John Lipsky, the first Deputy Managing Director of the International Monetary Fund (IMF), received severe criticisms from civil society groups in Ghana following his argument during a visit to Ghana that subsidies are not always good. According to him, it must not be encouraged because it mostly goes to benefit only the rich.
His statement was not taken kindly at all- especially when Ghana’s economic woes have, partly, been blamed on the IMF and its sister, the World Bank. When he met Parliamentarians later however, Mr. Lipsky defended the Fund’s past actions saying; “loans are tailored closely to member-country’s needs, so that we can disburse low-cost funds quickly when a country has a temporary, urgent needs, or we can set up arrangements for disbursement over several years when this is appropriate.”
The IMF deputy MD said the Fund’s approach to how individual countries manage public borrowing today has given countries flexible options especially with “strong macroeconomic and public debt performance and with well developed debt management institutions.”
He mentioned that Ghana has benefited from such a policy, adding that one of the Fund’s operations on the African continent last year was the $600 million package spread over a period of three years for Ghana. Cameroon and Tanzania are the other beneficiaries.
“The conditions on our financial arrangements have also been made more flexible.”
According to Mr. Lipsky, the Fund’s goal is to focus its conditionality on reforms that would yield economic success “while ensuring that countries have the opportunity to follow policy approaches that are appropriate for their circumstances.”
“We want to work with our members to explore a variety of options for economic reforms that will generate real progress.”
He said the IMF is also encouraged by the many African countries, including Ghana, who have been able to survive the economic meltdown and are now doing better than most countries in the world.
“In considerable part, this is because of the earlier strengthening of monetary and budget polices, as well as structural reform in many countries.”
He said,” African central banks started the crisis with stronger international reserve positions than in the past, providing a cushion against balance of payments shocks.”
Again, he said the Fund also played a crucial role in this regard by offering debt relief because, according to him, it freed up resources that could be used to improve the business environment, invest in infrastructure, and support the poor.
“But with a legacy from the global recession of sluggish growth and higher poverty, it will be critical for African countries to raise their growth performance further, to help accelerate job creation and boost incomes.”
However, Mr Lipsky said an improved business climate and macroeconomic management will equally be essential in this regard.
Touching on the Ghana’s relationship with the IMF, he said the country turned to the Fund because of the public debt snowballing and the depreciation of the cedi, as well as high inflation. He said the three year programme centred on fiscal adjustments and on reforms to budget management to prepare Ghana for “the transition to oil producer status.”
“Not everything is rosy, of course. The deficit is still far too high, and public debt is still rising. Large-scale government borrowing is keeping interest rates high, which means more out-of-pocket costs for repayment.”