- By Thomas Naadi
- ` News, Accra
12 minutes ago
image source, Getty Images
Ghana, one of the world’s largest gold and cocoa producers, is suffering the worst economic crisis in a generation. Commodity prices have risen by an average of 41% over the past year.
It has just signed a new bailout program with the International Monetary Fund (IMF) worth $3 billion (£2.4 billion) over three years to help ease the problems and is expected to will soon receive the first tranche of $600 million, but how big will the difference be? that makes?
Why is the economy so devastated?
Long regarded as one of Africa’s best-run countries, Ghana is struggling to recover from the combined impact of the global Covid pandemic and the war in Ukraine.
The opposition also blames the crisis on “gross mismanagement” of the economy — a charge the government has denied.
The rate of increase in the price of goods, or inflation, while declining, is still very high at 41% and many families are struggling to make ends meet.
The level of Ghana’s debt is now almost equal to the total annual value of its economy. The government defaulted on its loan repayments and had to restructure its debt to creditors in order to qualify for the IMF bailout package.
The country’s foreign exchange reserves are virtually empty, making it difficult to pay for imports, which are normally denominated in US dollars.
Against this background, many Ghanaians have been waiting feverishly for the IMF’s bailout program.
But this is the 17th time Ghana has opted for an IMF program since gaining independence more than six decades ago.
So will the IMF loan make a difference?
Although Ghana is one of the world’s largest cocoa producers and the leading gold producer in Africa, the root problem is that the country does not earn enough from exports to pay for everything it imports.
This is called the balance of payments deficit and is partly what the IMF loan is designed to remedy. But that is not all.
The program should also significantly slow down the inflation rate and ensure a stable local currency. All of this will benefit ordinary Ghanaians through stable prices for basic commodities, including imported goods.
Lending money to Ghana was considered risky, but with the new IMF program it should mean the country can borrow again to implement its policies.
Development partners, including the World Bank, have pledged to help the country pull itself out of its economic quagmire, while investors are now likely to return without fear of losing their money.
However, based on past experience, this cash injection from the IMF will not necessarily solve the country’s long-term economic problems.
Ghana only pulled out of the last IMF program in 2019 and is already demanding more money.
Analysts attribute this regular pattern to successive governments’ mismanagement over the years.
This new bailout program will run for a maximum of three years, and many are wondering if things will get worse after that.
Although many Ghanaians believe the bailout will address current challenges, it will not result in poverty reduction, job creation or wage increases, says University of Ghana economist Professor Godfred Bokpin.
He adds that the biggest challenge in implementing the IMF program will be next year when Ghana’s elections take place.
Governments in Ghana have in the past massively increased their spending in the run-up to elections – to show voters what a good job they are doing, even if they don’t always have the money to do so.
“The government will want to spend money and the program doesn’t allow them to, so they either abandon the program or they swap the elections,” says Prof. Bokpin.
“It will be interesting to see how the IMF program can discourage politicians from overspending during the election.”
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