Back in January 2021 I wrote, “Government may be forced to rely heavily on central bank financing or seek relief from the IMF as debt sustainability becomes a bigger issue for lenders.” Now obviously this did not happen in 2021 because the government raised an impressive $3 billion in eurobonds in March of that year. I call it impressive because given the COVID-19 pandemic, it was surprising that investors would lend such an amount to a country which was already facing debt sustainability issues. It appears though, that this was only a temporary reprieve and a postponement of the inevitable.

Before I get into the reasons for the IMF programme, I want to state that I’m tired of hearing about the 17 former engagements of the IMF by this country interpreted to mean that IMF programmes do not work. No healthy economy goes to the IMF; economies in crisis do. A country dependent on commodity exports and the imports of finished goods is always going to be subject to wild swings in prices on the international market. Add this to regimes relying on borrowing from the central bank (essentially printing money to finance the deficit), profligate expenditure in election years, and a voracious appetite for expensive dollar loans on the international capital markets and you get an economy which has no capacity to absorb shocks – be they an oil price collapse, a hike in US interest rates, COVID-19 or a conflict-driven oil and food price spike. These fundamental problems are not going to be solved by an IMF programme, and it’s not their job to do that. The IMF is going to help us manage the debt crisis we have dug ourselves into.

For those talking about home-grown solutions, I want to present you some figures. First quarter fiscal data from the ministry of finance shows that out of GH¢16.6 billion generated in revenue, GH¢10.6 billion was used to service debt. Public sector compensation was GH¢7.6bn. These two expenditure items alone are 104% of total revenue – tax and non-tax. With such a fiscal situation, how is the government going to finance health, education, infrastructure, and so on? Second quarter figures are not available, but the fact that this programme has been announced before the finance minister could present the mid-year budget review on July 13 means that we should not expect a pretty picture. Moreover, we have received information from a person with sources in government that the e-levy (the government’s flagship revenue measure) had raised only 10% of projected revenue.

As for borrowing on the domestic markets, that is a no-go area. Why? Because the interest rate on the 91-day treasury bill has jumped from 12.5% at the start of the year to 25.9% as at the start of July 2022. Where is the money going to come from to service these interest payments?

If you are still not moved by all these. Then let’s talk about the inflation rate of 27.6%, food inflation of 30% or domestic fuel prices rising by 100% this year alone. And it gets worse. Ghana faces a fuel import bill of about $450m/month out of which the Bank of Ghana (BoG) is only able to supply $100m. It’s no surprise that the Ghana cedi has been one of the worst performing currencies on the continent, having depreciated by 22% from the start of the year. And despite the fact that the capital markets are closed to us, we have $13.1bn in outstanding eurobonds with $3.6bn falling due between 2025 and 2029. This means that we have to return to the market at all costs to borrow and pay off the existing bondholders or we default. And the consequences of default are so terrible I’d rather not start to consider it.

The IMF has turned into a hot topic politically because the finance minister had expressly ruled it out. And also because the previous administration was criticised for taking the decision to go to the IMF. But I try to keep politics out of this blog. What is important to me is that the public is informed about what is going on and they are educated about the implications.

It has been clear to me for 18 months now that we needed to return to the IMF. Is it a situation for a country to be proud of, no, but it is also not an indication that we are unable to manage our own affairs. Global powers can rely on their dominance of international trade and politics to bail out their economies with their own central banks and not fear hyperinflation. We do not have that luxury. And perhaps, this return to the IMF could be the jolt we need to finally fix the structural problems that makes us more vulnerable than our peers to economic shocks.