The International Monetary Fund (IMF) has every right to walk out of the three-year Extended Credit Facility (ECF) programme with the country, following Parliament’s refusal to legalise the zero limit on Central Bank financing of the budget deficit, a former deputy Governor of the Bank of Ghana (BoG), Mr Emmanuel Asiedu-Mantey, has said.
An IMF pullout from the US$918million-backed programme should be aclear protest to Ghana’s unwillingness to abide by professional instructions on best economic management despite willingly submitting itself to the fund to be disciplined, Mr Asiedu-Mantey told the GRAPHIC BUSINESS on September 5.
He was speaking to the paper on the recent passage of the BoG (Amendment) Act by Parliament, which reduced BoG financing of the budget deficit from the initial 10 per cent of previous year’s total revenue and grants to five per cent. The five per cent is contrary to the IMF’s proposal for a zero limit.
“Now that Parliament has said no (to the zero limit financing), I will not be surprised if the IMF also decides not to support there structuring that is ongoing,” he said, referring to the ECF that the country is using to stabilise the economy and gain policy credibility for some of its home grown economic policies.
“They (the IMF) are putting the weight behind you and giving you money but saying, look, these are the measures you have to take: no more borrowing from the central bank, at least, not until the economy stabilises, and you say no? Then, they deserve the right to pull out and leave youto your fate,” he explained.
Although Mr Asiedu- Mantey does not expect the fund to exit the programme outrightly, he said the nature of their reaction to the issue would depend on how the Ghanaian authorities will present it before the Breton Woods lender.
“It will depend on the two parties involved; the government of Ghana, through the Ministry of Finance, and the IMF. It will depend on how the discussions go,” he said.
“If they (the Ministry of Finance) can look the fund on the face and say ‘no, we cannot take what you are saying,’ then I will not be surprised if the IMF also says ‘if that is the case, then we will drop our support under the programme,'” he added.
An IMF pullout will be the first time in the nation’s history that the fund has cut short its support in the country on the back of disagreements.
It will also dent the image of the image of country in the international financial market and that could reflect in high coupon rates for Ghana’s
Background
The scrapping of BoG financing of the budget deficit, otherwise known as domestic financing, from 10 per cent to zero was one of the IMF conditionalities under the ECF, which the country signed on to in April 2014.
As part of the fund’s recommendations, a memorandum of understanding was reached between the BoG and the Ministry of Finance, in which government borrowing from the central bank was to be reduced to five per cent in 2015 and subsequently be scrapped in 2016. The dictates of the MoU were subjected implemented, with BoG financing of the deficit being zero as of July, this year. But instead of institutional isingit in the BoG (Amendment) Act,2016 — in line with the IMF request –Parliament, on August 2, this year, pegged the central bank financing at five per cent in the new law that now replaces the Act 612.
Rubber-stamping
Parliament’s action prompted the IMF to say in its September 2 statement that “outstanding questions remain with regards to certain elements of the legislations recently passed. “Although the fund did not readily explain the nature of the questions and the areas they border, the GRAPHICBUSINESS has learnt that Mr Joel Toujas-Bernate, the leader of the IMF team that issued the statement, was not entirely pleased with the Finance Ministry on the capping of the deficit financing at five per cent instead of the zero limit that was proposed. Sources familiar with the issue told the GRAPHIC BUSINESS that Mr Toujas-Bernate’s displeasure prompted the Finance Minister, Mr Seth Terkper, to explain that much as government was not in disagreement with the zero limit, it could not compel Parliament to stick with its requirements, given the independent nature of the Legislature from the Executive arm of government.
In short, Mr Terkper said Parliament was not a rubber-stamp of the Executive.
Mr Asiedu-Mantey, who deputized Paul Kingsley Acquah at BoG between2001 and 2006, said such an explanation was not tenable under the current circumstances.
After signing on to the programme, the former deputy governor said Ghana had, in principle, agreed to implement the IMF recommendations and any actions to the contrary only meant that the country was not sticking to its words. This, he said was not good for the relationship of the two sides.”Its like you are not well and they (IMF) have given you the prescription and you are saying its too much? Then if it is too much what do you do? Then you will relapse back to your sickness again,” he said, referring to the possible overspending that could occasion the pegging of the central bank financing at five per cent instead of zero.
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