Ghana's high inflation worsens living conditions

Benjamin Yeboah, an Accra-based trader, is struggling to stay in business due to the high cost of importing and clearing his goods from Ghanaian ports.

He is a retailer who sells all kinds of merchandized products and is feeling the pinch of the current economic crisis facing the West African nation.

"We have had some problems with the cost of ... clearance at the ports ... then after COVID it has even gone worst," Yeboah told DW.

Yeboah has to contend with the high "cost of clearing them together with other port charges, levies and duties" on the products.

He pointed out that the cost of freight has increased due to the depreciating value of the Ghanaian currency, the cedi. And he's not just dealing with high import taxes — but also the recent hike in fuel prices.

"Immediately fuel prices go up, it affects lots of things and that also affected us," Yeboah said, justifying the increasing prices of his own products.

Highest inflation in two decades

Ghana's inflation rate was around 30% in June — resulting in the highest cost of living in two decades. 

Prices of food and other goods are rising daily, worsening living conditions for ordinary consumers.

Teacher unions went on strike to demand a 20% payment for a so-called cost of living allowance. They only called off the action when the government agreed to pay them 15%.

Yeboah said Ghana's current economic challenges "haven't been easy and it is still not easy now."

He is not the only one feeling the pinch of the country's skyrocketing prices.

Prince Essien, who works in Accra's private sector, told DW that the "cost of living in Ghana is very expensive these days."

Essien who used to spend $3 a day on food now has to spend more than double that amount due to the high inflation.

And that's not to mention Essien's other expenses. He explained that "paying bills and paying rent and other utilities, it is very difficult … I have families and other things that one way or the other that I need to support them."

Essien's salary hasn't increased for more than two years. He said he "needs at least $125 to cover his monthly expenses" — an amount of money that's he struggles to raise.

What caused the crisis?

Ghana's government has conceded that the country's economy is in dire straits, yet refuses to accept responsibility for mismanaging the country's finances. Rather, it rather points the finger of blame on the COVID pandemic and Russia's invasion of Ukraine.

Even before the pandemic hit and Russia invaded Ukraine, there were concerns about the country's public debt — which now stands at $45.5 billion with a corresponding debt-to-GDP ratio of more than 77%, according to 2021 central bank figures.

Some analysts say that the debt-to-GDP ratio has already jumped past the 81% mark and, with the government unable to find a solution, going to the International Monetary Fund (IMF) for a bailout appeared imminent.

This month, the government announced that it was engaging the IMF to seek extra funding to cushion the economy.

It was a sudden U-turn by the government whose key policy advisors and cabinet ministers vowed that Ghana wouldn't go back to the IMF for a program.

Another 'good deal'

If Ghana secures an IMF bailout program, it would be its second in eight years. It would also be the 18th time the fund comes to Ghana's rescue.

Its previous three-year deal was extended by another year, ending in 2019, which saw $918 million in support.

Ghana reportedly hopes to secure a deal worth $2 billion this time round.

Ghanaian President Nana Akufo-Addo — who has in the past touted the mantra of "Ghana-Beyond-Aid" — told party supporters over the weekend that his government is "going to negotiate a good deal with the IMF. A deal that would allow us to revive our economy and to continue the task of building an even stronger economy than we had before."

The government is coming under a lot of criticism for what critics say is the poor management of the economy, which began even before the coronavirus pandemic and the war in Ukraine.

Excess spending

Ghanaian economist Tsonam Cleanse Akpeloo told DW that the decision to run to the IMF was "to be expected because the country relied very heavily on imports."

"In fact about 70% of things used in the country are imported so any distortion in the international global economic order will affect us [Ghana]," Akpeloo said.

He added that Ghana's economy had already been struggling, so the pandemic and the Ukraine war were only going to send it into a state of high distress.

Ghana's government has also been criticized for spending excessively at a time when its revenue mobilization was in crisis. That was one of the major causes of the current economic woes, according to some analysts.

"At the end of the day because of the high expenditure and for that matter high spending vis-a-vis decreasing levels of revenue, there was no option for government than to resort to going to IMF in order to restore fiscal discipline," Akpeloo said.

Struggling to borrow amid poor ratings

Ghana has spent on average $19.6 billion just to service interest payments on previous borrowing.

Rating agencies have already downgraded Ghana's economy, making it difficult for the government to borrow more.

The government pushed through an electronic levy on mobile money transactions, a policy that received a lot of opposition from Ghanaians and led to a reduced patronage of electronic payment systems.

The expected revenue from the new tax fell below expectations and with no other way to shore up the country's finances, the president ordered for a negotiation with the IMF for a bailout.

Akpeloo said Ghana doesn't lack resources to maintain a vibrant economy, but what it lacked was "discipline. The discipline to spend."

The Akufo-Addo government won the 2016 election on the promise of ambitious programs like free senior high school, and the building of factories in every district of Ghana among others.

Such social programs have been identified as contributing to the government's high-spending portfolio.

According to Akpeloo, "most of the decisions [government programs] are more political than economic, which is unfortunate."

For him it is important that governments are more disciplined in spending since most of their projects "are so ambitious without corresponding source of revenue financing so there is always deficit financing and putting enormous pressure on the public purse."

Implication of an IMF program

There are fears that an IMF-backed program will signal the end to some of the ambitious social intervention programs — something that can ultimately hurt ordinary citizens.

Akufo-Addo assured that "we will be in a position, not only to negotiate, but implement a good arrangement. We have done it before and we will do it again."

Often under such austerity measures, focus is placed on cutting government spending in the short-term to restore long-term fiscal stability and restore investor confidence in the economy.

Workers unions such as the Ghana Trades Union Congress (TUC) have already condemned the decision to go to the IMF, fearing a freeze on hiring public sector workers.

In a statement, the TUC said going to the IMF wasn't good for Ghanaian workers, insisting the solution to the country's economy doesn't lie in organizations like IMF.

A female student in a public university, Sally Borkete-La told DW that it is becoming routine for Ghana to approach the IMF — something she abhors.

"It is too much [borrowing] because Ghana has gone for a lot of loans. Just this government, it has gone for a lot of loans. It's too high, they going for more is just going to cause much damage," she said.

Another woman, Naa Norley Nortey, told DW that although the IMF is there for Ghana to borrow money from, "there is one disadvantage of IMF." She refered to the spiraling debt and interest payments which future governments ultimately have to deal with.

Securing a deal

For Yeboah — who is also a leader of a traders association in Ghana — the government's decision to seek an IMF bailout could be legitimate.

"They have the data and if looking at the data, they feel that at this crucial time it is best going to the IMF, we as traders we are always looking for best out of the lot," Yeboah said.

According to him, traders want the economic situation to improve, but are not prepared for austerity measures that mean more taxes.

"All that we pray is that we don't get taxes going up again, because the taxes are already high and therefore if they could really cut down certain expenditure, check some tax exemptions and other loopholes, I think we would be on the right path," Yeboah explained.

An IMF team has already visited Ghana to hold initial talks with Ghanaian officials.

Akpeloo told DW that once a deal is secured there would be implications for Ghana's economy.

"In the immediate terms an IMF program will help stabilize the economy and restore discipline which has been lacking. So that discipline which is lacking will be restored. At least in the short-term," he said.

Ending the IMF-cycle

According to Akpeloo, over time the deal should put the economy back on track.

But he had some reservations, saying "the only challenge would be the future of it, because it looks like it is cyclical, like after every four years you go back and it is really not good for a country which is yearning to be developed."

Akpeloo said it is an indictment on managers of the economy to always enter into an IMF program in order to be disciplined with spending.

"You don't need an IMF to be disciplined. As a nation you have to demonstrate that on your own, you can be disciplined, fiscally," Akpeloo said. 

"You should be able to spend on things that are sustainable and that the excessive profligate spending that has characterized our political activities has to be minimized."

Ghana is running out of time, though, to salvage its economy with the IMF team that visited the country this month saying in a statement that it's "fiscal and debt vulnerabilities are worsening fast amid an increasingly difficult external environment," the IMF said after the team's visit this month.

The statement said "an IMF-supported program aims to provide space for Ghana to implement policies."

There is no signal suggesting when the next meeting will take place, but should a deal happen it could take months, and likely that would be in 2023.

Edited by Keith Walker