year ECF programme for Ghana to help stabilise the economy and rein the debt.

Under the deal, US$918 million was expected to be given to the country as balance of payment support over the three-year period. The amount is being disbursed in eight equal tranches.

The objectives of the programme included the restoration of debt sustainability and macroeconomic stability to foster a return to high growth and job creation through agricultural and infrastructural investment.

While protecting social spending, the ECF was also to help strengthen the Bank of Ghana’s monetary policy framework, ensure its full effectiveness and rebuild external buffers to cushion the cedi.


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