Gov't Likely To Avoid IMF Bail-Out - EIU

Government is likely to hold off mounting pressure to seek a bail-out from the International Monetary Fund (IMF) to lessen the burden of its fiscal challenges in order to favour its re-election bid in the 2016 polls, the Economic Intelligence Unit (EIU) has predicted.

The Finance Minister Seth Terkper, last month, told BFT government has not ruled out the possibility of a bail-out from the Fund, saying that "it becomes necessary we'll fall on the fund".

But Phillip Walker, an economist with the London-based EIU told the BFT that, with the 2016 elections within sight, government is likely to defy the urge for a bailout in order not to give "ammunition" to its political opponents.

Economist, and former presidential running mate to New Patriotic Party's Nana Akufo-Addo, Dr. Mahamudu Bawumia, at a lecture last month, predicted that government is likely to seek an IMF cover by year- end if the dire fiscal situation does not improve.

Meanwhile, there are increasing worries over the large fiscal and current account deficits and the damaging rate of depreciation of the cedi.

IMF programmes, which involve critical financial support for a government to tackle mostly external economic pressures in exchange for a commitment to strict economic discipline, are hardly popular in any nation - and the fact that this is seen as an option underlines both the dire economic situation and government's strong will to tackle short-term volatilities.

With the ruling National Democratic Congress (NDC) seeking a historic third consecutive victory at the polls, Mr. Walker said the government will not be in a position to shoulder constraints on its spending particularly in an election year.

IMF bailouts come with significant strings attached, and sometimes put the Fund in a situation where it micro-manages a country's economy.

Spending overrun in an election year is common in the country, as every government attempts to boost its popularity with unplanned spending on wages and infrastructure development.

This overrun is mostly responsible for the 12.1% budget deficit recorded in 2012.

Nevertheless, the EIU warns that government should not expect a quick-fix should it opt for a bailout. “IMF assistance would help a little, but the Fund does not have a magic wand, nor will it write a blank-cheque,” Mr. Walker said.

Source: B&FT