Ghana’s Finance Ministry has been on a roll lately. Hardly a day goes by without them releasing another feel-good story about the country’s protracted debt restructuring effort or its three-year IMF program, now in its eighth month.

The latest is this big Davos splash by Bloomberg:

At home, people seem to have tuned off. The trending Finance Ministry story is a ruling party grandee expressing the age-old hope in his circles that the Finance Minister will resign soon to lift the party’s image among the public, and, obviously, his party’s chances in the upcoming general elections (December 7th, 2024).

Ghana’s international goodwill is still understandably strong

It is not too difficult understanding this gap in sentiments between home and abroad. Ghanaian governments, especially the current one, tend to worry more about national image overseas than at home. Most international stakeholders share the government’s compulsive need for a good story. 

The IMF is desperate to hoist Ghana as evidence of the effectiveness of its treatments. The “international system” needs some success stories for development multilateralism, to vindicate programs like the Common Framework, which Ghana initially rejected (just as it earlier, flatly, refused to enter another IMF program) before jumping on board; Western powers, whose favour Ghana has curried more aggressively of late, need Ghana to preserve its “West African oasis” narrative; and global investors exposed to Ghana, such as Eurobond holders, are keen to see the value of their assets recover.

Citizens are bored stiff of the talk

At home, on the other hand, the citizenry demands more than a “turnaround” story. Those abreast with the technical details are much too aware of the spin. Whilst the ordinary masses simply can’t square these jamborees about “moratoriums” and “IMF Board reviews” with their daily reality of a high cost of living, corruption scandals, and a clear turn for the worse on the basic infrastructure front.

Just about the time the Finance Ministry’s spin was winding through Davos, operators of Ghana’s under-pressure “public” transport system, composed (like much of Africa) of private mini-buses and saloons, announced an imminent rise in fares by 30%. The electricity utility in the populous urban south of the country (ECG) is about to add Value Added Tax (VAT) to bills, effectively hiking tariffs by up to 22%, depending on how the increasingly complicated VAT computation works out for a consumer (a small segment of the urban population consuming less than about $4 per month are exempted). Whilst inflation is falling, prices are still rising by more than 23% per annum. A sluggish rebound in growth has not fed through into the incomes of the vast majority of citizens, who ply various trades in the large informal economy. 

Then, there are the scandals. 

Just before 2023 closed out, word came that the government is dramatically expanding an opaque contract signed with a mushroom firm set up by a timber merchant in 2019 to audit tax compliance among distributors and marketers of refined fuel products, like gasoline and diesel. The company, SML, was entitled to receive 0.05 local currency units (5 GHP) for every litre of fuel sold. In 2019, that amounted to about $4 million a month. 

The expansion of the contract in 2023 to cover the upstream petroleum and minerals sector now meant it would be entitled to 0.75% of all the country’s mineral proceeds and $0.75 for each barrel of oil exported by Ghana. The mind-boggling arrangement implies earnings for the company of nearly a billion dollars over the contract term under various reasonable scenarios. Not only was this contract awarded non-competitively to a company with zero track record in such a highly sensitive and technically complex domain as revenue assurance, but it has now come to light that the company’s interventions duplicate other revenue assurance programs set up at a considerable cost to the country. Worse, the evidence shows that no tax evasion whatsoever is being blocked by this upstart entity.

Growing disappointment

Taking all these together, the coolness at home towards the Finance Ministry’s efforts to ramp up enthusiasm becomes self-explanatory, but there is a need to return to the earlier point about why those technically abreast with the IMF and debt restructuring processes are also increasingly disinterested. Doing that requires a bit of a recap. 

Repeating an earlier point, the Ghanaian government was totally opposed to an IMF program just two years ago. The political opposition and some elites strongly championed a return to the IMF. Within that group were some who felt that an IMF program will massively rein in certain conduct long blamed for the country’s economic woes. Some of us felt obliged to counsel caution by pointing to persistent governance lapses despite successive IMF programs (this being Ghana’s 17th program).

Eight months after the IMF program commenced, disappointment is growing. Much of the ennui stems from the arcaneness, opaqueness and seeming arbitrariness in the whole setup of IMF crisis resolution, as well as its accompanying macroeconomic reforms and debt management framework.

At the domestic level, it is not just that schemes like the SML deal continue to proliferate under the ostensible supervision of the Fund, it is also that spin often overtakes any serious reckoning with the facts of reform, seemingly with the IMF’s blessings. 

Take the recent announcements about a major deal with bilateral creditors, for instance. 

The recent announcement is the foundation of an upcoming meeting of the IMF’s board in two days during which Ghana’s performance so far will be reviewed, and the next $600 million tranche released. 

Yet, everyone knows that the supposed “progress” is illusory and the facts of progress concerning the broader program do not relate seriously to the benchmarks in Ghana’s IMF program in terms of actual macroeconomic impact. Let us dive into the weeds.

When one compares the above Ghanaian announcement with the Zambian version issued in the middle of last year, some subtle differences emerge.

In simple terms, by the time the Zambian announcement was made, an actual “agreement in principle” was in place with bilateral creditors. So, Zambia could explain clearly what exactly was on offer. The resulting IMF “endorsing statement” echoed these details by mentioning the baseline and contingent elements agreed upon.

Nothing like that could be found in the Ghanaian case.

Why? 

True, much of this is about ritual display. As we now know from the Zambian episode, the announcement was far from a conclusive agreement reached among creditors. However, in the case of Zambia, there was at least a holistic set of terms that had been agreed upon in principle and based on which macroeconomic projections could be made as part of, at least, a rigorous attempt at reviewing the pace of the IMF bailout program. In Ghana’s case, what existed was a draft term sheet. 

Anticipating some of the pitfalls in the Zambian negotiations, the government of Ghana and the IMF had decided that a board review must be based on open-ended commitments rather than definite economic projections awaiting legal drafting. Considering that even after the MOU is signed, bilateral agreements are required with each creditor country, there is nothing conclusive about the current milestone. The “assurances” represented by the draft term sheet do not fundamentally change any calculus regarding the bilateral component of Ghana’s external debt. 

The real issue in this whole dance would be the comparability of treatment analysis, through which the rich countries and China will ensure that private creditors, such as Eurobond investors, do not get a far nicer deal than they secure. Based on recent developments, it is safe to say that scaling that hurdle is the only one that matters as far as the official creditor committee process in the Common Framework is concerned. 

Debt Relief is the real deal

At any rate, as everyone knows, Ghana’s bilateral debt constitutes just 4.2% of the total external debt stock. Servicing this small fraction of the country’s total debt is negligible. In fact, following the country’s default, external debt servicing has now fallen to ~5.4% of the total debt service burden, down from 12.3% in the pre-crisis period (looking at interest payments alone, the domestic component was 93.5% of the total between January and August).

And, as is evident from the charts above and below, the bilateral debt service burden was about 5% of 4% of the quarterly external debt service burden or roughly 0.2% of the total quarterly public debt service in Q2 2024. For rigour's sake, we must acknowledge the historical practice of Ghana, like so many other African countries, piling up bilateral debt payment arrears, which probably explains why the IMF’s estimate of bilateral debt service for 2022 amounted to 20% of total external debt service (separately, the IMF is also more stringent in accounting for amortisation costs, a very important factor, for instance, in the case of Ghana’s China debt).

No reader can miss the serious dominance of domestic debt in all these calculations. Even in the second quarter of 2023, after the government announced the end of what it claimed was a highly successful domestic debt restructuring exercise, the domestic debt service burden was still 50% higher than a year ago (when, in relative terms, it constituted 81% of total debt service).

In typical fashion, most public macroeconomic statistics are now between 3 and 6 months behind schedule, but it is still possible to piece together a somewhat concerning picture.

In September 2023, total domestic debt stock stood at about $20 billion. The effective cost of local debt is climbing towards 25%, due to the government’s switch to the short end of the domestic debt market after being shut out of the international capital markets. And notwithstanding the coupon rate haircuts suffered by holders of restructured bonds. Meanwhile, annual domestic debt service, including amortisation, can be extrapolated at over 130 billion GHS presently (with cocoa bills alone racking up 15 billion GHS of this amount in 2023), in line with IMF projections. The focus on interest payments alone (about 25 billion GHS in 2023) in the budget could be falsely reassuring.

Clearly, in absolute terms, the debt servicing pressure has not truly abated, even though domestic debt restructuring is estimated to have shaved off about 60 billion GHS in 2023. In nominal terms, domestic debt service is effectively climbing higher at a faster rate today than it did in the pre-crisis period, after adjusting for the effect of the one-off restructuring episode. This is why even after a string of domestic debt treatments, the country is still refusing to pay holders of some domestic bonds, such as the old series of the benighted cocoa bills.

In these circumstances, the only real relief one can expect from even a successful conclusion later this year of negotiations to restructure the Eurobond debt, easily 75% of the total external debt service burden had Ghana not defaulted, is a continuance of the current lowering of pressure on the exchange rate. A welcome development for the country’s economic managers, but not the absolute game-changer some assume it is.

Honestly speaking, the bilateral debt relief does not even register in the actual budgetary scheme of things.

It bears emphasising that from a pure relief point of view, Ghana’s current situation is the most relieving: most obligations have simply been frozen. Any Eurobond deal, for instance, that does not result in a substantial moratorium will lead to an uptick in external debt service. Hence, the only real incentive for a government with just eleven months left in government to persist with the tough Eurobond negotiations towards a definite conclusion is the linkage to IMF disbursements.

This is why looseness in how progress is measured in triggering disbursements constitutes complicity of the IMF in efforts to keep postponing the real macroeconomic reckoning that Ghana must face.

When loose draft term sheets are branded as definitive, the ever-essential comparability of treatment tango is pushed farther away, into the future. Disbursements are consequently made based on illusory progress. Future governments are saddled with the fallout. But without the fat, juicy, carrots of bailout disbursements. If the current government realises its ambition of collecting 80% of the total IMF bailout package and continues to be successful in skirting around the tougher reforms, the next government will almost certainly relapse on key aspects of the program. How serious is this threat to the country’s near future?

We can start by looking at the key quantitative performance criteria in the IMF program. 

Net International Reserves

Under the terms of the IMF program, Ghana’s Net International Reserves (a measure of foreign exchange held by the central bank) should have increased by at least $270 million in September of 2023, then a further increase by $655 million by December of the same year, and by March 2024, the net cumulative increase should have hit $107 million. 

As usual, the public data of the Bank of Ghana is four months old so analysts can only draw inferences from projections based on the trend. From $6.25 billion at the end of December 2022, Ghana’s Gross International Reserves dropped to $5.15 billion in October 2023. By the end of the year, it was hovering a little above $4.7 billion. However, the government then came up with a nifty trick. It ramped up purchases of gold on the domestic market, so that even though reserves excluding pledged petroleum funds and other encumbered reserves, would have fallen to less than $1.5 billion by the end of 2023, and, when netted against current government forex liabilities, would have breached the program floor, the government is now happily announcing gross reserves (excluding pledged funds) of $2.5 billion, up from the $2.1 billion it reported in August 2023. 

Given these acrobatics, the government does not need to cite the failure of expected funds from the World Bank and the IMF (which would not have counted towards the floor calculation anyway) as an excuse.

The thing though is that none of these acrobatics matter very much to Ghana’s ongoing inability to meet critical forex-denominated liabilities. It has defaulted on its Africa Trade Insurance Agency obligations, has resorted to pawn-shop arrangements to stave off action by independent power producers, to whom it owes more than $2 billion, and is trying to grab money belonging to the national oil company to sustain its candidacy to host the Afreximbank-promoted Africa Energy Bank. The irony is that the national oil company (GNPC) itself has become a persistent defaulter of its obligations. In fact, the street wisdom in Accra nowadays is that unless you have something to threaten the government in a pretty strong way, forget about getting paid.

Non-accumulation of external debt arrears

Under the IMF agreement, the government is to flat-out halt the fresh accumulation of external debt payment arrears (obviously excluding the Eurobond and export credit payments which the IMF advised the government to default on, as it is doing now in Ethiopia). 

Since this measure is on a commitment basis, it is unclear how exactly the government has been winging it, given that the Ghanaian parliament has continued to approve various new foreign-financed commitments. Arrears continue to pile up on effectively restructured obligations arising from the infrastructure financing boom that attracted the likes of Commerzbank, Deutsche Bank and a raft of other European banks to Ghana in the very recent past.

Newly Contracted Collateralised Loans & Guarantees

On this scorecard measure, independent analysts are heavily constrained in their ability to track the government’s compliance due to the complete opacity of many arrangements. Since the reports the government shares with the IMF are not available to even the people’s representatives in Parliament, analysts have to rely on deep insider sources to keep abreast of developments. Moreover, even though the brackets in the IMF program related to this indicator are quite broad, capturing most of the key state-owned enterprises and public agencies, considerable room still exists for lax interpretation. 

For example, the political opposition accused the government of sponsoring GNPC to pursue debt deals with Russian energy companies like Lukoil and was met with an aloof silence. Eventually, the government promised to bring the loan to Parliament. The country continues to pursue a $3.2 billion facility through Thelo DB of South Africa to revamp the western rail corridor even though it is clear that no tranche can be released without sovereign guarantees. Delays and operational challenges with the Indian EXIM – Afcons Infrastructure rail project mean that arrears on a commitment basis are already mounting. 

It is hard to see how exactly the IMF and the government justify all the many such arrangements underway given the plain wording of the terms of the agreement. 

Some targets have been met. 

The program’s inflation target (central rate) for end-December 2023 was 29.4%. The rate recorded for the period was 23.2%. 

The primary fiscal balance (cumulative floor) target, a measure highly sensitive to debt servicing, and which is the key fiscal anchor for the whole IMF deal, was set in the program document for December 2023 at 4.6 billion Ghana Cedis (cf. the comparative annual figures at end-2021 was 8.8 billion and 4.8 billion in 2022). By August 2023, the overall fiscal deficit had declined to 3% of GDP (compared to an annual figure of 3.6% of GDP for 2022), significantly better than the 4.6% target. The corresponding primary balance was a deficit of 0.7% (versus the -0.9% target). The provisional figures for December 2023 are a 0.5% primary balance and an overall 6% budget deficit (against the government’s projected 5.3% deficit). 

The central bank’s zero financing of central government pledge also appears to be holding, except for a curious 3.85 billion GHS payment with a missing footnote in the public accounts. The picture is further complicated by the Gold for Oil program, where transactional losses could be interpreted as implicit financing of the state-owned fuel trading companies participating in the scheme.

The non-oil revenue floor of 116 billion GHS by end-December was met when after some back and forth, the Ghana Revenue Authority (GRA) demonstrated that the target of 122 billion GHS was more or less hit.

Deft handling of the political economy of the crisis

Credit must also go to the government for its skilled management of the IMF relationship and the strategic alignment with certain large countries with outsized influence on the IMF Board. The Ghanaian president’s consistent re-echoing of the western hemisphere’s talking points is unlikely to have been missed in Washington.

Shifting the pain

Above all else, though, it is the masterful shifting of as much pain as possible from the central government to diffused private interests that has done the most to contrive the current semblance of normalcy in Accra. 

Unlike the previous government, the government has refused to accept some of the key hallmarks of austerity as part of the ongoing IMF program. At least, nothing that could reduce its patronage power. There has been no public sector hiring freeze or ceiling on wage increments. The Ministry of National Security, for instance, spent nearly 24% more on employees in 2023 than originally budgeted (at a time when the government intends to increase the VAT burden on consumers by 133% in 2024). Even more egregious is the case of the Ministry of Local Government, which saw its initial 2023 compensation budget revised upwards by nearly 100%. In the event, despite disbursement hiccups, it ended up spending 44% more than the original budget.

As deals like SML and planned expansions to the scope of government contracts with favoured Information Technology (IT) companies, like the operator of the vaunted Ghana Card, show, the government is not averse to spending hundreds of millions of dollars on politically beloved contractors, however dubious the merits.

Favouritism?

In previous commentary, this author has pointed out that the scorecard of this IMF program has been watered down, in comparison with previous programs, to downplay the criticality of structural reforms to any lasting recovery from the crisis. 

The discrepancy between a strong, early, focus on such matters as public procurement, tax exemptions, auditing enhancements, and the like in some of Ghana’s previous programs, and in the programs of some of Ghana’s peers (like Zambia and Mozambique), on the one hand, and the relatively narrower emphasis on certain macroeconomic targets in the country’s current program, on the other hand, can raise charges of favouritism.

In respect of structural benchmarks, Zambia’s first review was stacked with eleven highly consequential reforms including a full legislative review of public procurement and wide-ranging public financial management shifts.

In comparison, Ghana’s seven structural benchmarks do not go as deep.

A charge of favouritism would, however, not amount to breaking any new ground. The IMF, like any tutor, is allowed to have teacher’s pets. Researchers like Princeton’s Grigore Pop-Eleches have long examined how such a situation might arise. After conducting a detailed examination of the issue of IMF favouritism in a 2009 survey of Latin American and East European programs, he concluded that the ideal of “technocratic impartiality” is routinely trumped by more powerful geopolitical and systemic factors.

He said, “[T]he Fund’s deviations from technocratic impartiality are no longer limited to severe crises as the Fund’s main shareholders have greater leeway to use IMF resources for narrower economic or political objectives.”

Ahead of Friday’s meeting of the IMF Board, some of Professor Pop-Eleches’ findings readily come to mind.

But his caution not to overegg the geopolitical dimension of the IMF’s crisis intervention is also important. In the end, there are operational reasons why an institution like the IMF would like to keep programs compact and super-focused, especially in the first year. After years of over-promising, some humility on the part of the IMF regarding how far its ability to change state conduct can go without resurrecting the old bogeys of neo-colonialist conditionality and imperialist paternalism is perhaps warranted. 

The perils of short-term focus

It is of course not only the IMF that is narrowly incentivised in this matter, commercial creditors at home and abroad are too. It is in their interest for momentum to build behind the narrative of recovery as this directly affects the recovery rate they can hope to see when Ghana eventually exits the default. Even if, as some creditors do acknowledge, the post-exchange performance of the bonds they hold will be shaped by the credibility of Ghana’s new promises to pay when due. 

Right now, too large a portion of the good narrative is a bit circular. Defaulting on debt will certainly improve the primary balance, for instance, which can help with central bank financing, and thus inflation, currency depreciation, and so on. At least, in the short term.

But cutting the budget deficit by failing to release committed funds is contingent on its real effects. For example, in 2023, the Ghana Audit Service decided not to audit Ghana’s overseas diplomatic missions. That is surely savings made (though one can speculate what that means for Public Financial Management (PFM) compliance down the line in the Foreign Ministry). Conversely, having local banks discount interim payment certificates for contractors and using the phantom fiscal space created to initiate more projects does not amount to savings. It is just kicking the can down the road. Or to the next government.

In a similar vein, powering ahead with a large number of new hospitals using declining oil revenue (even as current ones struggle under a tottering national health insurance scheme) that will require fresh budgetary commitments for operationalisation down the line, can be reconciled with freezing capex in the health budget. But only until the equipment bills for the brand new facilities come due. 

In short

The IMF, Davos attendants at the receiving end of the Finance Ministry’s charm, and external creditors, all of whom can and will exit the Ghana story at various points in the years ahead, can be allowed some joy in light of the modest successes chalked under Ghana’s IMF program so far, and because of the impending IMF disbursements and bilateral creditor MOUs. 

Citizens and domestic observers, on the other hand, have to be more real and less impressionable.