Debt restructuring, austerity and the IMF: a panacea or an exacerbation? — Part 4

Given the country’s past experience with the IMF, it is doubtful to what extent its latest cash infusion will help solve Ghana's long-term economic problems.

5 mins read
Katchatheevu island [ Photo Credit: Shalitha Chathuranga]

Link to part 3

National debt and human rights

The implication of debt on human rights is also of significant concern. Many countries in the world are either already in a debt crisis or approaching it. This is not a new phenomenon. Ability of many countries to service debt and meet the increasing demand for health services was made worse during the Covid pandemic[i]. According to reports, some governments chose to borrow more funds to support at-risk groups and build health infrastructure to respond to the pandemic. During this period, many countries faced this tough choice.

Due to the pandemic, all over the world tax revenues declined and debt repayments increased while demand for expenditure rose. This had a negative impact on the provision of health services everywhere. In particular, the focus on Covid-19 has often been at the expense of other health concerns. Lockdown protocols also further aggravated health disparities between rural and urban areas, against a stark historical backdrop of existing health services, often failing to meet universal human rights standards of availability, accessibility, acceptability, and quality.

Obligations of state

The UN Committee on Economic, Social and Cultural Rights (CESCR)[ii] has emphasised the obligation of states to respect, fulfil, and protect the right to health of their populations. This right is guaranteed under various international and regional treaties that many states have ratified, including Article 12 of the International Covenant on Economic, Social and Cultural Rights (ICESCR). This requires states to ensure the highest attainable standards of physical and mental health. Implementation of these obligations, however, has been hindered by budgetary constraints, corruption, and a lack of political will to prioritize health, even in countries that have ratified these agreements.

To hammer home the point, let me highlight the situation in Ghana, which is undergoing a similar process of restructuring as Sri Lanka is experiencing.

Ghana as a valuable lesson against austerity

Ghana has a similar economic and political trajectory to Lanka. It has been bailed out a number of times by the IMF, without tackling its structural issues of wastage of government revenue, corruption, nepotism and incompetence. It is a country whose economic model is based on products that are prey to global price fluctuations, and also suffering from a seeming inability to build an economy that meets the needs of the majority of its population, not a well-heeled minority.

Ghana is one of the world’s biggest cocoa producers and the leading gold producer in Africa. The price of goods has been on the rise at an average of 41% in the past year. Ghana overspent like Lanka during its good times. It did not save much to help when facing downturns or external shocks, which were largely caused by price cycles for its exports, oil, cocoa and gold, and also due to excessive fiscal spending during elections.

Ghana’s poly-crisis

Like Lanka, lacking fiscal discipline, and its practice of depending on foreign financing left Ghana vulnerable to investor speculation and investment selloffs. Starting in early 2022, Ghana faced a poly crisis, a complex of economic, financial and social crises. The real growth in GDP declined due to rising price pressures, mainly because of food and petroleum imports, and global supply chain bottlenecks that also contributed to rising inflation. To tame inflation, interest rates were hiked from 4.5 percentage points to 19%. The local currency, the Ghana cedi depreciated by almost 20% against the US dollar, making imports more expensive, thus escalating prices of goods and services.

Ghana technically defaulted on its domestic and international debt in February 2023. Ghana’s unsustainable debt levels forced it to seek an IMF bailout in July 2022. In mid-May 2023, the IMF granted Ghana a three-year loan package of USD 3 billion to help it restore macroeconomic stability. Its conditions were to reduce public debt from an estimated 105% to 55% of GDP by 2028. This was the 17th loan package Ghana had received from the IMF since 1957. So, every four years Ghana had to go to the IMF with the begging bowl.

Balance of payment crisis

This deficit in the balance of payments is supposed to be addressed partly by the IMF loan package. Ghana was forced to seek IMF assistance in dealing with global and local economic shocks, such as the economic slowdown in China, the global commodity price slump, irresponsible spending made during the elections in 2012 and 2016, and a protracted domestic electricity crisis. Of course, there were external economic shocks due to the COVID-19 pandemic and the Russo-Ukraine war. Yet, domestically, the regime was inefficient, and irresponsible in managing its finances. The country was burdened with excessive borrowing and led to a looming debt crisis.

Ghana’s debt comprises domestic dollar bonds, cocoa bills, pension funds and debt owed to the central bank. Ghana has reached an agreement with banks to restructure 15 billion Ghana cedi ($1.36 billion) of locally issued U.S. dollar bonds and cocoa bills[iii]. About 85 percent of eligible bondholders participated in this process. Ghana wishes to reduce its external debt interest repayments by $10.5 billion over the next three years under the IMF bailout secured in May this year.

Ghana received its first instalment of USD 600 million to be used to boost the country’s foreign currency reserves, help stabilise its currency, and support the budget. However, many believe that despite this IMF deal, Ghana is still not out of trouble. The receipt of further loan instalments depends on how Ghana performs in terms of external debt arrangements; socioeconomic reforms – austerity and necessary trade-offs; and central bank reforms.

Governance and “Winner takes all” approach

Ghana has deep structural economic problems that require a multi-stakeholder approach to resolve. Unfortunately, the entrenched pervasive system of governance of Ghana, like in Lanka, based on ‘winner takes all’ approach distorted a broad national dialogue on what has to be done and how it needs to be done. It must fix structural problems, such as over-reliance on exports of physical and human commodities, utilizing strategy of “export-led recovery.” In addition, society, particularly the privileged classes, needs to live within its means.

The country had virtually no foreign reserves, so it did not have any means to pay in USD for its imports. So, it’s no wonder many Ghanaians have been nervously waiting for the IMF bailout. As usual, to qualify for the IMF bailout, it had to undergo debt restructuring with its creditors. Ghana is going through lengthy negotiations with its creditors. Other leading agencies such as the World Bank have pledged to help the country come out of this messy situation. Investors are expected to return without fear of losing their money.

Ghana’s IMF experience

Given the country’s past experience with the IMF, it is doubtful to what extent its latest cash infusion will help solve Ghana’s long-term economic problems. As mentioned earlier, the most recent IMF assistance came in 2019. Like in Lanka, this need for regular assistance is the result of wastage and mismanagement and an inability to enlarge the economy for the benefit of all, by successive governments over many years. If there is no system change, the question remains whether the situation will get messy again. It could happen at the end of the three-year IMF bailout. Given past loans and an inability to bring in transparency, the rule of law, accountability and create an economy that benefits the majority of the population, the country could expect another bailout in the near future. This is a bleak scenario for Ghanaians who barely survive economically.

To better understand what this means for Lanka, let’s now look at what an IMF package contains for the island.

To be continued.


[i] How does public debt affect the right to health: Case studies in East and South Africa at, https://www.amnesty.org/en/latest/campaigns/2023/05/how-does-public-debt-affect-the-right-to-health-case-studies-in-east-and-southern-africa/

[ii] https://www.ohchr.org/en/treaty-bodies/cescr

[iii] Kwadjo N June 2023, Government, banks agree to restructure GHS 15bn of cocoa bills, local dollar bonds, https://www.businessworldghana.com/government-banks-agree-to-restructure-ghs-15bn-of-cocoa-bills-local-dollar-bonds/

Lionel Bopage

Lionel Bopage was an Editorial Adviser of Sri Lanka Guardian from 2010-2019. He is a passionate and independent activist, who has advocated and struggled for social justice, a fair-go and equity of opportunity for the oppressed in the world, where absolute uniformism, consumerism and maximisation of profit have become the predominant social values of humanity. Lionel was formerly a General Secretary of the Janatha Vimukthi Peramuna (JVP – Peoples’ Liberation Front) in Sri Lanka, and he now lives in exile in Australia.

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