Can making public spending more accountable ensure this IMF bailout ends all future bailouts?
Omar Ortez is the Senior Policy Advisor on Active Citizenship at Oxfam US. You can follow him on Twitter @omarortez1.
Ghana is in need of an economic bailout. This week in Accra, the Government of Ghana (GOG) and the IMF are going into their third round of conversations. Last August Ghana formally requested the IMF’s support to deal with the country’s financial crisis. (In Ghana’s trilogy of fiscal challenges posted back in June, I discussed the country’s fiscal problems and the likelihood of an IMF package.) Ghanaian Finance Minister Seth Terkper said that Ghana could receive around $800 million from the IMF as soon as January to help stabilize the Cedi in an interview in London on October 20th.
However, the head of Middle East and Africa sovereign ratings at Fitch Ratings Ltd. Richard Fox says, “It may take longer than that depending on what the Ghanaians are prepared to do.” Fitch gave Ghana a B rating last September, five steps below investment grade.
No specifics on the IMF bailout for Ghana yet, but conditionalities likely
Although no specific content about the package being negotiated has come out to the public, and no formal consultation process with Ghana’s civil society has been established; declarations made on October 8th by Sanjeev Gupta, Deputy Director at IMF’s Fiscal Affairs Department, summarize well the fund’s policy positions on whether there should be fast fiscal consolidation in the case of Ghana:
“Given the debt levels, and given that there is pressure that is coming up within the system itself, it would be a good idea to consolidate sooner than later and this would entail trying to restrain pressures on wages, containing the outlays on subsidies. Of course, while establishing appropriate targeted social safety nets. And also, improving the quality of spending that is taking place …”
But again, according to Fox at Fitch, “The Ghanaians will have to do more than what they think is necessary and it’s not going to be easy.”
Based on past experience with bailouts, Ghanaians know all too well what “not going to be easy” means. Government officials are now openly admitting that they are going for a full blown three-year IMF program that will have conditionalities. Dr. Kwesi Botchwey, as a former finance minister, has been through such negotiations before and now leads the government’s team negotiating with IMF. Botchwey has publicly affirmed and accepted that some of those IMF conditionalities could impose hardship on ordinary Ghanaians and President John Mahama has signaled that a freeze in public hiring and salaries will be likely. Ghana’s Trades Union Congress (TUC) has been outspoken against this measure.
Is Ghanaian civil society part of the dialogue?
Last week a CSO platform on the Ghana IMF bailout was launched and includes a broad group of Ghanaian civic, religious, and academic and labor leaders. Oxfam supports and has also joined this platform. Although a fiscal adjustment seems at this point unavoidable, Ghanaian CSOs are concerned that undisciplined public spending – especially around election times – is at the heart of their country’s fiscal crisis and that ordinary citizens will be asked to shoulder, once again, the costs of the adjustment.
Since 1984 Ghana has borrowed $3.45 billion from the IMF and since 2007 has borrowed $2.5 billion through the commercial Eurobond market. Furthermore, missing out on budget deficit targets has been commonplace in previous elections in 2008 and 2012. And since a three-year program is likely, it means that the 2016 election will happen half way through it.
Ghanaian CSOs also see a risk that the three-year IMF package could exacerbate inequality through cuts in health, education and agriculture services (where the bulk of civil servants, and therefore the wage bill, resides after all), effectively making the poorest pay, yet again, the price of the adjustment. Shouldn’t both the Government and the IMF ensure that Ghana citizens’ concerns and proposals to avoid that scenario are heard as the package is being conceived?
We at Oxfam support the initiative for a National Conversation On Ghana’s IMF Bailout By Civil Society Organizations In Ghana, which states:
“This is particularly important because, in the past, lack of consultation has resulted in difficulty with citizen participation…It is our considered opinion that citizen inclusiveness in the discussions will allow the much needed citizen buy-in which had been problematic with previous bailouts, so that this one becomes the last bailout ever that Ghana will seek.”
We fully endorse the principles on bailout package negotiations laid out by Ghana’s CSO platform; and want to encourage the Government of Ghana and IMF negotiators to embrace and practice the following:
- Make broad consultation with Ghanaian citizens an integral part of the package negotiation process. Build broad consensus on the measures being negotiated, and on how to fairly distribute their economic and social impacts, made up of inputs and discussions with citizen representatives, including: civil society organizations, trade unions, faith based groups, academia, media and parliament.
- Set transparency and accountability measures that address underlying causes fueling undisciplined public spending. Off-budget and over-budget spending (e.g. for political patronage during election times), corruption, and lack of transparency in the management of public finances are the root causes of Ghana having to go for an IMF bailout once more. Nevertheless, the bailout should be seen as an opportunity to strengthen transparency (Ghana’s actually gone backward recently on budget transparency) and accountability systems of both horizontal (e.g. public finance institutions such as the auditor general and parliament), as well as vertical institutions (e.g. media and ordinary citizens as watchdogs) involved in public finance oversight. Fiscal responsibility legislation in Ghana could help.
- Protect strategic pro-poor and pro-development spending. The burden of a fiscal adjustment should not be placed over the shoulders of the most vulnerable, and already underserved; nor should it be done at the cost of strategic investments on long term development. Measures should avoid further weakening Ghana’s health sector (especially in the midst of an Ebola crisis in West Africa still unfolding); avoid reducing agriculture spending that strengthens the food security and resiliency of rural populations; and avoid diminishing investments in the education of their children, as a pathway out of poverty.
- Improve revenue collection, especially from large economic actors. This would imply not only generally addressing weak tax administration and doing a better job at tax collection, but more specifically to focus attention on big payers such as extractives companies – including better oversight of the Ghana’s National Petroleum Company (GNPC) and audits of foreign oil companies.
Following these principles will increase the likelihood of the current IMF package under negotiation really becoming “the bailout that ends all future bailouts.”