Accra (AFP) – Ghanaian businessman Mohammed Biney had already suffered when the government imposed a new tax on electricity this year in an attempt to revive the economy.
While Ghana is now suffering from nearly 30 percent inflation, a shoe seller in Accra was surprised when the government announced in July that it would have to seek help from the IMF.
President Nana Akufo-Addo once promised “Ghana Beyond Aid” to make his West African country less dependent on foreign aid.
But the sudden reversal of the IMF loan has sparked a fierce debate over the governance of its economy as Ghana grapples with its highest cost of living in two decades.
“You can’t tax us with the idea of saving the economy and then overnight come and tell us you’re going to the IMF,” businessman Biney told AFP.
“I think he ran out of ideas.”
Affected by the global pandemic and the fallout from Russia’s war in Ukraine on oil and food prices, Ghana is negotiating with the International Monetary Fund to help stabilize its economy.
But the decision raised fears that the IMF’s austerity measures would force the end of Akufo-Addo’s programs and hurt Ghanaians struggling with rising prices.
A group of new protests led by the opposition and unions threatening to strike over the crisis have increased pressure on the government as the IMF team begins preliminary talks.
With high debt, new financing and limited sources of income, the government says the IMF offers short-term support.
Ghana’s Deputy Minister of Finance, Abena Osei-Asare, said that after the pandemic disrupted the economy, the IMF’s cooperation would help with remittances and open the door to new financing and protect economic programs.
“People don’t understand how we can live with the IMF and that’s why they are afraid,” he told AFP.
The economic situation in Ghana is not good. Growth slowed this year as inflation hit a ten-year high of 29.8 percent in June, driven by spending on transportation and food.
Ghana’s debt to GDP ratio – the ratio of what it owes to what it produces – rose from 65 percent to 80 percent during the pandemic, the IMF said.
Credit rating agency Moody’s in February downgraded its outlook on Ghana’s bonds, citing government and debt problems.
“Ghana’s economic and debt crisis is worsening amid external pressures,” the IMF said after the team’s visit this month.
“The program supported by the IMF aims to provide space for Ghana to implement the plan.”
The agreement will be Ghana’s 18th visit to the IMF after completing a three-year agreement in 2019 that contributed $918 million.
In May, Finance Minister Ken Ofori-Atta said an IMF deal was not an option, with the government preferring “home-grown” solutions.
One of them, Ghana’s new electricity levy or E-levy, is designed to help raise $900 million in needed funds and reduce spending.
But the levy was widely criticized and as people reduced their electricity bills, the E-levy also fell sharply in terms of revenue.
Gabby Otchere-Darko, a leading member of the ruling party, wrote in June that the tax only raised 10 percent of income.
“Given the situation we have found ourselves in… we have no choice,” John Kwakye, director of research at the Accra-based IEA think tank, said of the IMF deal.
“Going to the IMF was to strengthen our credibility.”
The fallout of the election?
But even though the elections are still two years away, the IMF agreement could have political problems.
Teachers’ unions went on strike earlier this month until the government agreed to cut their salaries. Some civil servants are threatening action.
The group “Fix the Country”, which regularly hosts small demonstrations, has been joined by another group “Arise Ghana”. Last month their meeting on the economic crisis led to clashes with the police.
Yaw Baah, General Secretary of the Trades Union Congress (TUC) said: “The way to solve Ghana’s problems is in Washington. “This is a terrible mistake by the government.”
Eurasia Group Africa Director Amaka Anku told clients that the IMF program will make it difficult for Akufo-Addo’s New Patriotic Party to claim to be in charge of the economy.
This could weaken the position of the candidate for NPP Vice President in 2024, Mahamudu Bawumia even as his opponent from the National Democratic Congress or NDC leader and former President John Mahama is also facing challenges.
“On the bottom line, this will make for a very close election in 2024,” Anku said.
The critics have already started.
“President Akufo-Addo and Dr. “Mahamudu Bawumia must take full responsibility for the reckless management of the economy,” said NDC head of law, Haruna Iddrisu.
“The government should make it clear what Ghanaians should expect instead of blaming Ukraine and Russia.”
© 2022 AFP