The International Monetary Fund as well as the International Bank for Reconstruction and Development, popularly known as the World Bank – (together called the Bretton Woods institutions because they were conceived out of a UN Monetary and Financial Conference that took place in that US tourist resort from July 1 to 22 of 1944 – were formed by the Allied Powers because a way had to be found to rebuild much of the world after the devastation caused the by World War II, which was in its dying embers at the time.
It began operating in 1947; and in the seventy-five years of its existence, it has grown from its original forty-four members to include all independent countries of the world (you’d have to be an independent country in order to join).
Since most African countries gained independence after 1960, virtually all African leaders have rushed to the IMF, cup in hand, to benefit from the generous financial packages it often doles out; and in Ghana’s situation all governments have, at a point, approached the institution for financial help and how to run the economy anytime the going got tough.
The current government vowed to make the country independent of foreign financial help with its ‘Ghana beyond Aid’ rhetoric but it has been forced to eat its words as the worsening economic situation in the country has forced it to approach to IMF for a US$3billion loan (it initially asked for a conservative US$1.5billion).
Zambia is a southern African country; and it is also Africa’s second-biggest copper producer, with the metal being its biggest export commodity.
Overdependence on export earnings from copper had made it a backward country for much of its existence as an independent country; and when President Hakainde Hichilema took office in late 2021, he quickly rushed to the IMF. In a few months he had secured a US$1.4billion economic structural adjustment programme with the institution.
And by June this year, he had been able to bring inflation down from 24.4 percent in August 2021, when he took office, to a single digit figure of 9.7 percent.
The Zambian currency, the kwacha, which was struggling against the dollar when he took office, has also been the world’s best performing currency against the dollar for much of the year; though it is now the second best-performing currency, closing the year with a nearly 7 percent gain against the dollar.
The structural adjustment deal came with a range of austerity measures that were unpopular; such as making Hichilema increase fuel prices and requiring him to scrap fuel subsidies that had kept fuel prices artificially low for some time. Fuel prices will also be reviewed upward twice every month instead of once every month.
The deal also required electricity prices to go up, and Hichilema has hinted that he will increase it by 13 percent soon. These measures are to force Zambians to pay realistic prices for energy, and to bring the country at par and in sync with its neighbours and the rest of the developing world as far as energy prices are concerned. The measures are designed for the future, and they are already yielding great results. His enemies had torn at him, saying these measures would increase inflation as raising energy prices ultimately raised the prices of goods and services.
The only measure that proved popular is his removal of customs duty on importing cattle and chicken breeding, lifting the pressure on the prices of meat – a key driver of inflation. In Ghana, the NPP government, in a similar move, has scrapped road tolls. While this has not brought transport fares down, it has eased the pressure on the transport sector, a key driver of inflation in Ghana’s economy.
While the rest of the developing countries are reeling from the hardships and the shocks caused by the disruption of global food and fuel supply chains as a result of the unforeseen war in Ukraine, Zambia has been a rare success story. Will Ghana going to the IMF hold similar good tidings for the country? Will inflation, which remains stubbornly high -hovering around 34 percent – be tackled? Let us cross our fingers and hope so.
The writer is the executive president of Africa Growth Foundation, a policy think-and-do.
Email him: [email protected]
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