Runaway inflation and soaring food prices have compelled Ghana and Zambia to seek bailouts from the International Monetary Fund. This week, traders across Ghana closed shop to protest the worsening economy.
Ghana and Zambia are in negotiations with the International Monetary Fund (IMF) for bailouts to shore up their battered economies and prevent commodity prices from spiraling completely out of control.
In August,the IMF approved a $1.3 billion (€1.03 billion) portion of the $8.4 billion that Zambia needs to restore its economy. Ghana started its negotiations for a bailout of $3 billion (€3.07 billion) with the institution in late September. The government has said it hopes to reach a deal by the end of the year.
After meeting with Ghanaian officials on October 20, the IMF said its staff had “fruitful” discussions with the West African country on economic growth and reform plans.
Ghana’s year-on-year inflation came in at 45% in September, according to the country’s statistics service. The runaway inflation is compounding misery for citizens of the country that is struggling to keep its economy stable.
Traders protest economic climate
In Ghana’s capital Accra on Wednesday, the ordinarily bustling central business district was quiet as traders closed their shops as a protest over the worsening economic climate.
The Ghanaian cedi this week plummeted to a new low of 12.3 to the US dollar as inflation surges despite repeated rates increases by the central bank. The traders said IMF support for Ghana was not coming fast enough.
“It’s because of this dollar situation that we closed the shop. Day in and day out, the dollar is going up now. It’s too much for us,” Francis Fynn, who has managed his family’s small stationery store for two decades, told Reuters.
He said he can’t afford to buy books and paper from his suppliers because of the worsening exchange rate. “We decided to close the shops in hopes of sitting down with the government so we can negotiate things,” Fynn said.
Like most of the traders who are protesting, Francis Fynn is a member of the Ghana Union of Traders Association (GUTA). The union has urged its members to suspend operations until October 24.
More than half of the shops in one downtown market street in Accra were closed on Friday. Bookseller Alfred Kobina Otsiwah, who is not a GUTA member, said that although his business was suffering too he did not see the protest as a solution.
“If we close our shops until Monday, the government isn’t going to reduce the dollar rate because of that. The rate will likely even increase by then. Who loses?” Otsiwah said. “Closing the shop, I don’t see it as putting food on my table.”
The Council of State, which advises President Nana Akufo-Addo, had by Friday failed to persuade traders to reopen their shops. The government provided no comment.
On Monday, scores of traders booed Akufo-Addo when he went to inspect government projects in the Ashanti Region, the stronghold of his New Patriotic Party (NPP). The traders said they were not pleased with the economic crisis.
High prices and interest rates
Low sales has left John Kwame Appiah sitting around, visibly distressed, at his electrical store at Ghana’s biggest trade center. For two decades, and with the help of five employees, Appiah has traded in a variety of electrical appliances at the Makola market.
The economic crisis has meant he has had to lay off some employees. “Prices of goods have gone very high, affecting traders terribly. As a result, we are all losing our capital, as I tell you now because things are not good at all, and when it comes to the purchasing power of the average Ghanaian, it has reduced drastically,” Appiah told DW.
“Now people cannot come to town to buy what they want. Fuel prices have increased, which is also difficult for an average Ghanaian trader.”
Makola market stationary seller, Maame Yaa Akan, told DW how she was struggling to keep her business afloat. “Prices keep increasing daily, and our customers always complain about the daily changes. I am struggling a lot; my husband doesn’t have a well-paying job, so I have to take care of our kids with this business.”
Economist and entrepreneur Tsonam Cleanse Akpeloo told DW that Ghana could have avoided an economic crisis had the government capped its spending.
“The challenge is that we’ve got issues with excessive borrowing, and we lack discipline in our fiscal conduct,” Akpeloo said. Ghana has reached extremely unsustainable debt levels, putting us in this tight corner. An IMF bailout would help Ghana to achieve “discipline and sanity” in its economic sphere he said.
“I think the IMF bailout package will positively impact the economy and make business boom again,” Kwame Appiah said. “But the government should think about developing better policies to tame the situation.”
Zambia still has struggled with high debt too, with the level reaching 133% of GDP last year, according to IMF estimates. The southern African country had engaged in years of economic mismanagement and reckless lending from countries such as France, the United Kingdom and China.
Hopes pinned on bailout
Zambian President Hakainde Hichilema and the IMF Managing Director Kristalina Georgieva agreed on a bailout to boost economic growth.
“We are proud to support the Zambian government’s action to restore macroeconomic stability, increase much-needed social spending, and strengthen economic governance and transparency,” Georgieva said.
Zambians with businesses that were limping along, hope to thrive as a result of the bailout.
Anna Chanda, an entrepreneur and livestock farmer in the capital Lusaka, told DW that animal feed prices had increased exponentially, cutting into her profits. Chanda is forced to keep her own relatively low or face losing customers.
“Customers are not coming through, and business has been very slow. Also, as a consumer, I have to be mindful of how much I spend on the animal feed monthly,” Chanda told DW.
In an interview with DW, Lusaka resident Bwembya Kapapa said: “The economy is not doing well and we hope that the IMF bailout will be good for the country.”
Restructured debt for Zambia
Development Economist Alexander Nkosi is cautiously optimistic that the bailout will boost Zambia’s economy in light of the country’s low interest rates and long repayment periods. “With an IMF programme, the international community now has confidence in us, in the sense that we are being monitored and don’t repeat the same mistakes that landed us into economic problems in the first place,” Nkosi told DW.
“So, we expect increased investments due to being on this programme, and it will be easy for Zambia to access concessional loans.”
China and France, Zambia’s top creditors, reluctantly agreed to restructure its debt after pressure from the IMF and the World Bank. Economist Nkosi suggests that President Hichilema should pay a courtesy visit to his Chinese counterpart Xi Jinping and lobby directly to speed up that process.
“The Chinese are owed huge amounts of money and, at the same time, have interests in African countries like us. So, they would also want to secure their investments as these negotiations are going on.”
At the height of the COVID-19 pandemic in 2020, Zambia became the first African country to default on its sovereign debt, estimated at $17.3 billion in 2020. The impact of the war in Ukraine has also contributed to the economic crisis.
Isaac Kaledzi in Accra and Glory Mushinge in Lusaka contributed to this article
Edited by: Benita van Eyssen