Gov’t delaying an obvious need for a return to the IMF – Economist
Economist and Associate Professor at Niagara University, Dr Dennis Nsafoah,has stated that government is delaying the inevitable which is its return to the IMF for a bailout programme.
According to Dr Nsafoah, Ghana will eventually return to the IMF despite its delays to do so – probably latest by the end of this year.
This, he noted, is due to the country’s current economic situation and government’s unrealistic targets set in the 2022 budget.
“Will the government of Ghana seek an IMF intervention? It will. Government may delay it, but eventually it will go for it.
“Thinking about this situation, the most likely outcome may be at the end of the year, when it realize it can’t achieve its revenue target,” remarked Dr Nsafoah speaking at PFM Tax Africa’s 2022 first quarter economic dialogue on Ghana’s economic outlook for the 2022 fiscal year.
Speaking further at the economic dialogue, Dr Nsafoah noted that, “The most prudent thing for government to do is to actually start talking to the IMF because the target they have set for themselves, it’s quite unrealistic. Because, it can’t achieve that 42% increase in revenue.”
Touching on the country’s debt-to-GDP ratio, he intimated that, Ghana is likely to end 2022 with debt ratio of 83.9% of GDP.
“The best outcome that we’ll see is that by the end of 2022, our debt-to-Gross Domestic Product ratio would actually increase from 83.9%, which is not good. But the most likely outcome by 2025, as inflation in the USA goes down and then the Federal Reserves decrease the pace at which it contract money, things would improve”. And then we would have a debt to GDP ratio of about 73.6% [by 2025]”, he stressed.
But before then, he said, the Federal Reserves will hike interest rates and that will have negative implications on interest rates and exchange.
“An increase in the USA interest rate would definitely have a negative impact on the Ghanaian economy, and that would also have a negative impact on our exchange rate. So this I’d say would be the most likely case. We’ll be hit with exchange rate and interest rates.”
Dr. Nsafoah also said the era for cheap money is no more because the COVID-19 pandemic has had devastating effects on countries and the global economy.
Some economists since last year, have predicted a return to the IMF.
Their prediction is premised on the country’s current economic situation which is ballooning expenditure vis-a-vis lower tax revenues to meet rising expenditure, resulting in high budget deficits.
Ghana, is expected to finance a budget deficit of over GHS 37bn this year, given a projected government expenditure and revenue of GHS 137.5bn and GHS 100.5bn respectively.
