IMF Ghana Loan: Will $3 Billion Solve Economic Crisis?

  • Thomas Naadi
  • BBC News, Accra

image source, Getty’s paintings

Ghana, one of the world’s largest producers of gold and cocoa, is experiencing its worst economic crisis in a generation, with commodity prices rising an average of 41% over the past year.

It has just signed a new $3bn (£2.4bn) bailout program with the International Monetary Fund (IMF) over three years to help ease the problems and is expected to receive its first tranche of $600m soon, but what will be the difference Which make?

Why is the economy in such a mess?

Ghana, long seen as one of Africa’s best-governed countries, is struggling to recover from the combined effects of the global COVID-19 pandemic and the war in Ukraine.

The opposition also blames the crisis on what it calls “gross mismanagement” of the economy – a charge the government has rejected.

The rate of increase in commodity prices, or inflation, is on a downward path but is still very high at 41% and many families are struggling to make ends meet.

The size of Ghana’s debt is now almost equal to the total annual value of its economy. The government defaulted on its loans and had to restructure its debt to creditors to qualify for the IMF bailout.

The country’s foreign exchange reserves are virtually empty, making it difficult to pay for imports, which are usually priced in US dollars.

Against this backdrop, many Ghanaians have been eagerly waiting for this IMF bailout.

But this is the seventeenth time since independence more than sixty years ago that Ghana has opted for an IMF program.

So will the IMF loan make a difference?

Despite being one of the largest cocoa producers in the world and Africa’s top gold producer, Ghana’s primary problem is that it does not earn enough from exports to pay for everything it imports.

This is called a balance of payments deficit and is part of what the IMF loan is designed to help with. But it is not everything.

The program is also expected to significantly slow the rate of inflation and provide a stable local currency. All this will benefit ordinary Ghanaians with stable prices for basic goods, including imported ones.

Lending money to Ghana was considered risky, but with a new IMF program, it should mean the country can borrow money again to implement its policies.

Development partners including the World Bank have vowed to help the country out of its economic quagmire, while investors are now likely to return without fear of losing money.

However, given past experience, this IMF cash injection will not necessarily solve the country’s long-term economic problems.

Ghana only got out of the last IMF program 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 is in place for a maximum of three years, and then many ask if things will not get worse again.

While many Ghanaians believe that financial aid will solve current challenges, it will not lead to poverty reduction, job creation or wage growth, says economist Professor Godfred Bokpin of the University of Ghana.

He adds that the biggest challenge for the implementation of the IMF program will be next year, when Ghana goes to the polls.

Governments in Ghana have a long history of massively increasing spending ahead of elections – to show voters how good a job they are doing, even if they don’t always have the money.

“The government will want to spend, and the program will not allow them to do so, so they will either abandon the program or trade the election,” says Prof. Bokpin.

“It will be interesting to see how the IMF program will be able to stop politicians from overspending during elections.”

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