Adnan Adams Mohammed
As the government keeps assuring Ghanaians of reaching a deal with International Monetary Fund (IMF) before end of 2022, Fitch Solutions thinks otherwise.
The global financial institution maintains that, Ghana will only reach a staff-level agreement with the IMF by the first quarter of 2023.
This will mean that the country could secure a programme from the Fund by the end of quarter 1, 2023 or the second quarter of 2023. However, in its latest paper on “Division within Ghana’s Ruling Party to Weigh on Political Stability”, the international research firm also said should the Finance Minister, Ken Ofori-Atta, be replaced, negotiations with the IMF would likely remain largely unaffected.
“While Ofori-Atta remained opposed to an IMF bailout – we believe that he would take a more accommodative approach towards negotiations with the Fund. As such, we believe that a change of finance minister would most likely not impact the timeline of IMF negations and we would retain our view that a staff-level agreement will be reached in Q123 [quarter 1, 2023]”, Fitch Solutions intimated in the paper.
Consequently, as the government places all its hope on the IMF funds to ensure availability of foreign currency (U.S dollar) to help strengthen the local currency, the delay in reaching agreement will likely worsen the current worsened economic situation in the country.
This has been confirmed by the paper as it stated that; “Worsening living standards amid rising consumer prices – inflation reached 40.4% year-on-year in October 2022, the highest reading since 2001 – and tighter monetary conditions have led to a 72.7% quarter-on-quarter increase in protests and riots across in quarter 3 2022. The country has also seen large industrial action in recent months, including a three-day retail strike in Accra in October [2022]”.
Fitch Solutions also expects inflation to remain elevated in the months ahead.
“Given that inflation is primarily driven by currency weakness, we expect price growth to remain elevated in the months ahead. Indeed, significant capital and financial account outflows caused by weakening investor sentiment will continue to weigh on the currency”.
“Our view is further informed by the fact that previous periods of significant exchange rate weakness in Ghana all lasted roughly 12-14 months, suggesting that the cedi will continue to depreciate into quarter 1, 2023 (the current sell-off started in January 2022). This will keep inflation high, weighing on living standards and eroding support for the government”.
