Mahama went to IMF for a Loan, not a Policy Credibility – UPSA Professor

Mahama went to IMF for a Loan, not a Policy Credibility – UPSA Professor

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The Dean of the Faculty of Accounting and Finance at the University for Professional Studies, Professor Isaac Boadi, has averred that the Mahama administration, in 2014, did not actually go to the IMF for a policy credibility as it was reported.

Rather, the government used that as a ruse to seek a loan from the International Monetary Fund. The lecturer who was in a one-on-one interview with Nana Yaw Fianko on the Agenda Show on Atinka Television, on Thursday, 4th July 2024, said that contrary to the statement issued by the finance minister at the time, the policy credibility topic was just a smokescreen.

“You remember the past government told us they were going for a policy credibility from the IMF after the economic forum in Senchi, it wasn’t actually the case. The government was going for a loan and not necessarily a policy credibility from the IMF” he stated.

“Our reserves at the central bank were depleting at an alarming rate, our balance of payment was always in a deficit, and that called for a trip to the IMF, which we were a member of, for support. We sought funding rather than a policy credibility” he emphasized.

Growth decelerated markedly in 2014, to an estimated 4.2 percent, driven by a sharp contraction in the industrial and service sectors. This was due to the negative impact of the currency depreciation on input costs, declining domestic demand and increasing power outages, he indicated.

Inflationary pressures rose on the back of a large depreciation of the cedi and the financing of the fiscal deficit by Bank of Ghana (BoG). Despite several hikes in the policy interest rate in 2014 to 21 percent, headline CPI inflation reached 17.0 percent at end-2014, well above the 8 +/-2 percent target range of the BoG.

The fiscal deficit remained high in 2014 despite gradual fiscal consolidation efforts undertaken since mid-2013. In addition, the government started facing increasing financing difficulties.

Delays in implementing some adjustment measures and unbudgeted wage allowances resulted in a higher-than-budgeted cash fiscal deficit of 9.5 percent of GDP. Additional domestic arrears were accumulated and the overall fiscal deficit on a commitment basis remained close to 10 percent of GDP.

The government, Prof. Boadi said, had to resort increasingly to short-term domestic debt, which then carried interest rates at around 25-26 percent, and significant monetary financing. A US$1 billion Eurobond was successfully issued in September 2014, but at significantly higher interest rate than other issuers in sub-Saharan Africa.

The external position weakened through mid-2014, with net international reserves reaching low levels in the third quarter and the exchange rate depreciating sharply. The exchange rate dropped sharply in the first 8 months of the year before recovering on the back of inflows from the September Eurobond and the US$1.8 billion short-term loan contracted by the Cocoa Board.

The currency depreciation and the economic slowdown led to a substantial contraction of imports and a narrowing in the current account deficit, which nonetheless ended at 9.2 percent of GDP. For the year as a whole, the balance of payments was broadly balanced, leading to a fragile stabilization in international reserves, with gross reserves partly supported by large BOG’s short-term liabilities.

The UPSA guru reiterated the fact that the main aim of the then government to go to the IMF was not really about seeking policy credibility, but to use the program to get financial support for the activities of the government at the time.


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