IMF in crisis-hit Ghana - Is IMF human friendly? Who benefits from IMF?

 

Articles' background

I happened to read an article published in the GhanaWeb on 20 March 2024 on views expressed by IMF Managing Director Ms Kristalina Georgieva at her visit to Ghana as part of IMF surveillance on its loan programme (read the article here).

Ghana confronted an economic crisis similar to Sri Lankan crisis (debt, foreign currency, high inflation and contraction) and secured a 36-month IMF loan programme of US$ 3 bn in May 2023 with similar conditions imposed in Sri Lankan programme. 

Ghana has so far received US$ 1.2 bn as first two tranches and the 2nd review is expected in April 2024. However, the core of the programme, debt restructuring, is still in the deadlock without any confirmation of the prospective date and the quantum of restructuring agreement with official and private creditors.

Therefore, this article is a short presentation of the questionability of IMF programmes in the present status of Ghana and other crisis-hit countries.

Views of IMF Managing Director

Key views reported in the article are as follows.

  • Her own country, Bulgaria, went through much more severe collapse in 1990s with inflation more than 1,000% compared to 54% in Ghana. Therefore, measures to bring back macroeconomic stability were extremely painful.

  • She has pleaded with Ghanaians to embrace painful reforms by the government (as IMF requires for loan funds).

  • The government cannot spend more than it generates and it is much better to spend money on education and infrastructural development across the country.
Accordingly, the programme imposed for Ghana like for Sri Lanka is for bailing out the government through tax hikes, spending cuts, state enterprise reform and debt restructuring focusing on lower budget deficits and reduced debt. Accordingly, the programme is to recover the government from the economic crisis causing further poverty for the general public already victimized by the crisis caused by the government policy failures.

Tax measures

The increase in tax revenue is the overriding target for success of IMF programmes. The article reported following tax measures planned in the IMF programme in Ghana.

  • Covid-19 health recovery levy

  • Electronic transaction levy

  • Sanitation and pollution levy

  • 15% VAT on residential electricity consumption and emission levy introduced recently have been suspended due to uproar among the public.

My general comments

By reading above news, I felt whether IMF and their country agents have any knowledge in recovery of living standards in economies contracted by such crises or whether they have common sense on humanity. My reasons are as follows.

  • Such economies urgently need supply side expansionary measures to recover production, employment and living standards.

  • However, the macroeconomic management concept that IMF recommends is to contract the economy further for years by cutting the aggregate demand of both government and private sector. The increase in taxes and cuts in deficits and debt are the pivot to control aggregate demand. This will push more and more public to deep poverty, given the present crisis-hit stage of the economy supply chain bottlenecks and disruptions.

  • Macroeconomic reforms that are stated in the IMF programmes are for the recovery of the government's fiscal front through smaller governments than the recovery of living standards of general public.

  • The inhumanity of such fiscal measures is reflected by the government trying to recover even Covid-19 health cost now, despite the suffering of people with death, illness and loss of living standards.

  • IMF view that governments can spend only what they receive is macroeconomically unacceptable for modern monetary economies as they largely operate on government debt trusted as safe assets that create and supply of money to markets. Therefore, government are businesses operated through financial cost recovery on daily basis.

  • IMF Managing Director's reference to Bulgarian crisis in 1990s is meaningless as its causes and resolution involved different circumstances unlike the present foreign currency and debt crisis confronted by Ghana, Sri Lanka and several other countries.

Concluding remarks

  • IMF programmes have served as a lifeline to countries through a temporary inflow of foreign currency to finance imports, given the outflow for huge debt service is frozen pending debt restructuring. This temporary ease in markets is seen politically as the recovery or stabilization of the economy.

  • The defective approach of only the demand control and its implications to living standards have caused frustrations in all corners of the general public.

  • Therefore, these countries are poised for significant political instabilities that would disrupt markets further and push living standards into a multiplier of poverty in decades ahead.

  • Therefore, geopolitical risks confronting these countries would be detrimental to the efforts for the recovery of living standards and human development in decades to come.

  • These countries have been under IMF financial programmes and surveillance for decades up to the Covind-19 induced crisis though many countries who were outside IMF programmes escaped it due to specific models of country macroeconomic management.

  • Therefore, these country authorities must stop going after IMF under the label of only solution for the crisis and find modern macroeconomic management experts to devise long-term resolution plans in the context of development of living standards and humanity rather than crunching numbers on inflation, growth and foreign reserves to mislead the general public.

(This article is released in the interest of participating in the professional dialogue to find out solutions to present economic crisis confronted by the general public consequent to the global Corona pandemic, subsequent economic disruptions and shocks both local and global and policy failures. All are personal views of the author based on his research in the subject of Economics which have not intension to personally or maliciously discredit characters of any individuals.)

P Samarasiri

Former Deputy Governor, Central Bank of Sri Lanka

(Former Director of Bank Supervision, Assistant Governor, Secretary to the Monetary Board and Compliance Officer of the Central Bank, Former Chairman of the Sri Lanka Accounting and Auditing Standards Board and Credit Information Bureau, Former Chairman and Vice Chairman of the Institute of Bankers of Sri Lanka, Former Member of the Securities and Exchange Commission and Insurance Regulatory Commission and the Author of 12 Economics and Banking Books and a large number of articles published. 

Comments

Post a Comment

Popular posts from this blog

Politics of Monetary Policy - 1% rate cut on the table?

Image
  Article's Background This article predicts that the Monetary Policy Board at the next meeting due on 24 July at 7.00 a.m.  will cut the policy interest rates at least by 100 basis points in view of the present macroeconomic outlook and political stability pending the Presidential Election in October. Policy rate decision by central banks cross the globe is a highly arbitrary bureaucratic exercise. It is based on qualitative judgement on the outlook of the consumer inflation and possible deviations from the inflation targets of central banks. However, central banks can provide diverse macroeconomic stories to support what ever the policy decision as they wish as nothing is experimental or empirical or past perormance is legally assessed. The Federal Reserve Chairman Jerome Powell stated at the latest testimony before the Senate Banking Committee held on 09 July 2024 that the Fed would not need to wait for inflation to reach exactly at the target (2%) to commence the rate cutt...
Read more

Central bank monetary system failed: Diagnosis and prescription. Treatment is urgent and difficult.

Image
  Article's background  The purpose of this article is is to reveal how the failure of the monetary concept that has been pursued for the past 73 years has caused the bankruptcy of Sri Lankan economy in 2022. Economic or business bankruptcy is essentially a monetary phenomenon. The background of this view is as follows. Central banks world-wide rest on the concept of old quantity theory to carry out their money printing operations despite the long rhetoric of underlying stories. This theory simply predicts that if the growth of money supply or stock runs faster than the growth of output (or real GDP), the economy will confront an inflation equal to the difference between money supply growth and output growth. For example, if money supply grows annually by 15% while output grows by 7%, inflation will be 8%. This is the famous monetary belief that inflation is always a result of too much quantity of money chasing after too little quantity of goods. This states that inflation is ...
Read more

CB misappropriates Rs. 235 bn of profit - A daylight scandal on public property?

Image
  The Central Bank (CB) has released its Annual Report over the bankrupt economy in 2022. Unlike in the recent past, there was no photo shoot of presenting it to the Minister released to the media with a note of highlights. As such, the Monetary Board seems to have covered up its shame of driving the economy into bankruptcy while sleeping on the Monetary Law Act (MLA) by releasing the annual report covertly. As usual, this annual report is also just a report over the economy in 2020. Therefore, it is not a report of the Monetary Board as required in the MLA on the condition of the CB and a review of the policies and measures adopted by the Monetary Board in the economic context in 2022. This article only highlights how the Monetary Board has hidden the profit on money printing by not transferring the profit to the government as required in the MLA. MLA Requirement on Profit Distribution The Part IV of the MLA sets out the procedure for calculation and distribution of the CB's profi...
Read more