The Daily IIJ

Deputy Minister of Finance and Economic Planning in charge of budgets, Seth Teppeh has confirmed government’s talks with the International Monetary Fund (IMF) for balance of payments assistance.

He said the support is being sought because of a rapid response in order to rescue the cedi from continuous depreciation.  Though a figure is yet to be agreed, the Deputy Minister said it will be less than the US$1 billion circulated in some media.

He said Ghana is not alone among the countries of the world trying to renew its borrowing engagement with the Breton Wood Institution but other countries, including the Latin Americans that fell bitterly with the IMF in the past.

“The global crisis has affected everybody in one way or the other and your peculiar circumstances would determine what measures you should adopt to weather the impact,” The Deputy Minister pointed out in an interview.

Ghana stopped taking IMF loans in 2007 though it continued to subscribe to IMF reform policies.

In the same year, the country began looking at the international capital market to raise needed funds. In September 2007, the country successfully raised US$750 million Eurobond and listed it on the London Stock Exchange.

At the time, the stock of debt to GDP was 48.4 per cent, depreciation of the cedi to the US dollar at 2 percent and inflation at 10.1 percent. The sovereign credit rating stood at B+ positive.

The situation today is quite different. Public debt to GDP ratio is 80 percent, the cedi depreciated by 13.6 percent up to the first quarter while expectation for annual inflation is in the region of 15 percent. Standard and Poor’s lowered the country’s sovereign credit rating in the short term to B, with a B+ stable outlook because of the oil.

The IMF has announced beginning May 1 this year, structural reform conditions will be discontinued for its entire loan programmes. Dominique Strauss-Kahn, the Managing Director of the IMF said structural reforms will only be applied when they are seen as critical to a country’s recovery.

The new lending framework focuses on underlying objectives of a country’s structural reform programme rather than on specific actions that need to be adopted according to a specific deadline.

This means that if Ghana decides to borrow from the IMF, the IMF will not prescribe what structural reforms Ghana should adopt but Ghana would indicate a plan of action to tackle its structural reforms. When the two agree on this plan, Ghana’s performance will then be measured against this benchmark to determine whether it gets the next tranches of loan or not.

Centre for Policy Research (CEPR), a Washington based think-tank however said the IMF was still prescribing inappropriate policies in new loan programmes with El Salvador, Pakistan and Ukraine that could unnecessarily worsen their economic downturns.

“…the IMF is requiring macroeconomic conditions that can unnecessarily exacerbate the effects of the global economic recession on these countries,” said Mark Weisbrot, co-Director of CEPR in a paper weeks ago.