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.