Is the IMF changing its ways?
The Post-Washington Consensus and Poverty in
Ghana
By: Daan van den Hoven Student number: 10277412 Supervisor: Sebastian Kraphol
Thesis group: The Politics of Development Date: 30-01-2019
Abstract
This thesis set out to explore the relationship between the International Monetary Fund’s (IMF) conditionality policy and poverty. Existing academic literature is inconclusive on two aspects of this topic. Firstly, whether the IMF has shifted its approach to development from the paradigm of the Washington Consensus to that of the Post-Washington Consensus. Secondly, whether current IMF policy positively affects poverty levels. To examine these aspects this thesis employs a comparative case study. The country of Ghana’s dealings with the IMF from 1987 to 1993 and 2009 to 2018 are analyzed and compared. In the end it is found that the IMF only partly changed its ways; there is a newfound focus on good
governance, but social policies are surprisingly lacking. This did not lead to bad outcomes in poverty though. Ghana experienced steady economic growth and poverty has gone down significantly since the 1990’s, although this decline stagnated after 2012. The IMF’s role is ambiguous though because their lack of involvement in social policies.
Table of contents
1.Introduction………..……….3 1.1 Literature review and research question………...……….………….3
1.2 Thesis structure………..……….…4
2. Theoretical Framework………..…….…..5
2.1 Washington Consensus………..……...5
2.2 What went wrong?...6
2.3 Post-Washington Consensus………...…...7
2.4 Hypothesis……….….8
3. Research design………....9
3.1 Case selection……….…9
3.2 Data and operationalization……….10
4. Background………..….10
4.1 Ghana……….10
4.2 IMF and Conditionality………...11
5. Analysis……….….12
5.1 The IMF and Ghana 1987-1993……….12
5.1.1 IMF conditionality in Ghana 1987-1993………...12
5.1.2 Ghana policy behaviour 1987-1993………...………...13
5.1.3 Outcomes in poverty 1987- 1993………..…16
5.2 Ghana between periods………..17
5.3 The IMF and Ghana 2009-2018………....17
5.3.1 IMF conditionality in Ghana 2009-2018………...17
5.3.2 Ghana policy behaviour 2009-2018………..………..….19
5.3.3 Outcomes in Human Development 2009-2018………..…20
5.4 Discussion of results and summary ……….…...22
6. Conclusion and Discussion………...…22
7. Sources……….…23
1. Introduction
The International Monetary Fund (IMF) has been at the forefront of developmental economics for decades, both in developing theory and in putting that theory into practice. During the 1980’s
but after heavy criticisms and disappointing results it was forced to be replaced by something new (Stiglitz, 2001; Easterly, 2000). In the beginning of the 2000’s the Post-Washington
Consensus (PWC) came to be the new governing paradigm in development economics. With a broader en more modern view on development and sustainable growth it is supposed to face the shortcomings of its predecessor and make economic development more humane and more durable (IMF, 2004). The jury is still out however, as both the IMF itself and the academic field can’t agree about the outcomes produced so far and even about how much has actually changed in the IMF’s practices since the adoption of the new paradigm. These questions are now as relevant as ever. In 2007 the Fund seemed to be losing relevance and influence fast. Most countries that used to require help did not anymore due to a protracted period of economic bloom. After the global economic crisis of 2007/2008 however, their loans were needed
everywhere again and IMF funding was tripled to US$750 billion (Vetterlein 2015). Since then the IMF’s policy choices significantly impact the lives of millions of the world’s poorest people once again (Hibben, 2015:203)
Whether the Fund’s priorities and policies have changed significantly is still up for debate, but the rhetoric they employ about development has certainly taken a turn. Under the Washington Consensus the IMF was known for a narrow view on development, focusing strictly on goals such as GDP growth and macroeconomic stability and using measures such as fiscal and budget austerity, public sector layoffs and trade and capital liberalization. Since then the IMF has claimed to recognize the role of the state as a regulator, the downsides to high levels of inequality and the adverse effects of inadequate social protection policies (Kentikelenis, 2016; IMF, 2009ab; IMF, 2014). Poverty reduction has become an official goal (IMF, 2018a) and the official name for SAPs was even called the Poverty Reduction and Growth Facility between 1999 and 2009 (Griffiths, 2014; Hibben, 2015). However public statements and internal policy reviews are not the same as their practical policy and there is reason to doubt whether this supposed transformation has really happened and positively affected poverty outcomes.
1.1 Literature review and research question
Many academics and NGOs have challenged the IMF on their supposed change. Kentikelenis (2014; 2016) argues that the IMF still require the same amount and the same kind of
conditionalities as they did under the Washington Consensus, Vetterlein (2010) adds to this that “the social development agenda was never institutionalised within the organisation”. Oxfam
(2017) reviewed if IMF policy nowadays fights inequality and they found that the IMF falls short on that account. Güven (2014; 2018) argues that the IMF did adopt something like the PWC in the 2000’s but retreated from applying certain aspects of the PWC in the 2010’s.
On the other side there are those who defend the IMF. Clegg (2015) for instance finds that social spending targets in IMF conditionality have rapidly and near universally been implemented. The IMF itself has been critical of its past but claims to have seen the error of its ways and changed its approach to development. In multiple internal policy reviews it points out that its policies are much more poverty and governance focused than before (IMF, 2009a; IMF, 2009b; IMF 2014).
In short, three things about IMF policy are clear. Firstly, that IMF policy decisions still impact the lives of millions of the world’s poorest people. Secondly that the IMF claims to have changed its ways, moving away from the Washington Consensus and towards a view on development that incorporates sustainable growth and fighting poverty. And finally that in academic literature it remains unresolved to what extent the IMF has actually changed and how this supposed change has affected outcomes in poverty. This paper will try to address these gaps in academic literature by addressing the following research question:
Does the introduction of the Post-Washington Consensus in IMF policy reduce poverty? 1.2 Thesis structure
The rest of this thesis is structured as follows. The second section will contain the theoretical framework. This is divided in two parts: one concerning the Washington Consensus and one concerning the Post-Washington Consensus. This section will end with the formulation of the hypothesis. After this, in the third section, I will discuss the research design, which contains research methods, case selection, data and operationalization. The fourth section provides relevant background information on Ghana, the IMF and conditionality. The fifth section contains the results of the research and the analysis. This thesis will end with the conclusion and some discussion points.
2. Theoretical Framework
In order to to analyze and compare IMF policy we first need to examine its ideological
foundations. For the Washington Consensus that means establishing what its core principles are, how development under the WC is supposed to work and why many critics argue that it failed. For the Post-Washington Consensus that means establishing what its core principles are
2.1 Washington Consensus
Originally, the Washington Consensus referred to a ten point summary by John Williamson (1989; 1993) of policy
recommendations for development based on the views and practices at the time of
Washington international development officials and two Bretton Woods institutions, the IMF and the World Bank. Later on the term came to be used in another, wider, sense, to refer to a general orientation
towards market fundamentalist and neoliberal approach to development. In this approach
the goal is to develop by creating macroeconomic stability and economic growth. The means to this are varied but most share three common characteristics. A belief in the ‘invisible’ hand of the market, a belief in the rationality of economic actors and a minimalistic vision on states’ regulation of markets.
Government, in this view, is seen as an obstructor to the functioning of the market. As such, everything needs to be done to free the market and minimize government. This leads to reforms like trade and financial liberalization, privatization of state owned enterprises and restricting public expenditure. Proponents of this approach recognize that when implemented in developing countries these measures will usually lead to short term problems like
unemployment, a decrease in real wages and rising income inequality. However, they argue that in the medium to long term these problems will be resolved because the government will get out of debt and the economy will grow. In the end the benefits, in the form of job
opportunities and wealth, should trickle down to everybody. This is why under the WC there was a big focus on decreasing debt and GDP-growth (Naim, 1999; Lopes, 2011; Rodrik 2006;
Stiglitz, 2002).
2.2 What went wrong?
The Washington Consensus was applied by the IMF through conditionalities in Structural Adjustment Packages, or SAPs, between the 1970’s and the 1990’s in such diverse places as South-America, Africa and Asia. Over the years the IMF has received a lot of backlash over its
policies. The IMF is quick to remind critics that most borrowing countries experienced economic growth after implementing IMF programs. Although that is contested by some (Kiely, 2007; Lopes, 2011), most counter-arguments focus on other elements of development like health, education, inequality and poverty levels. What follows is a quick overview of all these elements.
The period of SAPs in sub-Saharan Africa in the 1980s was characterized by poor economic performance. GDP rose by only 1% between 1979 and 1992, compared to an average growth of 5% in East Asia where the state was much more active in industrial and social policies (Sahn et al., 1999). Many critics blame IMF conditionalities for this. For one, critics argue that many sub-Saharan African economies were opened to the international market too early and too quickly (Naim, 1999): a criticism for which they provide two reasons: firstly, that these economies were forced to compete in an unfair environment. Developed nations are able to subsidize their own agricultural sectors, driving down their prices and removing Africa’s comparative advantage of cheap production. The second one is that opening their own markets meant they were more vulnerable to the inherent fluctuations in commodity prices. This was especially problematic because for a lot of African countries their export relied mainly on one or two agricultural products. This can be clearly seen in how a drop in cocoa prices affected the Ghanaian economy in the 90s (Addo et al., 2010).
Education and health were generally affected by the same kinds of IMF policy, namely those to do with cutting government spending. The IMF usually set quantitative performance criteria that involved cutting government spending. Social spending usually was the easiest to cut. WC conditionalities almost never put in any safeguards against social spending
(Kentikelenis, 2015; Rowden, 2009; Rose, 2003).
Poverty could be affected very directly by structural reforms. The most clear cut way this has been observed is in rising unemployment figures (Odutayo, 2015). The rationalization and restructuring of government agencies and the divestiture of state owned enterprises can lead to massive layoffs. Of course the IMF hopes that these retrenched workers get absorbed by the private sector, but generally, at least in the short term, this led to increased poverty. Another way poverty could be exacerbated was through the rising cost of living. The removal of subsidies on agricultural production and devaluation of the currency can lead to prices getting higher for normal people (Lopes, 2011).
The overarching problem all critics have with IMF conditionality is the way they prioritize economic growth over all else. Everybody agrees that economic growth is important to
2.3 Post-Washington Consensus
In response to these criticisms the Post-Washington Consensus emerged as the new
development paradigm dictating policy in the Bretton Woods institutions. It is, however, much harder to define than its predecessor. It does not have a convenient list of policy
recommendations, one of its main points being that it offers a tailored approach to each
individual case, as opposed to the universal applicability of the WC. There are however certain defining features and specific goals that make it clearly different from its predecessor.
Yet before we can understand the ways in which the PWC is different, we must first understand the ways in which it is the same. The PWC is still in essence neoliberal and market-oriented. It advocates economic growth and budget restraints and emphasizes the role of the private sector in economic development. Privatization of state enterprises and trade
liberalization are still viable policies under the PWC.
The main two changes the PWC makes are the inclusion of institutionalism and the added goal of sustainable growth. This means the PWC is still market-oriented, but now recognizes that the market is not perfect and that the state has a role as a regulator. Instead of retreating from, the state is supposed to add to the market and create an environment where the market can flourish. The most important way to achieve this is found in institutionalism. The government should create institutions that create real economic stability, not just inflationary stability. In policy goals this means having a sound legal framework, property rights and good governance, limiting corruption and creating an equal playing field in the private sector. This different approach to the markets also affects other policies. Privatization, for example is no longer the default policy for all government enterprises and when opted for, it is not done as quickly as possible. Instead the goal is to increase efficiency within enterprises and, if and when privatizing, to have an eye open for actual competition. For trade liberalization it means that export diversification is promoted and that fragile sectors are protected in order to not be overwhelmed by other markets.
The second major change is the broadening of focus. The PWC includes sustainable growth and poverty reduction as core objectives. The idea is that poverty reduction is important in and of itself, but also that in order for growth to be long term it is very much necessary to invest in areas like education and poverty reduction. Reducing inflation, in other words, only gets you so far, without a healthy and educated workforce an economy will not grow sustainably (Stiglitz, 2001; Carrol 2012; Lopes, 2011; Rodrik, 2006).
On the basis of the theoretical framework there are several points we can expect. To start, we can expect the IMF to have adopted the PWC due to their own claims about this shift. Secondly, we have learned that IMF policy during the 1980s and 1990s has been widely criticized, among other things for its outcomes in poverty. That leads us to expect that poverty outcomes in the WC-era will be bad. Thirdly, that the PWC will produce better outcomes in poverty because it was designed to face its predecessors mistakes and even incorporated reducing poverty as a goal. That leads us to the following hypothesis (H1):
The IMF introduced the Post-Washington Consensus into its conditionality and this has led to better outcomes in poverty than Washington Consensus Poverty
To test this hypothesis there are three empirical observations that need answering. To start with, it is necessary to establish whether the IMF actually changed its policy to the according to PWC, or if this move was only rhetorical. Secondly, IMF policy needs to actually determine local government policy before it can have any impact. And last is how outcomes in poverty are affected. These three empirical observations can be formulated as questions:
1. Did the IMF change its conditionality policy when it adopted the PWC?
2. Does the IMF’s policy lead to different policy behaviour by recipient countries? 3. Does the different policy behaviour lead to better outcomes in poverty?
And visualized like this:
Post-Washington Consensus H1→ Better human development
1. ↓ 3.↑
Changing conditionality policy 2.→ Different spending behaviour by recipient country 3. Research Design
To answer the research question this thesis will employ a qualitative comparative case study that has the country of Ghana as a case and two distinct time periods as the elements of the comparison. This method is chosen as such for two reasons. The first is that most academic research about connecting recent IMF policy to poverty has been in the form of large
quantitative studies (Kentikelenis et al., 2014; Kentikelenis et al., 2015; Güven, 2018; Binder and Bluhm, 2017; Nooruddin and Simmons, 2006; Oberdebernig, 2013). There is of course
nothing wrong with this approach but it does leave a gap for another type of study. The second reason is that a comparative case study will allow for a more indepth tracing of the empirical observations under research here.
3.1 Case selection
Ghana is chosen as a pathway case because as far as Sub-Saharan African countries go, it is a priori most likely to have IMF programs succeed, while a lot of other West-African countries have seen some form of armed conflict or civil war, Ghana has remained politically relatively stable, has good infrastructure and is endowed with a lot of natural resources.
The two periods in Ghana that will be compared are 1987 to 1993 and 2009 to 2018. The first is chosen as such because during that time the Washington Consensus was at its prime. Although the IMF started dealing with Ghana in 1983, this would not be a good starting point. Ghana’s economy was in complete shambles at that time; inflation was sky high, there was a drought the previous year and Nigeria expelled 1 million Ghanaians back to Ghana. In response, the IMF’s program was nothing more than a stabilization effort to avert the crisis. 1987 serves as a better starting point because that year a new cycle of SAPs started that better represents the Washington Consensus (IMF, 1987; IMF, 1988). The year 1993 is chosen as the end-point because that is when another IMF program ended. As far as the second period is concerned one could argue that it should start somewhere in the beginning of the 2000s as that is when PWC is supposed to have been introduced. There are two reasons why this thesis will start later. The first is simply that more current events are more relevant and more interesting. The second is that Ghana did not have many dealings with the IMF in the mid-2000s, none actually between 2006 and 2008. After the global financial crisis Ghana has taken two very big loans from the IMF, this time called Extended Credit Facility, or ECF. The first of these was from 2009 to 2012 and the second one from 2015 to 2019.
3.2 Data and operationalization
Both periods will be divided in three parts that correspond with the three empirical observations mentioned in section 2.4. All three reflect a separate element of the analysis of this thesis and are tested differently. To examine IMF policy and test whether the policy from each period adheres to the (P)WC I will use the theoretical framework as benchmark. The data on IMF conditionalities comes strictly from IMF publications. To establish whether the Government of Ghana’s (GoG) policy is determined by IMF conditionality I will examine GoG policy concerning poverty in general, as well as to extent they implemented IMF conditionalities. The data for this
section comes from GoG policy frameworks and yearly IMF reviews. To test the poverty outcomes I will simply examine whether the statistics have gotten better or worse. Data for the first period is limited. The only real data on poverty in Ghana comes from sporadically done surveys done by the Ghana Statistical service (GSS). The second period uses these same surveys but has access other data as well, in particular data from the HDI programme of the UN. Unfortunately, in between periods the GSS changed the way they measure poverty. The poverty part of the HDI measures poverty again differently. Because of these unfortunate circumstance the comparison between periods will be partly judged in their own progression. It must be said that although they are not completely similar, they can still imply a general trend as the differences in definitions aren’t that big. To give slightly more depth the analysis will employ also the indicator of access to health and education services. Regional inequality is also used because it is specifically relevant to Ghana.
4. Background 4.1 Ghana
The Republic of Ghana is located in West-Africa along the Gulf of Guinea and the Atlantic Ocean. The country is richly endowed with a lot of fertile land and natural resources. Its main agricultural export product is cocoa, gold the main mineral export product and oil has been important as well since its discovery in 2007 and the start of its exploitation in 2011. With a GDP of $134 billion and GDP per capita of $4,700 as of 2017 it is one of the wealthiest countries of West-Africa. The population growth has been high for a couple decades making the average age of its 28,1 million inhabitants relatively young. Ghana is seen as a peaceful and politically stable democratic country and with an HDI of 0.592 rating 140 out of 189 countries.
Ghana’s natural resources make it a natural exporter of goods. Cocoa remains its most valuable export commodity, though gold and oil, after its discovery in 2007, add a lot of value as well. Of the workforce 40,9% work in services and 44,7% in the agricultural sector, though that sector only composes 18,3% of GDP. Most of the 24,2% of the population that falls below the poverty line live in rural areas. Regional differences have traditionally been very high. Rural areas generally have worse infrastructure, are poorer and have less access to health and education services.
After its independence from the British in 1957 Ghana has seen multiple coups, but, contrary to most other countries in the region, almost no military conflicts. The British had left
independence could not be maintained. In the 1960s and 1970s the economy went way down and inflationary pressures mounted as high as 100%. Economic mismanagement, corruption, droughts and unfavorable terms of trade are usually mentioned as reasons for the downturn. The situation became so dire in the beginning of the 80’s that in february of 1983 the
government felt forced to call in the twin Bretton Woods ‘doctors’, the IMF and the World Bank. (CIA- World Factbook, 2019; Konadu-Agyemang, 2018)
4.2 IMF and conditionality
The IMF was created alongside the World Bank in 1944 at the Bretton Woods conference. Originally the Fund was “charged with overseeing the international monetary system to ensure exchange rate stability and encouraging members to eliminate exchange restrictions that hinder trade.” (IMF, 2018). Providing capital for short balance of payment issues was also part of their mandate since the beginning. The overall goal was to create a worldwide macroeconomic environment that was stable and beneficial to growth. In the 1970s their mandate changed as they started to examine economic policies of countries that had loan agreements to check if their problems were due to economic fluctuations or economic management. This is the point that conditionality comes in.
By conditionality we refer to the policy change conditions that the IMF requires a
recipient country to make in order to qualify for a lending arrangement. The rationale behind IMF conditionality is that countries in fiscal crisis need reforms in order to return to a situation of macroeconomic stability and growth. Conditionality comes in the form of Structural Adjustment Packages, or SAPs, and cover a wide range of policy areas, that are not always linked to the IMF’s core competencies. Usually a loan deal will be accompanied by a letter of intent and Memorandum of Economic and Financial Policies, or MEFP. In theory both of these will be drafted and sent by the government of the borrowing country, but in practice the IMF’s own Independent Evaluation Office found that 84% of Fund staff recognize that the first draft of the MEFP usually is prepared by IMF staff (IEO, 2007). The SAPs usually consist of two types of conditionalities. First are the quantitative performance criteria which are a set of macroeconomic performance targets a government is meant to meet. Second are structural conditions. These refer to concrete policy reforms and are divided into a binding form, called prior actions, and a non-binding form called structural benchmarks. Although not binding, the latter form is still important as it does influence the reviews of government performance that is required to qualify for any subsequent loans.
In the 1980s and 1990s the conditionalities under the Washington Consensus were a hot topic and received a lot of criticism for their intrusiveness and bad results in social development. Public and academic scrutiny died down a bit as the IMF promised to change its practices and poverty reduction became part of its official mandate. In 1999, the SAP’s official name was even changed from the Enhanced Structural Adjustment Facility, or ESAF, to the Poverty Reduction and Growth Facility, or PRGF (IMF, 2013). By the mid-2000s IMF lending was at its lowest point since the 1970s but that changed after the global financial crisis of 2007/2008. Conditionality became a hot topic again as the IMF saw a boom in lending and their budget tripled to $750 billion (Reinhart and Trebesch, 2016; Griffiths and Todoulos, 2014). In 2009 the Fund changed the name for its facilities for Low Income Countries (LIC) again, this time to the Extended Credit Facility, or ECF.
5. Analysis
The analysis section of this thesis is structured as follows. The two periods of the comparison, 1987 to 1994 and 2009 to 2018, are discussed separately. Both periods are divided in three parts. The first part will discuss IMF conditionality, the second focuses on the GoG’s policy behaviour and the third on outcomes in poverty levels.
5.1 IMF conditionality in Ghana 1987-1994
In this period Ghana took out two loans or Enhanced Structural Adjustment Facilities (ESAF) with the IMF. The first one started in 1987 but was cut short and replaced by the second one in 1988, which was extended until 1993 (IMF, 1987; IMF, 1988; IMF, 1990). In total the IMF loaned out more than $600 million dollars to Ghana during this period.
5.1.1 IMF conditionality in Ghana 1987-1993
The IMF’s publications on the ESAFs of this period show us that there were dozens of conditionalities that the GoG was required to followed. Most of these concern topics like debt management and are not very relevant to poverty. In order to still give an overview of these programs, there are two tables below that contain the core objectives most important structural reforms.
Core Objectives:
1. Achieve GDP growth
2. Keep inflation as low as possible 3. Create balance of payments surplus Most important reforms:
1. Remove about 45,000 staff from payroll and implement a hiring freeze 2. Identify 30 state enterprises for sale
3. Improve cost effectiveness of public financing of education - Attain full cost recovery through book user fees for secondary students
Core objective and selected conditionalities from 1991 ESAF (IMF, 1991)
Core objectives:
1. Achieve GDP growth
2. Keep inflation as low as possible 3. Create balance of payments surplus
1. Not a core objective but mentioned as an additional goal: a more equitable distribution of the benefits of adjustment and growth, as well as improving further the social infrastructure
Most relevant structural adjustment policies:
1. Divest at least 25 additional state enterprises, including some large enterprises in the gold and diamond mining sector
2. Removal of another 12,000 staff from the payroll
3. Complement the macroeconomic policies by implementing measures to further improve the climate for private investment
4. Measures to diversify Ghana’s export base
5. Improve the cost effectiveness of supply of pharmaceuticals - Implement requirement that health institutions pay for drugs received from ministry of health
6. Enforce ceilings on maximum affordable staff on Education Service - Maintain book and feeding fees at secondary schools
As one would expect these facilities check almost all of the boxes of the WC. The core
objectives are consistently purely economic in nature, signifying the overall tone of the reforms: development is seen as an economic problem to be solved with GDP growth. The specific structural reforms reflect this as well. There are too many discuss all of them here, but some that might affect poverty levels are discussed.
The most obvious one is that the GoG was required to reduce its payroll, initially by 45,000 and later by another 12,000 people. The retrenchment of so many government workers is bound to increase unemployment numbers and by extension poverty levels.
government enterprises. As mentioned in the theoretical framework, such measures have a high probability to increase poverty levels, al least in the short term. The reasoning is that
rationalization and privatization usually lead to mass layoffs. It is important to note that it is possible that such measures can be necessary to make enterprises viable and profitable but the effects are only felt, if ever, over the long run.
Next are trade liberalization policies. Ghana was influenced to reduce tariffs and have more export friendly exchange rates. These have the risk that infantile markets will get flooded by cheaper and/or better products from overseas.
To cut spending, the IMF prepared several policies that were to do with the removal of subsidies or the introduction of fees, both of which generally make the cost of living higher. There are two in particular that stand out in this regard. First is the introduction of a fee on books for secondary school students. The goal here is of course to make education costs more viable, but a byproduct of this measure is that it makes education more expensive to receive and will prevent poorer people from getting schooling. Second is the removal of a subsidy for fertilizer. This policy could have two effects that might affect poverty. First is that it could make agricultural production more expensive for local farmers, making them less competitive on an international market. Second is that, by extension of the first effect, the costs of living will go up for the local populace.
5.1.2 Ghana policy behaviour 1987-1993
The way IMF SAPs worked in this period made them hard not to comply with. Most countries were desperate for funding and the IMF had strict rules. Loans were not given out in whole but released in yearly parts, on the basis of performance and binding criteria. Actual denial of releases was rare but the threat always loomed. As such, one would expect that any country would let the IMF determine its policy significantly. The question at hand is thus if Ghana did this as well: did IMF policy determine GoG policy? The short answer to this is yes, but with a few notable exceptions. What follows is a more detailed rundown of how Ghana followed IMF policy and in which ways Ghana set its own policy.
In a 1990 review the IMF commends the GoG for implementing rigorous reforms across many sectors, notably in its exchange rate policy, reforms in the cocoa agricultural sector and reducing overall government spending (IMF, 1990). The only exception is that the GoG was slow in the divestiture of a couple of government enterprises. This specific 1990 review
implemented, except for those to do with divestiture of government enterprises where they are marked as not fully implemented, delayed or failed.
Another point about the relation between IMF policy and GoG policy is about budget for social policies and the so-called 'PAMSCAD' (the Programme of Actions to Mitigate the Social Costs of ADjustment). One would expect that the tight budget constraints imposed would force the GoG to cut social spending considerably. It was certainly the case that they had to fire a lot people in the education and health services and one might expect some bad consequences from that fact, but it turns out that, on the whole, government spending on social sectors (including health, education and community development) rose during this period. Additionally, in 1987 the GoG, in collaboration with the IMF and the World Bank, launched PAMSCAD. The name of the program is quite telling about the way of how things were going. This was a large program designed to alleviate extreme poverty. It is notable to mention this because it signifies both that the GoG made efforts to alleviate extreme poverty and that the IMF was not blind to the effects of its own policies.
In summary we can say that the GoG certainly followed IMF policy, except for the notable exception of the divestiture of government enterprises. That social spending did not decrease and PAMSCAD shows however that the GoG prioritized social sectors with what little policy space left to them.
5.1.3 Outcomes in poverty 1987-1993
Data on poverty levels in Ghana during the 1987 to 1993 period is limited. All academic research and poverty reports that concern this period rely on the Ghana Living Standard Surveys (GLSS) done by the Ghana Statistical Service who did surveys in 1987, 1988 and 1991. Though limited, these surveys paint a picture that poverty worsened during this period. This fact is surprising because GDP did grow consistently during the same period.
In the 1987 the GoG, the IMF and the World Bank acknowledged that the SAPs were inflicting huge social costs on Ghanaian society. In response they prepared and funded PAMSCAD together in January of 1989, designed to mitigate the costs of development and improve the living conditions of the extreme poor in Ghana. They were right to acknowledge this because poverty was very high and seemed to remain so at least between 1987 and 1988. PAMSCAD has received a lot of criticism for not being very effective (Herbst, 1993: 148-150), which is understandable if you see that poverty had actually risen by 7,5% between 1988 and 1991.
1987 42,6
1988 42,3
1991 49,8
(Source: rounds 1,2 and 3 of GLSS)
Poverty levels on their own, however, do not tell the whole story: there other factors that can give us insight about development in Ghana. One such a factor is the GDP, which grew between 1987 and 1993 from $5,025 billion to $5,966 billion. This something the IMF usually presents as a great success, and rightly so, but the combination with the mentioned
observations of poverty levels also implies that growth was unequally distributed because poverty rose during the same period, something that was reflected in the statistics as well (World Bank, 1995). Unemployment reduced slightly, despite massive layoffs in the public sector (World Bank, 1995). This implies that the private sector absorbed most people and gained in importance, as the IMF intended.
One of the biggest problems Ghana traditionally has to face is regional inequality. The country is divided in a mostly rural north and a more urban south, where the capital Accra is located. The rural parts have had much higher poverty, unemployment and access to health and education services numbers. This divide deepened between 1987 and 1993. This can be
explained by both the IMF conditionalities and the GoG’s behaviour. Neoliberal WC policies emphasized capital and export. This served raw GDP growth for sure, but it also forced capital flows and public investment to mainly go to places where it would serve export products, i.e. the urban areas and good farm land areas of the south (Awanyo and Attua, 2018).
Summary first period
In summary we can conclude that the IMF’s dealing with Ghana during the 1987-1993 followed lines that could be expected for this particular part of IMF history. The conditionalities put forth by the IMF followed many defining characteristics of the WC like divestiture of state enterprises, trade liberalization and a neglect of social policies. The GoG was forced to follow the
conditionalities as best they could, although it should be noted that they tried to keep their funding of social sectors as high as possible. The structural adjustments led to consistent GDP growth, but this did not end up improving poverty levels. Poverty even increased slightly
between 1987 and 1992 and regional differences within Ghana became even bigger.
Ghana’s story between periods was one of more dealings with the IMF and ups and downs. In the rest of the 1990s the economy grew consistently, but remained very unstable in other areas. GDP growth stayed somewhere between the 4% and 5%, but inflation and public debt surged. Poverty remained at high levels, though slightly lower than reported in 1992. In 2001 the GoG entered a new joint World Bank/IMF Heavily Indebted Poor Countries Initiative, that focused more on inclusive growth. The mid 2000s were a good time, poverty fell considerably and school enrollment increased to almost full coverage. It was during this time that flagship programs such as Livelihood Empowerment against Poverty (LEAP) and the National Health Insurance were set up. Regional inequalities persisted though as the rural north remained much poorer. 86% of the country’s poor lived in rural areas. Ghana exit from the IMF in November 2006 was greeted with high hopes and expectations, as many believed that Ghana could finally achieve its ambitious goals now that it finally was out of the IMF’s snares. The discovery of oil in 2007 was a welcome bonus. These dreams were cut short by the global financial crisis of 2008. The budget deficit ballooned to about 14.5% of GDP against a 2007 figure of 9,2%. Starting in 2009, Ghana was again forced to seek help from the IMF (Addo, 2010).
5.3 The IMF and Ghana 2009-2018
5.3.1 IMF Conditionality in Ghana 2009-2018
The 2009 to 2018 period can be split in two separate programs. First was the Extended Credit Facility (ECF) from 2009 to 2012. In 2015, only three years after the termination of the first ECF, Ghana felt forced to again turn to the IMF. According to the Fund itself this was due to bad public sector management, specifically a pay raise for government staff preceding an important election (IMF, 2015a). The next ECF started in 2015 and is at the time of writing still ongoing. A quick reminder: the expectation here is that IMF policy during this period will adhere to the PWC, meaning a focus on sustainable growth, good governance and sound institutions. To examine this I will use the initial conditionalities from these two ECFs as well as some others that were added in intermittent yearly reviews.
The conditionalities that the GoG was required to follow seem to only partly follow the PWC. There are definitely many aspects that divert from the conditionalities examined in the first period, but arguably also as many that have not changed that much. Asides from this, there also are some structural reforms in key areas like social development and good governance that are not present at all.
The IMF has shown to be concerned with good and transparent governance, something that was not present before. In both ECFs there are many conditionalities that are focused on
good governance, an example is one from 2009 where Ghana is required to create guideline to strengthen communication between government agencies (IMF, 2009c), and transparency, for example the fact that the 2015 ECF contains an entire subset of conditionalities to do with fiscal parliamentary oversight (IMF, 2015a; IMF, 2015b). It was expected that some anti-corruption measures would be introduced (Kentikelenis, 2015:558) but these are not present.
There appears to be a new approach to state enterprises as well. Instead of selling them, the IMF suggest reforms for a few specific enterprises. There are still some agencies that need to be sold but now they need to go by parliament first.
The IMF shows a new approach to institutions and the role of the state. This can be best illustrated by a new subsection of conditionalities called ‘Financial sector legal reforms,
regulation, and supervision’ (IMF, 2015b) in which there are several benchmarks that require the GoG to reform parts of their central bank and other financial institutions. This includes measures to equal the playing field in the financial private sector, for example a measure to be more forthcoming to all businesses about tax administration and information about taxes.
There are also elements that appear to not have changed at all when compared to WC-era policy, some of which were expected to remain whereas other are more surprising. Policy adhering to the PWC is still concerned with reducing public debt and the budget deficit, so it not surprising that the IMF required the GoG to spend less (IMF, 2009c).
One of the most surprising elements of both of the ECFs is the way they treat the public sector payroll. They require the GoG to implement a complete hiring freeze on new staff, which also happened under the WC. This is surprising because this includes staff in social sectors like education and health. Ghana traditionally has had trouble in providing these kinds of services, especially to rural areas. This measure stands out even more in light of the absence of any other conditionality concerning health, education or poverty. That the IMF wanted to reduce Ghana’s budget deficit was to be expected, but the PWC is supposed to promote sustainable growth in addition to economic growth. A counterpoint to this is that in the Quantitative
Performance Criteria there is a new criterion that prescribes a spending floor social policies. As such it could be argued that the lack of conditionalities in the social sector is explained by the IMF trusting the GoG to handle that part. If this would be so the IMF's strategy would be undercut, however, by the strict conditionalities about the budget deficit and the hiring freeze.
The focus on pure economic growth is emphasized by the overall tone of all the reports and reviews, which concerns itself solely with macroeconomic stability, inflation, debt
especially with regards to good governance and institutions. It also leaves out several important principles of the PWC, however. Where we would expect sustainable growth and poverty reduction to be included, they are surprisingly absent in the conditionalities of both ECFs.
5.3.2 Ghana policy behaviour 2009-2018
The goal of this section is to determine whether IMF policy determined Ghana’s policy. The short answer to is yes, but only to a limited extent in the area of social policies.
During the course of both ECFs Ghana consistently met all of the quantitative targets and indicative targets concerning structural adjustments, except for one: reducing the budget deficit (IMF, 2011; IMF, 2016; IMF, 2018). This combined with the fact that the IMF did not intervene in social policies highlights the most significant aspect of GoG behaviour during this time and that is their unwillingness to cut in their social spending.
Seven thematic areas of the GSGDA II:
● Ensuring and sustaining macroeconomic stability; ● Enhanced competitiveness of Ghana’s private sector;
● Accelerated agricultural modernisation and natural resource management; ● Oil and gas development;
● Infrastructure and human settlements development; ● Human development, employment and productivity; ● Transparent and accountable governance.
(GSGDA II, 2014)
If we look at the GoG’s own policy frameworks for development and growth (GSGDA I, 2010; GSGDA II, 2014; IMF, 2011; IMF, 2016; IMF. 2018b) we see this clearly reflected. On a side note: all the hallmarks of the PWC are represented in these policy papers: human
development is prominently on the agenda, macroeconomic stability is still considered
important, the government has a role as a regulator and should complement the private sector and there is an eye for good governance.
Over the whole period Ghana maintained high spending in social sectors but there are cases where the opposite proved to be true. The most harsh example happened in 2009. Due to the hiring freeze mentioned in the previous section and overall budget constraints, education and health services were hit hard. The National Health Fund received 40% less funds compared to 2008 and GETFund, a project designed to enhance public education, received no
disbursements in 2009 (Addo et al., 2010).
5.7 Outcomes in poverty 2009-2018
For this period, data is not as limited as before; the main source of data on poverty in Ghana are still GLSS surveys done by the Ghana Statistical Service but there are other sources now as well, like reports and HDI data from the UN Development Programme. In general the trend seems to be that poverty is going down, though this decline seems to be stagnating. Between 2009 and 2017 Ghana experienced a very respectable average GDP growth of 7% (GSS, 2018:1). Regional differences remain a problem.
Ghana has come a long way since the 90s and is set to reach the Millenium
Development Goal of cutting extreme poverty in half as one of the few Sub-Saharan African Countries(UN, 2015). Both the GLSS surveys and the poverty part of the HDI reflect this, as can be seen in the tables below..
UN data: Working poor at PPP$3.10 a day (% of total employment)
1991 1995 2000 2005 2010 2011 2012 2013 2014 2015 2016 2017 72,2 63,8 52,6 44,2 35,1 31,3 29,3 28,1 27,4 26,8 26,3 25,7
(UN, 2018b)
GLSS7 data: Index of Poverty, Poverty line = GH¢1,314.00 (% of population
2005 2012 2017
31,9 24,2 23,4
(GSS, 2018)
GLSS7 data: Index of Extreme Poverty: Poverty line = GH¢792.05 (% of population)
2005 2012 2017
16,5 8,4 8,2
(GSS, 2018)
Note: the difference between the UN data and GLSS data can be explained by the differently set poverty line. The GLSS poverty line translates to roughly half a dollar a day for extreme poverty and slightly more than a dollar a day for poverty.
2018) shows that progress between 2012 and 2017 has been kind of stagnant. Other figures from this time reflect this as well. Access to health services (GSS, 2018:45) and education services (GSS, 2018: 51) only increased marginally as well.
The regional difference noted in the first period have not gone away (The World Bank, 2015). The rural north is still underdeveloped compared to the south. Especially the Greater Accra region has made massive jumps in all poverty indicators, while some parts of the country have seen stagnation and some parts of the north have seen decline. This could be explained by the same mechanism noted in the first period; neoliberal policies emphasize investments in areas where capital and export products are more abundant (Awanyo, 2018).
5.8 Discussion of results and summary
After an analysis of the first period, concerning IMF policy, GoG behaviour and poverty
outcomes, it was found that IMF policy adhered to the Washington Consensus, which influenced GoG policy a great deal, which led to reasonable economic performance but bad outcomes in poverty. How does the second period compare to this?
IMF policy showed some continuities and some markedly different approaches: it only followed the Post-Washington Consensus partly. As expected, the conditionalities still put an emphasis on macroeconomic stability and reducing the budget deficit. The IMF added good governance as a measure. The lack of conditionalities concerning poverty or any other social policies is very surprising as poverty reduction is supposed to be one of core elements of the PWC.
The GoG followed IMF conditionalities for the most part, only failing to reduce its budget deficit by as much as was required. Over the whole period they tried to maintain high spending on social policies but were limited by budget restraints, arguably enforced by the IMF,
considering, for example, the hiring freeze conditionality.
Ghana experienced a remarkable decline in poverty since the 90s. The last couple of years this decline appears to be stagnating though. The effect of IMF policy in this regard is ambiguous. We can surely credit the IMF partly for Ghana’s decent economic performance, but at the same time it seems like the IMF’s restrictions on the GoG budget played a part in the stagnation of the decline in poverty in recent years. If you add to this the fact that the IMF had no structural reforms concerning any social sector, it looks like the IMF had negative effect on poverty and only an indirect positive effect through overall economic growth.
The thesis set out to study whether the introduction of the Post-Washington Consensus in IMF policy and conditionality leads to better outcomes in poverty. In academic literature there is no consensus on the transition of the IMF from the WC to the PWC has truly happened, nor on the current effect of IMF policy on poverty. The goal of this thesis thus has been to add to the debates surrounding these topics by doing a comparative case study of Ghana. An expected WC-period was compared to an expected PWC-period on three aspects: IMF conditionalities, Government of Ghana policy and outcomes in poverty.
In the first period it was found that IMF policy very closely adhered to the Washington Consensus, which determined GoG policy to a large extent. This led to poverty overall
becoming worse and the deepening of regional inequality between 1987 and 1992. IMF policy in the second period only partly reflected the characteristics of the PWC. The market-orientated approach was expected to remain from the WC and the newfound focus on good governance was expected as well. The disregard for social policies was not expected at all. Over the whole 2009-2018 period the poverty figures were decent, and when compared to the previous
decades fantastic even. After 2012, the decline in poverty stagnated though and the role of the IMF here is ambiguous. On one hand the IMF contributed to good economic growth in this period, but on the other hand it could be argued that their lack of social conditionalities and budget restraints did nothing to help reducing in poverty in Ghana.
In conclusion, on the basis of this case study of Ghana we can state three things. Firstly, the IMF has not adopted the PWC in its entirety. Secondly, IMF policy nowadays contributes to poverty reduction by facilitating economic growth, and not by facilitating social policies. And finally that Ghana has a bright future, if the trends in economic growth and poverty reduction of the last two decades continue.
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