Why Low-Income Economies Subscribe To IMF Bailout

 There are factors attributed to shortfalls in low-income economies to which we must avail ourselves to. It is even more important in the face of emerging global financial difficulties that are also affecting developing countries in diverse ways.

These difficulties could also emanate from domestic, external, or both origins, and it is imperative to address them within the right economic context to enable us to understand fully the dynamics.

Domestic factors that contribute to an IMF bailout include – inappropriate fiscal and monetary policies, which can lead to large economic imbalances (such as large current account and fiscal deficits, and high levels of external and domestic debt, which aggregate to form the public debt)

An exchange rate fixed at an inappropriate level can also erode competitiveness, and investor confidence, leading to persistent current account deficits, and erosion of national reserves; a weak financial system, thus creating economic busts. Political instability and/or weaker institutions could also trigger crises by worsening economic vulnerabilities. These are the triggers.

External Factors include shocks, ranging from natural disasters and wars to large swings in commodity prices. These are common causes of low economic downturns, especially in low-income countries, where they have the limited capacity to prepare for such shocks and are predominantly dependent on a narrow range of export products. Ghana falls within this category.

In an increasingly globalized economy, sudden changes in market sentiments result in capital flow volatility, and even countries with sound economic fundamentals could be severely affected by the impact of natural disasters, and war in other countries. The Russian -Ukraine war comes to mind.

The COVID-19 pandemic and this Russian-Ukraine war exemplify a major external shock affecting many countries across the globe, and scrutiny justifies why countries will need a financial bailout.

Ideally, Ghana’s intention to go for an IMF bailout is predominantly borne out of external factors. There is a global dimension to that move, more when many economies have either been affected by repercussions of the COVID-19 pandemic or the Russian-Ukraine war. That is the crux of this economic downturn with its global financial manifestations, out of which Ghana has not been spared.

No country deliberately induces economic problems that will eventually affect its people, and it must be explained within these global perspectives as the world is witnessing today.

To rise to economic flaws, our government is using all the prudent means to overcome the challenges, the survival of businesses, and the sustainability of our social life through food, clothing, and shelter.

We just have to hope and pray that this crisis will not lead to an increase in taxes because it could affect economic growth, and regaining our strength will be difficult.

It will take some time to get out of this economic problem, that is why we should not subject ourselves to the subplot of entrepreneurs of doom who used propaganda economic slides to explain this global financial difficulty.

Out of our simple humanity let us get together and deal with this fairly obvious truth, that there is a global financial crisis, and that Ghana is not an isolated case study.

It shall be well, it is just a matter of time.

source:newsghana.com.gh  

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