The government is in a stronger position than when it announced the talks in August because it launched a $1 billion Eurobond at a rate that surprised the market last week. It has also secured a record $1.7 billion loan to fund cocoa purchases.
That money and seasonal inflows from cocoa will boost government coffers, but Accra is still grappling with underlying problems such as inflation close to 16 per cent and a budget deficit above 10 per cent since 2012.
(WATCH VIDEO: Proposed public sector job cuts in Ghana)
The government can agree with the Fund to expand its tax base and trim some services. However, with public sector wages accounting for 70 per cent of expenditure, it faces the tricky task of pushing through reforms ahead of an election in 2016.
“Once the IMF says you have to cut public spending, freeze salaries and sell more state assets, I can’t see any of the recommendations not being politically controversial,” Sebastian Spio-Garbrah, managing director of DaMina Advisors.
Ghana’s Trades Union Congress has urged the government to pursue its own reforms rather than accept IMF austerity. It says workers are already struggling and Fund reforms never last.
It wasn’t supposed to be this way. When Ghana discovered oil in 2007, many said it heralded an era of prosperity for the West African state that already exported cocoa and gold.
Gross domestic product growth spiked to nearly 15 per cent in 2011, the first full year of oil production, making the country a model for the region as it appeared to combine rapid growth and a stable democracy.
Now it finds itself afflicted by a problem faced by many countries that export raw commodities and import nearly everything else: how to sustain growth in an unbalanced economy?
The problem was worsened by a civil service reform policy that dramatically raised spending in 2012.
“Ghana has lost all sympathy and there is no trust. They have had three years of deficits over 10 per cent. That is unheard of,” said a senior international economist.
NO MARGIN FOR ERROR
Ghana’s team at the talks is led by former finance minister Kwesi Botchwey. He will be joined by Finance Minister Seth Terkper, Bank Governor Henry Kofi Wampah and others.
This has raised eyebrows, given that the finance minister must sign off on any deal, but President John Mahama told Reuters he brought in fresh blood to broaden advice.
The initial talks will audit expenditure and revenue and no deal is expected before November, government sources said.
The clamour for progress is high, not least from business leaders who complain that fiscal instability hurts producers suffering interest rates far higher than the central bank’s policy rate, which stands at 19.0 per cent.
The bank is likely to hold its policy rate on Wednesday at 19.0 per cent, according to a Reuters poll.
“It (the economy) is hurting so much,” said Ato Pamford, vice president of the Association of Ghana Industries. He said interest rates, inflation and power cuts all hurt business.
Mahama said his vision was for much wider transformation of the economy than simply restoring short-term fiscal balance.
To do that, the government will need to explain the need for austerity and its long-term plans to voters, as well as take steps that satisfy investors, according to analysts.
“There is little room to disappoint markets,” said Razia Khan, head of Africa global research at Standard Chartered Bank.