Adnan Adams Mohammed
The government is likely to receive International Monetary Fund’s (IMF) approval before end of first quarter this year.
The Fund’s recent comment gives high hope to Ghana as it makes headway with the Domestic Debt Exchange programme.
In its Sub-Saharan Africa Macroeconomic Update released last month, the country has made significant progress on the Domestic Debt Exchange Programme, a key condition for the $3 billion Balance of Payment support from the Fund. Financial experts have therefore predicted that Ghana would soon receive a Board approval.
“The first thing I should say is that, the IMF Executive Board approval will happen in the coming weeks”, Senior Country Risk Analyst at Fitch Solutions based in London, Mike Kruninger said in an interview.
Subsequently, the Governor of the Bank of Ghana (BoG) Dr. Ernest Addison has shown high optimism that, the debt stressed nation, Ghana, will secure a deal by first quarter of 2023 dependant on the finalization of the Domestic Debt Exchange Programme(DDEP) with all bond holders as well as creditors to support the country’s International Reserves.
“We are confident that by the end of the first quarter, we should be able to get a disbursement from the IMF to help augment the foreign-exchange resources of the central bank”, Dr. Addison said at press briefing after Monetary Policy Committee meeting.
Mr. Kruninger, however warned that should the approval fail to happen in quarter one of 2023, investor sentiments will remain weaker in the coming months, putting additional pressure on the cedi.
“So in the first quarter of 2023, should this not happen, we will be expecting investor confidence to remain rather weak in the coming months which will put additional pressure on the exchange rate. So in that case, the currency will depreciate further more significantly than we currently anticipate”.
Mr. Kruninger added that “so what will happen in that instance is inflation will remain much higher for much longer. And this will then weigh on incomes, it will weigh on overall private sector activities”.
He concluded that Ghana’s growth rate will then be weaker than the 2.9% it projected.
“So in this instance the economic wealth will become much weaker than the 2.9 percent that we are currently forecasting”.
IMF deal would improve Ghana’s external position, restore investor sentiment
Fitch Solutions had earlier said an IMF deal would help improve Ghana’s external and fiscal positions, restoring investor sentiment and easing pressure on the exchange rate.
It indicated that the government would make greater progress on fiscal reforms under an IMF deal.
“We believe that an IMF deal would improve Ghana’s external and fiscal positions, restoring investor sentiment and easing pressure on the exchange rate”.
Ghana’s fiscal metrics had deteriorated significantly since 2020, due to weak revenue inflows and high-interest expenditures, with its budget deficit narrowing only slightly to 8.6% of Gross Domestic Product (GDP) in 2022 (from 9.3% in 2021), much wider compared to the 10-year pre-pandemic average of a 4.9% deficit.
“Under an IMF programme, we expect that the government would make greater progress on fiscal reforms as the authorities seek to meet the targets to regain market access”, it pointed out
Ghana is expected to reach an agreement with its creditors, both domestic and eternal bond holders over plans to restructure the country’s debt to sustainable levels.
The government is also expected to publish the Auditor General’s report on the Audit of COVID-19 spending undertaken from March 2020 to June 2022.
This is expected to ensure transparency and accountability of the COVID-19 emergency spending.
The country is also expected to implement an upfront weighted electricity tariff of 30 percent, excluding lifeline.
The GETFund, Road Fund, and District Assemblies Common Fund will start reporting on Provisional Budget in Hyperion at disaggregation level to use all the functionalities of GIF and MIS for spending execution , including allotment, issuance of payment warrant and actual payments.
Another Pre-Condition needed, is enacting legislations or Executive order to achieve the 2023 fiscal target of an adjustment of the Non-Oil Primary Balance of at least 2 percent of GDP.
Government must also achieve revenue measures which will permanently improve Non-Oil Revenue to GDP ratio by at least 1.2 of GDP.
It is believed that these measures will ensure a front loaded and credible fiscal adjustment in order to restore fiscal and debt sustainability.
Dr. Addison announced that the Bank of Ghana has already rolled out measures that are expected to assist the commercial banks to deal with the potential risk that the Domestic Debt Exchange Programme poses to the banking sector.
This includes: Reduce the Cash Reserve Ratio on Domestic Currency Deposits from 14 to 12 percent. It has also reduced the Cash Reserves Ratio on Foreign Currency Deposits from 13 to 12 percent.
He indicated that, the High Regulatory Reliefs will help deal with the Capital and Liquidity issues that have come about as a result of the debt exchange programme.
He also announced that the Bank of Ghana has put in place a separate liquidity arrangement for the Commercial Banks, to support their operations.
Dr. Addison disclosed that the Financial Stabilization Fund will be capitalized at 1 billion dollars. The World Bank has already promised some 250 million dollars to support the fund.
The Governor indicated that the programme if it is well implemented may go a long way to impact positively on the country’s international reserves, the cedi’s stability and interest payments by government.
Responding to a question on when inflation could get back to the single digit range, Dr. Addison noted that, the central bank is projecting that inflation would return to the target band within the next four years.
