After its 16th bail-out, Ghana hopes to put theIMF behind itDebt is back under control, but an election is coming upMiddle East & AfricaJun 22nd 2019 editionJun 22nd 2019ACCRASirens wailing, a black government car pushes through the traffic, past the beggars and streetvendors, up a potholed road. Vehicles like these, the perks of a growing number of politicalappointees, are a common sight in Accra—and a source of popular outrage. Since NanaAkufo-Addo took office as president in January 2017 the number of government ministershas soared by 42% to 125, each with a car, guards and a taxpayer-funded home.Outside Ghana Mr Akufo-Addo has been hailed as a hero. When he was sworn in, it was as ifhe was a passenger in a plummeting aeroplane who had just been handed the controls. Hispredecessor, John Mahama, had taken a high-flying economy—growth was 17% in 2011thanks to the first production of oil from its Jubilee Field—and promptly put it into a nosedive. Under Mr Mahama inflation soared, the economy slowed and public debt ballooned,with much of the borrowed money squandered on higher wages for public employees.After taking the controls Mr Akufo-Addo said he would deliver “Ghana Beyond Aid”. Heswiftly imposed discipline on government spending (new ministers notwithstanding).Fifty-three years after the imf first bailed out Ghana, the 16th rescue package for thecountry ended in April. The fund now praises the government’s economic management. Aglowing staff report said Ghana had tamed inflation (which fell back to 9% this year afterreaching 17% in 2016). It also won acclaim for cleaning up rotten banks and achieving abudget surplus (before interest payments).Yet the praise should be tempered. Some 3.1m people, or about one-tenth of thepopulation, live on less than $1.90 per day, the World Bank’s measure of extreme poverty.It has been a stubborn problem. Although Ghana cut its poverty rate in half in the 20 yearsto 2013, most of that progress occurred in the 1990s, when it fell by almost two percentagepoints a year. Since 2006 progress has slowed to about one percentage point per year. Many of the government’s flagship investment programmes have been sunk bymismanagement. One especially embarrassing example is that of the Komenda SugarFactory, which was built three years ago with a loan from the Indian government, andwhich was supposed to provide more than 7,000 jobs. Yet it is idle because it does not haveany sugar cane to process. In all about one-third of infrastructure projects in Ghana arenever finished. Worse still, many were paid for with borrowed money. A rebasing of gdp last year hasflattered the country’s balance-sheet. Ghana’s debt-to-gdp ratio, which hit 73% in 2016,looks quite tame this year at 62% (it would have been 76% under the old gdp measure).But simply changing the estimated size of the economy does not magically bring in moretax. Interest payments still consume one-third of government revenues, which is more thanit spends on education or health. Increasing the amount raised in taxes will be tough,because most of the economy is informal. The imf notes that taxes make up a smaller shareof gdp (14% in Ghana) than in most other developing countries and classifies it as being at“high risk of debt distress”.Investors are also wary and demand much higher interest rates to hold Ghana’s foreigncurrency bonds compared with Nigeria’s or Kenya’s. One reason is that they worry thegovernment will start spending freely ahead of elections in 2020, as governments oftenhave in the past. Gregory Smith of Renaissance Capital, a bank, points out that budgetdeficits were almost one percentage point of gdp higher in each of the seven election yearssince 1990 than in non-election years. The trend has accelerated: in 2012 and 2016 deficitsballooned by almost three percentage points of gdp.Mr Akufo-Addo won the election in 2016 with the preposterous promise of a factory inevery district. This time he might do better by breaking the old pattern of running up debtsbefore an election, only to turn to the imf afterwards for another bail-out.


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