MILESTONES | GHANA
Pressed by external and domestic deficits and a deteriorating currency, Ghana, the world’s second-largest producer of cocoa, is expected to ask the International Monetary Fund for help. The country faces a tight choice because the Fund’s facilities usually come with ‘conditionality,’ and the conditions can be stringent.
“The government [recognizes] that we are in a situation where we need to go for an [IMF] facility. We are going, but we haven’t gone yet,’’ says Kwamena Essilfie Adjaye, an economic consultant based in Accra, the country’s capital.
Conditions imposed by the IMF include Ghana allowing its currency to depreciate, making cuts in government spending, reducing or removing subsidies and increasing the price of utilities. The measures seek to boost government revenue and raise export earnings by making the country’s products cheaper, while raising the prices of imports.
With the Ghanaian cedi having lost approximately 36% of its value against the dollar this year, the country, also a major producer of gold, can no longer afford to delay talks with the IMF. “If your currency has been depreciating strongly, having it further depreciate will not be helpful,’’ notes Adjaye, who has consulted for the World Bank.
Ghana faces a trade deficit as a result of rising imports, including food items, unmatched by exports. Its main exports—cocoa and gold—have not fared well recently. Gold prices fell approximately 2% in 2013, closing at $1,200 per ounce, and this year’s recovery has been slow. After reaching an all-time high in 2011, cocoa has also experienced downward pressure.
This year Ghana’s budget deficit is estimated to be 8.5% of GDP. To reduce or eliminate this shortfall, the government may need to cut its workforce and prune other expenses. With about 70% of state expenditure going to workers, the impact of such a cut will be significant.
