Mould, Assibey-Yeboah charge gov’t to start IMF bailout process now
Adnan Adams Mohammed In the wake of calls on the government to abandon the idea of forcing an Electronic Transaction Levy (E levy) on Ghanaians against all odds and massive opposition from the citizens, a former Chair of the Finance Committee of Parliament, Dr. Mark Assibey Yeboah, is urging the government to reconsider its decision not to go back to the International Monetary Fund (IMF) in the face of the country’s dwindling revenues. The former New Patriotic Party Member of Parliament for New Juaben South and a member of the current governing party maintains that, the government’s insistence on passing the E-Levy to shore up its revenue target is not right, given the existential economic challenges. His position which is against his party’s decision of not returning to the IMF for financial support but will look at prioritizing domestic revenue generation through the implementation of the E-Levy, has generated a lot of concerns and debate. The Finance Minister, Ken Ofori-Atta has indicated that, going to the IMF again will have dire economic implications. But, in an interview with a former finance, banking and energy industry expert for his take on the ramification for going to the IMF said, it will restore discipline in the fiscal system which will intend restructure the economy for better outlook in the bond market. “IMF will ensure discipline and that will bring credibility back”, Alex Mould, former Executive Director at Standard Chartered Bank and CEO of Ghana National Petroleum Corporation (GNPC) in a question and answer session with Economy Times. “They can become disciplined and reduce the expenditure especially the discretionary expenditures are focused on the Manifesto policies that do not increase the Gross Domestic Product.”
“IMF don’t lend much but act as credit “derivative “ where’s bilateral and other multi-laterals are under the “IMF umbrella” and seek such comfort to “assist” either by extension of tenor, Grace period on interest payments, and sometimes haircuts (though rare) and additional funds.” Below is the full Q&A: ET: Q1i. What does going to the IMF actually mean? 1ii. What do we gain by returning to IMF? 1iii. Does IMF “bail” a country out? What exactly does that mean ? 1v. What is the alternative if we do not go into an IMF Programme ? Alex Mould: By going to IMF, the managers of the economy can become disciplined and reduce the expenditure especially the discretionary expenditures are focused on the Manifesto policies that do not increase the Gross Domestic Product (GDP). IMF will ensure discipline and that’s bringing credibility back. So yes, If a country is disciplined then no need for IMF IMF don’t lend much but act as credit “derivative “ where’s bilateral and other multi-laterals are under the “IMF umbrella”and seek such comfort to “assist” either by extension of tenor, Grace period on interest payments , and sometimes haircuts (though rare) and sometimes additional funds The only way out for them are as follows; Refinance principal that is amortized. Issue here is capital markets are “closed to Ghana. Our bonds are trading at 70% of their Par value (100%), yield is now 12.5%. If Ghana goes to capital markets today the interests rate will be 12.5%. So they won’t go (or can’t go). ET: Q2i. Can’t Ghana manage its own affairs out of this situation on its own without going to the IMF? 2ii. Can’t Ghana raise anymore debt on its own without going to the IMF? 2iii. Does IMF impose any conditionalities? 2iv. How are these conditionalities arrived at? 2v. Is Ghana as a going concern bankrupt or going into an ICU? Alex Mould: TOP 20 LIST OF THE MOST INDEBTED NATIONS IN THE WORLD. 1. USA ($18,286 trillion) 2. UK ($7,499 trillion) 3. France ($5,250 trillion) 4. Germany ($5,084 trillion) 5. Netherland ($4,124 trillion) 6. Luxembourg ($3,900 trillion) 7. Japan ($3,408 trillion) 8. Italy ($2,285 trillion) 9. Ireland ($2,236 trillion) 10. Spain ($2,036 trillion) 11. Canada ($1,791 trillion) 12. Switzerland ($1,699 trillion) 13. Australia ($1,563 trillion) 14. China ($1,437 trillion) 15. China Hong Kong ($1,416 trillion) 16. Singapore ($1,300 trillion) 17. Belgium (($1,194 trillion) 18. Sweden ($938 billion) 19. Austria ($629 billion) 20. Norway ($623 billion) TOP 10 MOST INDEBTED AFRICAN NATIONS TO CHINA, IMF AND WORLD BANK. 1. Angola ($25 billion) 2. Ethiopia ($13.5 billion) 3. Kenya ($7.9 billion) 4. Republic of Congo ($7.5 billion) 5. Sudan ($6.4 billion) 6. Zambia ($6.5 billion) 7. Cameroon ($5.5 billion) 8. Nigeria ($4.8 billion) 9. Ghana ($3.5 billion) 10. DR. Congo ($3.4 billion) SOURCE: World Bank Annual Report for 2021. From the data above we can deduce that, the issue is not about the quantum of a country’s debt. It’s about the quantum of debt relative to your earnings from taxes and even more specific is the sustainability of your payments of your debt service from your unencumbered revenue without going to borrow again to pay for paying your debt service. The fear they have of going to IMF is that, IMF will only go into agreement with Ghana government on a program of discipline. Note this, IMF never imposed anything on a government. The government provides their plan, a Performance Improvement Plan (PIP), which the IMF agree. The IMF only monitors that they follow their own plan. ET: Q3i. Why are we in the position we find ourselves since we just came out of an IMF Programme? 3ii. What were we supposed to do? 3iii. What did we do wrong after coming out of the last programme to send us back to the IMF again? Alex Mould: Issue here is that, capital markets are “closed to Ghana. Our bonds are trading at 70% of their Par value (100%), yield is now 12.5%. If Ghana goes to capital markets today the interests rate will be 12.5%. So they won’t go (or can’t go). Ghana could not manage its expenditure very well and generating much less revenues. This forced the government to resort to borrowing incessantly. So, the fiscal deficit and debt accumulation kept widening. Ghana’s current outlook on the debt market is not positive. The Market never lies. Our debt price has dropped 30%. Why is Capital markets saying so? Are they wrong? The price dropped far before Fitch released the bomb. The market players (investors) always knows before the rating agencies report their findings. Rating agencies only report numbers already known to the market. Why is it that Nigeria and Ivory Coasts – our immediate peers- Bond prices are close to par (100%). First of all let’s get the numbers right. GDP is not government income; it is total income in the country. Government income is about 12-16% of GDP. 2022 Domestic Tax income is going to be about GHS74 billion. Total debt is GHS350 billion (approx) and goes up even if they don’t do anything because 50% of it is in US Dollars and when the Cedi depreciates our debt gets bigger. The debt service is principal and interest Interest debt service is GHS37.5 billion and Wages and compensation is GHS36 billion. These two expenditures are greater than our Domestic tax revenue. Principal repayment this 2022 is about US$8 billion but in 2025 will be over US$22 billion. That is when the problem will arise if we can not get into the capital markets to refinance and get the bilaterals and multi-laterals to support us.