Ghana, despite oil riches, takes begging bowl to IMF for US$3B economic bailout

Jun 04, 2023 News

A lesson for Guyana…

Kaieteur News – The International Monetary Fund (IMF) Executive Board approved a 36-month Extended Credit Facility (ECF) arrangement for Ghana in May, totalling about US$3 billion.

This follows challenges faced by Ghana, which, despite having a vibrant oil sector and a story similar to that experienced by Guyana with Exxon and the Stabroek Block, is grappling with a struggling, unstable economy.

A Ghanaian protestor urges its leaders to fix the country (source: University of Aberdeen)

Kristalina Georgieva, IMF Managing Director, said the programme “is focused on restoring macroeconomic stability and debt sustainability as well as implementing wide-ranging reforms to build resilience and lay the foundation for stronger and more inclusive growth.”

Despite the discovery of oil in significant quantities in 2007, Ghana has had to resort to external assistance to revive its economy. Large external shocks and pre-existing fiscal and debt vulnerabilities have escalated into an economic crisis, characterized by plummeting domestic investor confidence, decreasing international reserves, currency depreciation, rising inflation, and a loss of international market access.

The result was an increasingly constrained domestic financing environment and a reliance on monetary financing of the government.

Recognizing these deep challenges, Ghana has taken steps to rectify the situation, including accelerating fiscal adjustment and launching a comprehensive debt restructuring effort.

The Extended Credit Facility arrangement provided by the IMF is expected to aid Ghana in overcoming immediate policy and financing challenges.

Furthermore, the government’s Post COVID-19 Programme for Economic Growth (PC-PEG), which forms the basis of the ECF arrangement, seeks to restore macroeconomic stability and debt sustainability and build resilience through wide-ranging reforms. The focus is on a more inclusive and stronger growth trajectory, with capacity development and continued support from development partners critical to the successful implementation of the programme.

Despite its oil boom, the country has grappled with fiscal and debt vulnerabilities, underscoring the importance of prudent macroeconomic management.

For countries like Guyana, which are entering a phase of significant petroleum wealth, Ghana’s experiences serve as a powerful reminder that oil alone is not the answer to a nation’s economic issues.

In Guyana’s case, its petroleum wealth is way more outsized when compared to the size of its population and economy. Hence, the vulnerabilities are greater. While petroleum revenues can provide a substantial boost to the economy, they can also introduce volatility and potential dependence on a single resource.

Therefore, local and regional stakeholders have said it is critical for the government to establish a robust regulatory framework, ensure transparency and accountability, invest in human capital and infrastructure, diversify the economy, and manage the petroleum revenues wisely for both present and future generations.

IMF’s support to Ghana indeed aims at rebuilding the country’s economy, but the challenges faced by the West African nation should be a wake-up call for other resource-rich countries.

As many stakeholders have lamented, it is prudent and effective management of petroleum wealth that help oil-rich nations avoid the pitfalls of overdependence and ensure sustainable and inclusive growth.