Quantitative Easing

Kwaku Antwi-Boasiako: A $3 billion IMF program on the road to nowhere

From what has been reported, the total bailout amount that Ghana expects to receive from the IMF is $3 billion. At the current exchange rate, that’s just over GH₵24 billion.

Let us put this into context, so that Ghanaians understand that the IMF program is not the magic bullet to provide long-term solutions to Ghana’s economic problems if we do not immediately take serious steps to change the economic foundations of the country.

According to the 2022 budget, interest payments for 2022 alone amount to GH₵37.4 billion. The three-and-a-half-year Ghana CARES (Obaatampa) program, which was supposed to mitigate the effect of COVID-19 on businesses and return the economy to a sustained growth trajectory, has a price tag of 100 billion GH₵.

The IMF program may force the government to exercise discipline in terms of spending and debt sustainability. But, if the government does not really think about supporting the real productive sector of the economy and continues to hide behind macroeconomic stability and macroeconomic indicators, the weak base of the economy will be exposed again and again even after the program. of the IMF.

I mean, if the economy remains dependent on imports after the IMF program, nothing will change for the country.

Do you know, for example, that for quite a long time, more than 65% of Ghana’s poultry imports came from the United States of America? And “despite the drop in imports between 2014 and 2016, supplies from the United States capture more than 40% of the market share” (https://www.rvo.nl/sites/default/files/2019/12 /Update-poultry-report-ghana-2019.pdf).

As US market share continues to decline, the IMF has no interest in recommending a stand-alone local poultry support program that will reduce our poultry imports from the US, Bas, from Poland and Brazil. In fact, the IMF would prefer to give us a loan so that we can have the dollars to pay for our poultry imports.

If, as a country, we do not take our destiny into our own hands and take charge of our productive sector and our industrialization, and focus on implementing economic models that prevent the private sector from accessing cheaper investment funds, then we are doomed forever. .

Think about it: if the BoG raises the treasury bill rate to 27%, which commercial bank will take the risk of lending to the private sector to produce chicken, when the financial cost alone will not make the end product competitive by compared to chicken imported from the United States, the Netherlands, Poland and Brazil, where farmers sometimes finance themselves at less than 2%?

And if the Treasury bill rate is 27%, at what rate would a commercial bank offer credit to the private sector? Even if banks were to lend to the private sector on these terms, they would require significant collateral even if they charge 32% interest, to bring the risk closer to the risk-free T-Bill.

Do you remember when Ghanaian banks reported huge annual profits, more on treasury bonds than on loans to the private sector?

The Bank of Ghana’s cut-and-paste model to fight inflation, by raising the policy rate which in turn has increased the cost of borrowing for the private sector, will keep the economy forever dependent on imports! The IMF’s $3 billion program will not change the economy’s dependence on imports.

The BoG, on the other hand, can use QE to fund 100% of the GH₵100 billion Ghana CARES (Obaatampa) program and it will not lead to inflation!

Yes, the IMF would insist that the BoG not provide monetary financing to the government, warning that “additional monetary financing could undermine the central bank‘s financial autonomy.” Their usual economic model would say it would lead to inflation.

Yet even the IMF admitted in paragraph 43 of the 2021 Article IV consultation paper that the GH₵10 billion the BoG provided to the government did not cause inflation. According to the IMF, “the BOG’s exceptional loans to the government in 2020 had little impact on inflation, but additional monetary financing could undermine the central bank’s financial autonomy.”

The question is: if the GH₵10 billion given to support government spending has had “little impact on inflation”, how are you worried that giving GH₵100 billion to directly support the productive sector to to implement the Ghana CARES program, a program that could make the economy less dependent on imports, would lead to inflation?

Right there in their own consultation paper on Article IV there is enough evidence to support those of us who call on the BoG to use quantitative easing to support Ghana’s industrialization by providing cheap funds, through the Development Bank, for local Cedi-denominated inputs in the productive sector.

By the way, did the IMF oppose the quantitative easing that the United States and other countries used to revive their economies after the global financial crisis of 2007/2008?

Kwaku Antwi-Boasiako, Accra.