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By Dr. Mahamudu Bawumia
A few months ago, during a lecture I gave to students at the Kwame Nkrumah University
of Science and Technology (KNUST), I made a statement that the supposed fiscal
consolidation that the government claims to be taking place following the
implementation of the IMF program over the last two years is not credible. Developments
since then have only reinforced this view and today it is now much clearer that the
Ghanas fiscal consolidation under the IMF program is actually a sham.
We should recall that the economy ended in 2012 with a fiscal deficit of 12 percent of
GDP, 11.7 percent of GDP in 2013 and 11.9 percent of GDP in 2014. This was the first time
in Ghanas history that double digit fiscal deficits were recorded for three consecutive
years and demonstrated the deep fiscal hole that Ghanas public finances had plunged
into following the reckless increases in public expenditure during the 2012 election year
and subsequent years. This poor state of public finances, weak policy implementation and
lack of policy credibility ( as adduced by the Government) resulted in Ghana requesting
an IMF bailout in August 2014.
When Ghana received an IMF bailout, there was a clear expectation that the process of
fiscal consolidation (a sustained decline in the fiscal deficit/GDP ratio) would take place.
This, after all, is what IMF austerity programs are supposed to achieve.
The decline in the fiscal deficit is supposed to bring down inflation, improve debt
sustainability, help lower interest rates to support private sector activity, crowd-in the
private sector, increase investment and above all increase economic growth to help
create jobs and alleviate poverty. It was therefore not surprising when the Government
of Ghana reported that after some two years of implement the IMF supported program,
the process of fiscal consolidation was taking hold with a dramatic decline in the fiscal
deficit/GDP ratio dropping from 11.9 percent in 2014 to 6.7 percent in 2015. Indeed, the
first and second reviews by the IMF of Ghanas program also suggested that the process
of fiscal consolidation was taking hold and on track. The IMF appeared eager to report
the success of its program which many questioned. More clearly the public struggled to
reconcile the IMFs statement on an on-track and improving macroeconomic outturns
with the actual economic hardship that the public was experiencing.
The only problem, however, is that what Ghana is experiencing is a unique type of fiscal
consolidation which has defied all expectations. Ghanas fiscal consolidation is apparently
taking place in the midst of public debt levels rising to unsustainable levels, inflation is
stubbornly high and is currently the second highest in Africa at 18.2%, the rising blackhole of State Owned Enterprise (SOE) Debt which together with the debt owed by the
government to the BDCs and the lack of adequate supervision of micro-finance companies
can potentially collapse the Banking system, rising interest rates, crowding out of the
private sector, increased banking sector fragility, reduced business confidence, and
declining economic growth. The Ghanaian experience, under this NDC government, is

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exactly the opposite of what Fiscal Consolidation is supposed to achieve. Fiscal

consolidation is not the end itself but only a means to an end.
Ghanas apparent fiscal consolidation is however beginning to unravel with clear
indications that the government may have misrepresented the facts in providing fiscal
data it has been presenting on the basis of which the markets and international financial
institutions make their assessments and decide to lend.
After the IMF staff visit in April 2016 for a third review of Ghanas program, there was a
clear expectation that the review would be presented for IMF Board approval by June
2016. This did not happen and we are still not yet clear whether Ghana will go to the
Board in July 2016. A recent media report, quoting sources from the IMF, indicates that
no board date has been set as the IMF has stated that it has not concluded the third review
of Ghanas program. Amongst the reasons for the non-conclusion of the third review is
the IMF statement in response to media questions that the fiscal data for 2015, which
provided the basis for the positive assessments of the first and second reviews, is yet to
be reconciled. Do we really understand when the IMF begins to talk about reconciling
data? This is code phrase or euphemism for the fact that data is likely wrong. How can
2015 fiscal data not be reconciled by July 2016? What is so complicated about it? What
this points to is that the government is not coming clean on the fiscal data. When the IMF
begins to do this, three things could be happening. Either the fiscal deficit has been
wrongly reported, arrears have been accumulated which the current program does not
allow, or debt numbers have been wrongly reported. The reason why arrears
accumulation is a likely explanation is the report about rising non-performing loans in
the in the banking sector as a result of debt not being paid by the public institutions which
is being driven by governments inability to pay its debt to these institutions like the ECG,
TOR, VRA, etc. Where are all these unpaid debts recorded in our fiscal accounts?
Obviously arrears are being accumulated and sooner or later the real picture will emerge.
What has heightened our suspicion on the fiscal data is the cue we are picking up from
the Bank of Ghana. For the first time since 2002, after 71 MPC press releases, the Central
Bank failed to report on fiscal developments last week, a confirmation that something is
very wrong. The MPC makes an assessment of the economy and makes a decision on the
positioning of the interest rate without an assessment of the public finances (the fiscal
data). The statement cannot be taken seriously if it is does not take account of the state
of public finances. Clearly, I cannot believe that the MPC and the Bank of Ghana (which is
in possession of at least the narrow fiscal data) would undertake an assessment of the
economy without critically assessing the fiscal data, and report to the public in the spirit
of transparency. It was therefore very curious that the MPC statement did not contain
even one line relating to the state of Ghanas public finances. This must be the first time
in the history of the MPC that this has happened, an unbelievable development. If the MPC
did consider the fiscal data then the question is why it avoided any reference to fiscal
developments in the press release? What is the government trying to hide? Is the
government trying not to scare away foreign investors on the eve of the issue of the illadvised Eurobond in 2016?

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Is expenditure already going beyond set targets in 2016 just as happened in 2012? The
government should be careful not to compound the problems of this economy, which it
caused starting with a major spending binge in the 2012 election year, with another
spending binge in this 2016 election year.
Then again, this John Mahama led NDC government may just be setting the stage to
deliberately or technically abrogate or suspend the IMF program to give it the space to go
on another spending binge for the 2016 election as they did in the 2012 election year.
To allay the fears of Ghanaians and the financial markets, the government should publish
the fully reconciled fiscal data for 2015 and the first half of 2016 immediately. The lack of
transparency is undermining confidence in the economy. This NDC government is simply
not being honest with itself, the good people of Ghana, the IMF and the international
community about the state of Ghanas public finances. We need a real accounting for the