SA’s future? Ghana straightjacketed by IMF restrictions
South Africa's future has been well documented on Biznews, and yes the events unfolding are unpredictable but there's a scary resemblance to what RW Johnson wrote about in his book: How Long Will South Africa Survive. One of the conclusions is that South Africa will have to turn to the IMF eventually, whether it be 2, 3 or more years, at the current rate of spending it's inevitable. The problem with this is, you lose any form of independence, it's like your bank manager telling you how to spend your salary. Not a happy place for any nation to be in. Look at Ghana, under strict IMF restrictions it has little room to produce an election budget. – Stuart Lowman
By Ekow Dontoh
(Bloomberg) — Ghana has little room to produce an election budget on Friday as it sticks to spending restrictions imposed by the International Monetary Fund to help an economy in crisis.
Finance Minister Seth Terkper is set to present a 2016 budget that targets a fiscal deficit of about 5.3 percent of gross domestic product from 7.3 percent this year, the IMF said on Nov. 5. Terkper will outline the spending and revenue measures to achieve this goal in a speech to Parliament that begins as early as 10 a.m. in the capital, Accra.
President John Dramani Mahama, who will contest elections in a year's time, has promised to curb spending next year as part of an IMF agreement for almost $1 billion in loans aimed at getting the economy back on track. The currency had lost 26 percent of its value against the dollar in the first half of the year, while inflation and public debt has soared.
"I expect the government to continue with the consolidation and stay within the IMF program," Michael Cobblah, a director at C-nergy Ghana Ltd., an advisory and investment banking services company, said in an interview in Accra. "Ghana has everything to lose, including credibility and investor confidence, if it goes against the tenets of the IMF program and opts for a spending spree to win votes."
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The cedi erased some of its losses this year after signing the loan agreement with the IMF in April. The currency is down 15 percent against the dollar since January and was trading as low as 3.83 on Thursday.
Ghana has a history of missing deficit targets in an election year as spending pressures increase. When Mahama took office in 2012, the government posted a fiscal gap of 12.1 percent of GDP, more than double its target. Since then, a combination of rising debt and weaker revenue from exports such as gold and cocoa has undermined investor confidence in the West African nation.
Soaring Debt
Mahama, 56, will face the New Patriotic Party's Nana Akufo- Addo in an election on Nov. 7, 2016.
Ghana has less room to maneuver than in the past. Debt soared to 71 percent of GDP in June from 60 percent in January, while inflation was at 17.4 percent in October, according to official data. The central bank raised its benchmark interest rate by 3 percentage points to 25 percent this year.
Read also: IMF confirms SA's toxic economic cocktail of tanking growth, low confidence
"Ghana needs the required discipline to avoid financing election-related projects," Courage Kingsley Martey, an economist at Databank Group Ltd., said by phone from Accra. "This is the time government must bite the bullet and contain expenditure, but with low prices of crude and a zero financing of the deficit from the central bank, Ghana's situation is tricky."
Growth Rebound
So far, Ghana appears to be sticking to its fiscal consolidation. The deficit was 4.7 percent of GDP in the first eight months of the year compared with a target of 4.8 percent, the Ministry of Finance said last month. Public debt was at 62 percent of GDP in July.
The government is also forecasting a rebound in economic growth from a projected 3.5 percent this year, which would be the slowest pace in about 20 years. The economy may expand 6 percent next year and 9 percent in 2017 because of new oil production, Terkper said in an interview on Oct. 28.
Read also: RW Johnson: IMF, Chinese (less likely) or BRICS bank to bailout SA
"We should be cautiously optimistic," Michael Otu Fiaw, a research analyst at NDK Asset Management, said by phone from Accra. "Being mindful of election pressures, we expect the economy to expand by an average of 5 percent in 2016."