Ghana will begin talks with the International Monetary Fund to support the government’s economic program, reversing a policy decision not to seek assistance from the multilateral lender. Some analysts say Nigeria will have to go the same way after next year’s presidential election.
The government in Accra, which had repeatedly said it would not seek a monetary program from the IMF, plans to borrow $1 billion from commercial and multilateral lenders by mid-July, Finance Minister Ken Ofori-Atta told Bloomberg in May.
Ghana’s President Nana Akufo-Addo has authorized his finance minister Ken Ofori-Atta to immediately start “formal engagements” after a phone conversation with IMF Managing Director Kristalina Georgieva, the Information Ministry said in a statement on Friday.
Like Nigeria, the debt market is shutting against Ghana with the West African nation’s Eurobonds surging after the announcement, with the benchmark 2027 securities climbing 7.5% to 61.5 cents in the dollar by 1:24 p.m. in London.
“Debt sustainability now requires sharper focus,” Jibran Qureishi, head of African research at Standard Bank Group Ltd., said in an interview with Bloomberg News.
Ghana, Africa’s second-biggest cocoa and gold producer has increased its key interest rate by 450 basis points this year — the second-largest margin on the continent — to stem a sell-off of government bonds and contain price pressures.
Inflation accelerated to a more than 18-year high of 27.6% in May and Ghana’s cedi is the worst-performing African currency, weakening 22.6% since the beginning of the year.
Ghana’s dollar reserves dropped to $8.3 billion at the end of April from $9.7 billion at the end of last year, according to the central bank. The country’s public debt increased to 78% of gross do mestic product at the end of March, compared with 76.6% at the end of December 2021 Ghana’s fiscal crisis mirrors that of its neighbour Nigeria whose fiscal buffers have been completely eroded and which withdrew from a Eurobond issuance last month on account of rising cost.
While oil price is rising, Nigeria’s economy is hobbled by falling oil production and a debilitating petrol subsidy regime that is bringing Africa’s largest economy to its knee.
On the economic front, the situation is even more dire.
Since Buhari took power in 2015, Nigeria has suffered two debilitating economic contractions that continue to ripple through with disastrous consequences for the people.
Poverty is rife compounded by ever-rising inflation and Nigeria is approaching a fiscal cliff with severe debt servicing that consumes virtually all government revenues. With no end in sight to the double whammy of soaring petrol subsidy and plunging crude oil production, the World Bank warned a week ago that a fiscal time bomb could explode in Nigeria.
According to the bank, “despite rising oil and gas revenues for the Federation, deductions for the petrol subsidy are causing stagnation in net oil and gas revenues transferred to the Federation Account. Many states are expected to see a drop in federation revenue transfers in 2022 despite growing expenditure needs,” the bank said.
Poverty is surging and the number of out-of-school children in Nigeria is now the highest in the world, with the country accounting for one in every five of the world’s out of school children according to UNICEF data.
In the two years from 2018, the country dropped three places from 158 to 161 in the Global Human Development Index, HDI published by the United Nations Development Programme, UNDP and is a measure for assessing long-term progress in three basic dimensions of human development: a long and healthy life, access to knowledge and a decent standard of living.
Read also: Fitch lashes at CBN’s methods, says causing damage to Nigeria’s economy
Nigeria is also in the throes of an inflation crisis which the Economist Intelligence Unit, EIU recently said is being worsened by the country’s central bank. According to the EIU, “the CBN has continued to print money for the federal government, whose overdraft facility with the CBN reached N19trn (US$46bn) in April 2022, up from N17.4trn at end 2021.
The CBN is also operating a range of direct lending schemes for the agricultural, manufacturing and energy sectors, currently totalling about N3.6trn (US$9bn).” All these make nonsense of the apex bank’s monetary tightening initiatives.
Added to this, prices of commodities continue to gallop with annualized inflation in Nigeria surging from 9% in 2015 to today’s 17.17%. Everyone is hurting and a good chunk of the country’s middle class is being wiped out. A new report by SB Morgen, titled ‘Nigeria’s History of Inflation: A Tale of the Destruction of Value’, identified the 2019 border closure by Buhari, high import tariffs, petrol subsidy, and the current exchange rate regime of the Central Bank of Nigeria as major factors stifling supply, thus fuelling a surge in prices of various commodities which leave the people poorer.
“All of these unorthodox policies have ensured that inflation remains firmly in the double-digit realm under the Buhari administration, while purchasing power has more than halved, wiping out large sections of the middle class,” the report said.
“These policies have also seen to it that most of the institutional safeguards put in place after the return to democracy to foster responsible fiscal and monetary policy as well as put inflation in check have been disregarded and rendered redundant,” the report added. The country’s fiscal deficit which stood at N800bn in the whole of 2015 climbed to N7.3trn in 2021.
Experts say President Muhammadu Buhari’s failure has been exacerbated by the collapse of the economy. In 2014, Nigeria attracted $4.7bn in foreign direct investment. Last year, this figure slumped to a mere $669m on account of Buhari’s policy options that have helped to create an unfriendly investment climate in Nigeria.
On Thursday, the global rating agency, Fitch took a swipe at the country’s central bank and its unorthodox policies which it said were worsening the economic crisis.
In a report, Fitch said, “the CBN is using these discretionary measures to inject or withdraw liquidity from the financial system, as well as influencing borrowing costs for specific sectors through various loan guarantees and direct support facilities.
“This has made monetary policy difficult to gauge and created a segmented interest-rate environment, impeding the transmission of monetary policy. The CBN adopted the Investor and Exporter (IEFX) window as the official exchange rate in May 2021. However, it continues to use administrative controls to manage the demand for foreign exchange, which has caused economically damaging shortages.“
Fitch said because it expects the apex bank’s complex and unorthodox monetary approach to continue, Nigeria should not expect a “significant strengthening of macroeconomic performance in the near term, despite the supportive effects of higher global oil prices for the economy.”
Fitch said “the central bank’s inflation-fighting efforts have been complicated further by its lending to the federal government.”
