ABSTRACT

Ghana joined the International Monetary Fund (IMF) at independence in 1957 and has benefitted from fifteen stabilisation programmes with the current Extended Credit Facility (ECF) being the sixteenth. This study seeks to critically assess the performance under the programme from April 2015 to December 2017. It argues that, the fundamental challenges that necessitated a bailout from the 20^th century to present has not changed that much, hence a need to address the root causes of the perennial macroeconomic challenges. The study is guided by Compliance conceptual framework which explains why states implement international agreements or otherwise and this is relevant to the study because, it explains how policies adopted will be implemented given the implications of failing to comply. Using a qualitative research design, the study finds that, lack of fiscal discipline caused the missing of programme targets under the review period especially in 2016. The study concludes that, if economic challenges that led to this stabilisation programme are not addressed holistically, the country may opt for another stabilisation programme which comes with conditionalities in the future. Conditionalities lead to the implementation of austerity measures by government such as tax hikes, reduced spending and net hiring freeze in essential sectors of the economy. This study recommends that, the root causes of Balance of Payment (BoP) deficit can be mitigated by embarking on import substitution industrialisation and export led growth. More so, strict compliance to Public Financial Management Act (2016) Act 921 will prevent fiscal slippages especially in election years. This is because the Act clearly stipulates the penalty for the breach of the law.

CHAPTER ONE

INTRODUCTION

1.1 Background

The end of the World War II in 1945 ushered in the creation of the United Nations (UN) to foster peace and security in the international system¹ and with it was the establishment of the Bretton Woods Institutions- World Bank (WB) and International Monetary Fund (IMF).² The aim of the ‘twin’ institution was to reconstruct the disintegrated world economy after the war and to promote international economic cooperation. International Organizations (IO’s) assist states to come together and overcome the challenges affecting them and in the case of the IMF, it ensures global stability in the international monetary and financial system.³ The IMF was established in 1945 and currently has a membership strength of 189 states. The IMF is keen on facilitating international trade, promoting exchange stability, and assisting states to correct their Balance of Payment (BoP) problems.⁴ The IMF is also known as the Fund.

Ghana has been a member of the IMF since September, 1957 and has benefitted from several technical and financial assistance. Notable IMF programmes Ghana has benefitted from include the Stand-By Agreement (SBA) in 1966, the Structural Adjustment Programme (SAP) in 1983, the Enhanced Structural Adjustment Facility (ESAF) in 1989, the Highly Indebted Poor Countries (HIPC) initiative which was rolled out in collaboration with the WB in 2002. In 2009, Ghana again benefitted from the Poverty Reduction and Growth Facility (PRGF) from the IMF.

Ghana’s macroeconomic performance over the recent years has been mixed. After recording a Gross Domestic Product (GDP) growth rate of 14 percent in 2011 largely driven by inflows from the oil and gas, GDP growth declined drastically to 4 percent in 2014 amidst huge public debt and Balance of Payment (BoP) deficit. At a benchmark revenue projection of US$93.34 a barrel for 2014, crude oil prices declined to US$82 a barrel in September 2014 which caused a revenue shortfall. The 91-day Treasury bill rate increased to 25.5 percent in September 2014 compared to

21.59 percent the previous year. As at the end of December 2013, inflation rate stood at 13.5 percent. This increased to 17 percent in 2014.⁵

On currency volatility, the cedi depreciated by 31.19 percent against the US dollar in the first nine months of 2014, compared to 4.12 percent recorded same period in 2013.⁶ Furthermore, on sectoral analysis, Industry sector growth declined from 7.3 percent in 2013 to 4.6 percent in 2014. Similar decline in Services sector was recorded; it grew at 4.59 percent in 2014 as compared to 9.6 percent in 2013. In the Agriculture sector, growth recovered marginally from 5.2 percent in 2013 to 5.3 percent in 2014.⁷

The economic headwinds aforementioned accounted for a bailout request from Ghana to address the risks to the country’s medium term economic prospects in August 2014. On 3^rd April, 2015, IMF’s Executive Board approved a “three-year arrangement under the ECF for Ghana in an amount equivalent to Special Drawing Right (SDR) 664.20 million (180% of quota or about US$918 million) in support of Ghana’s medium-term economic reform”.⁸

The programme was approved with the following broad objectives:

• “To restore debt sustainability, rebuild external buffers through fiscal adjustment and alleviate fiscal dominance of monetary policy.
• To strengthen public finances and fiscal discipline through structural reforms.

• To restore financial sector stability.

• To protect social spending”.⁹

As of September, 2017, US$565.2 million had been disbursed out of the US$ 918 million after completion of four (4) reviews with the rest tied to the remaining reviews.¹⁰

• Statement of Problem

The government of Ghana’s fiscal policy consolidation between 2012 and 2014 was hampered by the fall in oil and gold prices, loss of value of the cedi, high inflation and slow international economic growth. This necessitated a request for a bailout programme from the IMF. The aim of this study is to assess Ghana’s performance under the three- year ECF programme with the IMF from April 2015 to December 2017.

Also, the study compares the major differences and similarities of the current programme with the 1983 Structural Adjustment Programme (SAP) taking into account the expansionary fiscal policies embarked on by Ghana whiles on this IMF supported programme. Again, the study seeks to ascertain the reasons for extension of the programme by a year despite the tight fiscal space the programme offers in economic management. Furthermore, cutting edge policy proposals will be

offered to government of Ghana in prudently managing the domestic economy and staying away from IMF stabilisation programmes that impose conditionalities.

•   Research Questions

1. What are the factors that caused Ghana to opt for a bailout programme from the IMF?

• How successful has the ECF programme been in achieving its objectives?

• What challenges did the ECF face that resulted in missed targets and extension (to April 2019)?
  • What policy changes needs to be implemented in the management of the domestic economy?

•   Research Objectives

1. To critically assess the factors that caused Ghana to opt for a bailout programme from the IMF.
   1. To examine how successful the ECF programme has been in achieving its objectives.

• To assess challenges the ECF programme faced that resulted in missed targets and extension (to April, 2019).
  • To propose policy changes in the management of domestic economy

• Scope

The scope of the study is to assess Ghana’s performance under the IMF ECF programme from April 2015 to December 2017. The period is chosen by the researcher as a case study for two reasons. Firstly, the year 2016 was an election year and historically, fiscal slippages have been recorded in elections years. Again, 2017 ushered in a new government and the researcher seeks to examine the policies embarked on, to address the macroeconomic imbalances.

• Rationale Study

The rationale for this study is to measure Ghana’s performance under the three year ECF programme with the IMF. It seeks to propose policies to address the perennial macroeconomic instability especially BoP deficit to foster sustained growth. By so doing, the study will add to the existing literature on Ghana’s relations with the IMF.

• Hypothesis

This study hypothesises that, lack of fiscal discipline amid external shocks to Ghana’s economy led to the missing of programme targets.

•   Conceptual Framework

The conceptual framework to use for this study is Compliance from the field of international law. The letter of intent to request for an IMF loan and obligations imposed thereof on member states can be classified as international soft law. This conceptual framework is chosen because it helps in analysing the institutional mechanisms and laws enacted by Ghana to achieve the bailout conditionalities.

Compliance broadly includes implementation and the matching of state behaviour with international norms. This soft law makes sure that, member states of an international organisation adhere to agreements they sign.¹¹ According to Oran Young, “Compliance can occur when the actual behaviour of a given subject conforms to prescribed behaviour, and non-compliance or violation occurs when actual behaviour departs significantly from prescribed behaviour”.¹² Compliance entails the willingness of a state to “commit scarce resources, either in terms of staff

time, political energy and attention, money or a decision with distributional consequences”. A number of factors inform a state’s choice to comply with international soft law and this includes technical and political factors. The lack of competence and technical capacity by states may hinder their ability of enforce regulations consistent with their international commitments.¹³ This is predominant in developing states of which Ghana is not an exception than in developed states because the former may lack administrative and financial efforts to devote to enforcement. Also, the lack of political will to comply may come from the magnitude of expected resistance at home or because the state lacks the political where-withal to induce behavioural change by its citizenry.¹⁴

Effectiveness of international agreements depends on the level of compliance of member states. According to Robert Keohane, “governments usually agree to sacrifice a degree of their legal freedom of action in order to secure policy changes from others, or influence over their policies”.¹⁵ Consequently, the anarchical international system makes it difficult for supranational authorities to enforce laws and agreements which is a major criticism against international organisations.

The IMF as originally conceived at the Bretton Woods conference in 1944 is a supranational body with two key mandates. The first is to regulate exchange rate in the international system and also grant loans to member states in times of crisis. The Fund’s power to impose conditionality originates from Article V “Operation and Transactions of the Fund”. Section three (a) of the Fund’s Articles of Agreement¹⁶ stipulates that, “The Fund shall adopt policies on the use of its general resources, including policies on stand-by or similar arrangements, and may adopt special policies for special balance of payments problems, that will assist members to solve their balance of payments problems in a manner consistent with the provisions of this Agreement and that will

establish adequate safeguards for the temporary use of the general resources of the Fund”.¹⁷ This article informs imposition of conditionalities on member countries to ensure compliance when they seek financial assistance from the Fund of which Ghana is no exception.

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