“The rich rule over the poor, and the borrower is slave to the lender.” These are the words found in the Christian Bible, specifically Proverbs 22:7, and an economist believes this is what is playing out here in the matter of the recent International Monetary Fund’s (IMF) warning against the BoG’s intervention in the country’s forex market.
Dr. Paul Appiah Konadu, an economist and lecturer at the Pentecost University, argues that the IMF is emboldened to offer such a warning just for one major reason: Ghana is indebted to them.
He tells The High Street Journal he cannot fathom why the IMF would want to dictate the kind of exchange rate regime a sovereign country has chosen to operate, if not for Ghana’s indebtedness.
Economists described the IMF’s posture as a classic display of the biblical creditor asserting control over a struggling debtor. According to him, the warning is not rooted in international economic laws but in the dynamics of Ghana’s financial dependence on the IMF.
Ghana, he says, is operating a managed float or hybrid exchange rate regime against the fixed and floating regimes. Managed float, also known as the dirty float, allows the country to intervene in the market whenever the market forces are pushing the rate outside the optimal band.
He cited that there are a number of countries that operate this managed float system, which the IMF has not complained about.
But Dr. Appiah Konadu believes that the IMF’s grip on Ghana is more about control than policy credibility. For him, there are countries like Saudi Arabia and China doing far more aggressive currency interventions, but the IMF says nothing about them, because they haven’t borrowed or depend on the fund. But for Ghana, every action becomes a red flag.
What is playing out, he says, Ghana is in dire need and goes borrowing, and our creditor is forcing us to do things we would otherwise not do.
Under Ghana’s three-year IMF-supported programme, the country is expected to adhere strictly to a set of conditions, including limits on central bank intervention in the forex market. The IMF argues that such interventions can distort market signals and delay structural reforms.
But the economist cannot fathom why a country that has built over $10 billion in foreign reserves, thanks in part to the Gold for Reserves initiative, should sit aloof as its currency fluctuates. If we have the reserves, and if we can still meet our debt obligations, then the central bank must have the flexibility to support the cedi.
