Ghana faces IMF arm-twisting

1 April 2003

After the IMF intensified retaliatory measures on Ghana for failing to comply with its requirements, the country appears eager to appease the Washington institution, probably at a high social cost. Having been portrayed as an adjustment success story in the 1990s, Ghana was denied renewal of IMF financial assistance at the end of 2002 after failing to implement conditions in its Poverty Reduction and Growth Facility agreement with the Fund. Now, to get the funding renewed, the government is implementing conditions for which Ghanaian people will have to pay a high price.

IMF director Horst Köhler often says that borrowing governments use the IMF as a scapegoat for reforms that they want to implement but refuse to take responsiblity for. However the government of Ghana seemed reluctant to implement conditions that included increasing petrol prices and the value-added tax (VAT) rate. President Kufuor apparently wrote to Horst Köhler to request waivers of these measures, but the IMF‘s response in November 2002 made clear this was not acceptable.

Since the IMF‘s response the government has made new efforts to comply, and a resumption of IMF lending by the time of the Bank/Fund Spring Meetings mid-April seems increasingly likely. Petrol prices in Ghana almost doubled overnight when the government announced it could not finance the debt of the national refinery and had to put an end to fuel subsidies. Discussions around the 2003 budget, and around increases in utility prices and value-added taxes send similar signals of goodwill to the IMF. However it is unclear how the government will manage to accommodate the different measures with other Fund requirements to limit inflation and the wage bill. Ghanaian NGO ISODEC commented that “there is no reprieve for the ordinary Ghanaian, be she a farmer, a fishmonger, or a salaried worker … No assessment has been done on the potential impact of these increases on industry, on economic growth or on poverty and inequality”.

While acknowledging the need to raise national revenue to avoid excessive dependency on external aid, ISODEC has urged the government to consider alternative measures such as improving tax collection. ISODEC warned that a VAT increase could lead Ghanaians to take to the streets in ‘IMF riots’.

IMF letter to President Kufuor

ISODEC comments on the 2003 budget