This is a guest post by Cheryl Strauss Einhorn, a journalist and adjunct professor at the Columbia University Graduate School of Journalism
Long hailed as evidence of Africa’s growing political and economic stability, Ghana is suffering a reversal of fortune. One week ago as President John Mahama arrived in Washington for the U.S.-Africa Summit, his government finally admitted it needed urgent help to fix its faltering economy and contacted the International Monetary Fund for financial assistance.
“The ultimate objective is to stabilize the cedi (Ghanaian currency) in order that domestic prices will be brought under control,” Finance Minister Seth Terkper told a local radio station Joy FM.
Indeed, despite being rich in natural resources with plentiful oil, gold, and cocoa, West Africa’s second largest economy has been in disarray, its problems laying bare many of the challenges facing the continent as a whole. Ghana’s oil production levels remain stagnant and gold prices are languishing, yet the government has drastically increased its spending. Critics charge that it has overspent on pricey offices and golf courses, as well as public sector wages and subsidies for utilities and fuel. The result: investors have lost faith in Ghana’s ability to pay its debts.
Ghana’s cedi is the worst performing currency in the world this year. Its value has been nearly cut in half against the U.S. dollar, sparking a significant rise in the cost of living. Inflation, at 15 percent, is at a four year high and economic growth is slowing just as the nation faces a double digit budget deficit as a percent of GDP.
The economic crisis has led to a series of labor protests. News reports recount five separate demonstrations organized against Ghana’s government in July alone with the largest gathering thousands in the streets of all ten regional capitals. More protests are reportedly planned.
Yet an IMF bailout may not provide any immediate relief. Instead, it is likely to inflict marginal pain on Ghanaians as the IMF demands faster spending curbs that will impact public wages, subsidies, and taxes.
Moreover, Finance Minister Terkper told reporters that Ghana will continue to extend its borrowings, despite expensive terms. Bond yields are near 10 percent. Yet he said Ghana plans to seek over one billion dollars from international investors to fund new infrastructure projects and pay down debts. Terkper predicts an IMF package would increase the bond offer’s appeal, signaling that the IMF believes Ghana will improve its macroeconomic management.
But is that assumption correct? President Mahama has been a poor economic steward and stubbornly refused to go to the IMF amid claims that Ghana could fix its own problems, which it did not, or could not. And Ghana has been here before, having tapped the IMF multiple times.
Ghana had a golden opportunity in 2005, when as part of a global relief plan for poor nations, most of its debt was cleared. Yet today its economy is in shambles. The question remains: Is Ghana a stable and favorable investment destination, or is it a cyclical economy, beholden to a few volatile commodity markets with a government unable, or unwilling to exercise fiscal and economic restraint?