News Guide Africa

Tag: International Monetary Fund (IMF)

  • Cedi gains big…now world’s best-performer

    Adnan Adams Mohammed

     

    Soon after the approval of a $3 billion Extended Credit Facility Arrangement for Ghana by the International Monetary Fund (IMF), the Ghanaian currency the cedi has become the world’s best performer against the dollar over the past six months.

     

    It has advanced 33% since November 2022, the biggest gain among about 150 currencies, reversing some significant losses, according to Bloomberg data.

     

    The cedi strengthened for a fourth day, on bloomberg platform to 10.73 per dollar as at press time on Friday, May 19, 2023. Bank of Ghana as at close of May 18, 2023, a $1 was trading at GHC10.82 and it was trading at Stanbic as $1 to GHC11.0. Also, Ghana’s dollar bonds have delivered a strong performance, providing investors with a return of almost 12%, more than the 3.6% average for emerging and frontier peers in a Bloomberg index.

     

    “..The cedi is likely to see gains in the coming days, to trade at levels below 10 against the dollar,” said Daniel Kavishe, an Africa economist at Rand Merchant Bank, in a note to clients on the back of positive sentiment as Ghana government receives the first tranche of bailout money.

     

    “A similar reaction has been seen in other markets that have received an IMF programme that has coincided with an immediate disbursement of funds.”

     

    The IMF funds will help restore Ghana’s foreign-exchange reserves which have dropped by nearly 50% from a peak in August 2021 as the central bank used them to help ease the pressure on the cedi, which came under significant selling pressure after the country defaulted on its debt, Kavishe said.

     

    The local currency lost about 8.7 percent in value to the US dollar since the beginning of the year.

     

    Prior to the announcement of the fund’s approval as hinted by Dr Amin Adams, a minister of state in charge of finance on Friday, May 12, 2023, the cedi recorded relative stability, trading around  ¢11.9 to a dollar since late March 2023.

     

    The cedi gained further grounds on May 16, 2023 to sell at ¢11.78 to one dollar. It has since March 2023 recorded stability against the world’s most important currency.

     

    The same story can also be said about the pound and then euro. The cedi is going for ¢14.90 and ¢12.97 to the pound and euro respectively.

     

    Investors were cautiously optimistic that Ghana would get the IMF deal approval during the second quarter, without ruling out a May approval per government’s indications.

     

    “Immediately on Friday [May 12, 2023], we saw that reflected in the Ghana cedi performance as the local currency gained 1.0% on Friday alone. The gains have continued into this week as the market expect the approval this week, roundly today, as communicated by government officials”, Economist Courage Martey, , told Joy Business.

     

    “So, in sum, yes, the recent run appreciation of the Ghanaian cedi is due to the latest positive news effect from IMF programme approval”, he added.

     

    Meanwhile, many analysts are worried about the spread between the buy-side and the sell-side.

     

    “It appears the buy-side is falling faster than the sell-side and this is widening the spread. Essentially, traders want to buy the US dollar very cheap but are not willing to sell too cheap”, Mr. Martey pointed out.

     

    “This means that the appreciation of the cedi is not yet supported by any strong improvement in economic fundamentals, but rather on sentiments and news effects”, he added.

     

    Subsequently, the Forex Bureau Association of Ghana is predicting further gains by the cedi in the coming days. According to the association, the local currency is witnessing some stability owing to the announcement of Ghana securing a US$3 billion Extended Credit Facility from the IMF.

     

    Prior to the approval announcement, the Vice President of the Association, Dr. Alex Akpabli said members of the association were hopeful a successful deal will shore up the value of the cedi.

     

    “As we speak, most businesses are struggling and therefore if the funds come it will boost more confidence in our economy. I think it will be good news for all of us. We as bureau operators are only praying that the good thing happens”.

     

    He added that Ghana’s economy will soon bounce back once the funds is credited to the Bank of Ghana’s account.

     

    “Ghana’s economy will be sound and robust. Therefore if it happens, as we are all praying that we secure this $3 billion loan from the IMF, I think it will help businesses”.

  • IEA takes on govt for snubbing fiscal adjustment but pursuing debt restructuring as advised by IMF

    Adnan Adams Mohammed

     

    The Institute of Economic Affairs (IEA) is dismayed at the snobbish attitude of government towards  the fiscal adjustment advice from the International Monetary Fund (IMF) in order to reach a debt sustainability level.

     

    The  government is only focusing its attention on the debt restructuring with less concentration on the fiscal adjustment, yet, both were advised by IMF, the Institute alarmed.

     

    Although the government has managed to force it way through to complete the Domestic Debt Exchange Programme, but IEA fears the government’s attempt to close it ears on any advise for it to cut down expenditure (especially on its appointees and unnecessary projects), could prolong the commitment and assurance of the Paris Club and G-20 Members to give an assurance for a debt restructuring.

     

    “I look at the language that the IMF is using in their communique. The IMF is saying that there should be a combination of fiscal adjustment and debt restructuring to get to the sustainability level. But it looks like our government is not prepared to do much of the fiscal adjustment which CSOs have made concrete proposals”, Director of Research at IEA, Dr. John Kwakye juxtaposed. “Such deliberate neglect for fiscal adjustments is the bane of the economy.”

     

    He added that a debt restructuring with fiscal discipline would not result in sustainable debt management and thereby advised government to implement the numerous fiscal adjustment proposals made by CSOs to help revive the economy.

     

    “This government since last year when it started negotiating with the Staff of IMF, keeps telling Ghanaians they are very close. But if you examine the situation carefully the date keeps changing”.

     

    Dr. Kwakye suggested that one of the reasons for the delay could be the signals sent by government, on the Finance Minister’s refusal to embark on fiscal adjustment.

     

    Meanwhile, IMF’s Africa Department Director, Abebe Selassie, has padded Ghana government at the back as he believe Ghana has taken the tough economic decisions needed to win a rescue package from the Fund.

     

    In a space of four months, the government has increased taxes and imposed losses on domestic investors, in attempt to meet IMF demands for the $3 billion loan. Currently on an informal talks with bilateral lenders, though it has dragged on.

     

    Ghana has “done all of the prior actions that were expected of them for the program,” Selassie said in an interview. “They’ve done a really, really difficult domestic debt restructuring exercise. The country now needs to get the resources required to support reserves.”

     

    Bilateral lenders, including China, are now expected to set up a committee to start formal negotiations with Ghana in the next few days. First on the committee’s agenda will be a written commitment to provide relief to the West African nation, paving the way for the loan from the IMF.

     

    “Provided we have the financing assurances, we would go to the board very quickly after that,” Selassie said. “So within the next three, four weeks. That’s the key hurdle for us.”

     

    The talks are taking place under the Group of 20’s so-called Common Framework, which expands the Paris Club of sovereign creditors to include China and other nations. Just under a third of Ghana’s bilateral debt, $1.9 billion, is owed to China. That is just a fraction of the nation’s 575.7 billion cedis ($50 billion) of public debt at the end of November.

     

    Five days after a surprise interest rate hike to a record 29.5% on March 27, parliament passed a bill to raise an additional 4 billion cedis ($353 million) in revenue this year. That was after a previous 250 basis points increase in value added tax to 15%.

     

    The fiscal measures and restructuring of cedi-denominated liabilities will help the West African economy lower its public debt to 71% of gross domestic product by 2028, Finance Minister Ken Ofori-Atta said in a presentation Thursday. The IMF has said it needs be on track to drop to 55% by that year to qualify for support. Before the government’s interventions, it had been projected to reach 109%.

     

    “There’ll be burden-sharing all around,” Ofori-Atta said. “If you join us in this, you really will help us build a robust economy and come back and be able to resume our partnership with you and the markets.”

     

    The adjustments and latest tax increases are taking a heavy toll on Ghanaians. Millions, like Esther Annan, a street vendor in the capital, Accra, have seen their living standards drop as inflation soars.

     

    The mother of six took out a micro loan to fund her cloth and bed-linen business in January but has now missed weekly payments after local demand dried up and interest rates soared.

     

    “I play cat-and-mouse games with the lenders because there is no money to pay them,” she said. “The interest on the loans has become so high.”

     

    Local lenders, which were the most exposed to the domestic debt, are now expected to skew credit to sectors that can readily pay while those needing it most miss out, said Richmond Atuahene, an analyst at Salman Partners and Financial Consult Ltd. in Accra.

     

    The latest tax increases are “an additional cost and if industry can no longer bear it, it will be compelled to cut costs, including labor and output,” said Humphrey Kwesi Ayim-Darke, president of the Association of Ghana Industries. “Small and medium-sized companies, manufacturing and agriculture are going to be hardest hit because of their high risk premium historically.”

     

    A slowdown in credit growth and an expected drop in consumer spending could decelerate economic expansion this year, according to three economists surveyed by Bloomberg.

     

    “The downside risks to the government’s 2.8% real GDP growth target for this year have increased on the back of the tightened monetary policy stance,” Mark Bohlund, a senior credit research analyst with REDD Intelligence, said.

     

  • Fitch, IEA discount gov’t use of COVID-19 and Russia/Ukraine war as excuse for economy woes

    Adnan Adams Mohammed

     

    Ghana’s economic collapse cannot solely be blamed on COVID-19 pandemic and the Russian/Ukraine war, Fitch Solutions has discounted government’s overused excuse.

     

    It explains that, even before these external shocks hit the global economy, Ghana’s debt was above the sustainable level as measured against the International Monetary Fund’s threshold of debt to Gross Domestic Product ratio of 70 percent and below.

     

    The international investors’ research firm argued that, Ghana went back to the international capital market in early 2021 in desperation for cash. This attracted investors to take advantage of the sweet rates Ghana was selling its Eurobonds, and led to investors oversubscribing Ghana’s bonds which later resulted in currency sell off, after which the country started witnessing symptoms of hiding chronic economic disease of escalating exchange rate and inflation since early 2022

     

    “I think the answer is, it’s been aggravated by the Covid-19 pandemic and the war in Ukraine. Those two are not the only cost to Ghana’s woes”, Senior Country Risk Analyst, Mike Kruiniger, responding to a question at a recent Sub Saharan Africa Macroeconomic Update event said. “Both external and internal shocks caused the macroeconomic imbalances in the country.”

     

    “Ghana’s debt servicing costs were already rising pretty rapidly prior to the pandemic with the government having to work on pretty large scale of spending projects including restructuring of the banking sector and providing free secondary education to everyone in Ghana”, he explained.

     

    Mr. Kruiniger also blamed the high borrowing on the international capital market as one of the country’s problems.

     

    “Ghana went back to the international capital market in early 2021, with this seamless desperation for cash. Investors started to flood the country which led the currency to sell off and after that, we’ve seen all the problems that Ghana has been facing since early 2022”.

     

    He concluded that though the Covid-19 and the Russian Ukraine war have contributed to Ghana’s crisis, they are not only the reasons behind Ghana’s economic challenges.

     

    Meanwhile, the Institute of Economic Affairs pointed that indiscipline in managing the country’s finances have caused the high fiscal deficits and consequently high inflation and currency instability, forcing innocent Ghanaians and businesses to pay for the mismanagement.

     

    The think-tank expressed it worry in a paper published and titled “Institutionalising Fiscal Discipline and Macroeconomic Stability for Sustained Growth in Ghana: The Constitutional Pathway.”

     

    Lead Researcher at the Intitute, Dr. John Kwakye, noted that Ghana has a long history of fiscal indiscipline and this is evident in its fiscal deficits being almost consistently higher than those of its peers in Africa.

     

    “Our deficits tend to escalate in election years when we elevate election-related spending. Then we borrow to finance the deficits and cause our public debt to escalate to unsustainable levels. We have been in that situation numerous times. Our debt reached the first crisis situation around 2004, when it ballooned to over 100% of GDP”.

     

    “We had to seek relief under the HIPC Initiative, which caused the debt-to-GDP ratio to drop to a sustainable level of 26% in 2006. Thereafter, we returned to our culture of fiscal indiscipline, which caused the debt to rise yet again. And today, the debt-to-GDP ratio is back to an unsustainable level of over 100%”, he explained.

     

    He added that the country must do everything possible to safeguard or institutionalise fiscal discipline under the constitution, else it will always record macroeconomic instability.

     

    Also, associated with the high fiscal deficits has been high inflation and currency instability, which the IEA called for immediate action.

     

    According to Dr. Kwakye, Ghana has had much higher inflation rates than its peers, adding, the cedi has experienced much higher depreciation over the years.

     

    Again, he said “government domestic borrowing to finance the deficits has elevated interest rates to levels that have crowded out the private sector, inhibiting investments and stifled economic growth. High fiscal deficits and the associated demand pressures have also spilled over to the external sector, leading to high current account deficits”.

     

    The economist opined that, prevalent fiscal indiscipline and its associated macroeconomic instability, and over-borrowing to spend on goods and services are what have taken the country to the IMF about 17 times.

     

    “We have been caught up in an unending cycle of high fiscal deficits, high interest rates, high inflation, high current account deficits, rapid exchange rate depreciation, and unstable growth. It is our prevalent fiscal indiscipline and associated macroeconomic instability and debt crises that have taken us to the IMF seventeen times”.

  • IMF satisfied with member countries reporting transparency

    Adnan Adams Mohammed

     

    The International Monetary Fund (IMF) has shown its satisfaction to the reporting transparency and compliance levels of member countries, including Ghana.

     

    The Fund indicated that its policy advice and surveillance to member countries have become increasingly transparent.

     

    Data from the Fund revealed that, 98% of the countries published a statement providing the IMF Executive Board’s assessment of the member’s macroeconomic and financial situation in 2020, and 95% of members published the IMF country report. Also, 98% used IMF financial resources to publish the reports, and 97% published additional documents, such as a country’s letter of intent and memoranda of economic and financial policies. About 93% published their technical memoranda of understanding.

     

    “By being open and clear about its policies and the advice it provides to member countries, the IMF contributes to a better understanding of the organization and makes it easier to hold it accountable” the Bretton Wood institution in its newest  report titled “Transparency at the IMF”, the Fund juxtaposed.

     

    “Transparency by IMF member countries helps their economies function better and makes them less vulnerable to crises. By being open, member countries encourage public discussion and examination of policies, enhance accountability and credibility, and contribute to efficient and orderly functioning of global financial markets”, it added.

     

    The IMF said its staff regularly reviews policies and procedures to improve the IMF’s effectiveness.

     

    It explained that recent reviews include the role of trade in the IMF’s work, how to improve IMF policy advice, the effectiveness of the Financial Sector Assessment Program (FSAP), and evenhandedness of IMF advice.

     

    Again, it said an Independent Evaluation Office (IEO) evaluates IMF policies and operations, working independently of IMF management and at arm’s length from the IMF’s Executive Board.

     

    The IMF said it maintained various channels of communication with the public about its work. It continuously publishes reports, policy analyses, country data, financial information, and Executive Board decisions on its website.

     

    These are explained to the public through various digital formats including blogs, podcasts and videos.

     

    Through social media, the IMF added, it communicates key aspects of its operations and decision-making process.

  • Gov’t to shift focus to fiscal stability in IMF support… as negotiation progresses

    Gov’t to shift focus to fiscal stability in IMF support… as negotiation progresses

    Adnan Adams Mohammed

    The International Monetary Fund (IMF), in renewed effort to progress the stalled negotiation towards reaching a deal with Ghana has indicated that, the focus of support might shift from Balance of Payment to ensuring fiscal stability.

    According to the fund, it is possible to change the terms of support request of the government to better suited terms that solves the current challenge the economy faces. It thereby indicated that increasing revenue mobilisation is critical for debt sustainability while safeguarding social spending.

    The Fund has noted that, although it is premature to comment on the final form the financing programme for Ghana will take, In its latest Frequently Asked Questions (FAQ), said the Executive Board will decide the level of access (credit amount) and the final programme design. It further reiterated that the goal of the government’s economic programme, which would be supported by IMF financing, is to restore macroeconomic stability and ensure debt sustainability, support the credibility of government policies, restore confidence in the central bank’s ability to manage inflation and rebuild foreign exchange reserve buffers to make the economy more resilient to shocks.

    “Specifically, in the fiscal sector, an important policy objective would be to increase revenues, critical for debt sustainability while safeguarding spending on health, education, and social protections”, the Fund posited.

    A staff team, led by Stéphane Roudet, mission chief for Ghana, is visiting Accra from December1 to 13, 2022, to continue discussions with the authorities on the country’s post-COVID programme for economic growth and associated policies and reforms that could be supported by a new IMF lending arrangement.

    Ahead of the visit, Mr Roudet said: “We have had productive discussions with the Ghanaian authorities over the last few months and look forward to our engagement in Accra”.

    “Our objective for this visit is to make further progress toward reaching agreement on policies and reforms that could be supported by an IMF lending arrangement”.

    “The IMF remains fully committed to help Ghana restore macroeconomic stability, bring relief to Ghanaians in this time of crisis, and lay the foundation for more inclusive growth.”

    In Ghana’s 2023 budget, Finance Minister Ken Ofori-Atta said the government and the IMF have agreed on programme objectives, a preliminary fiscal adjustment path, debt strategy and financing required for an extended credit facility programme to be in line with the government’s Post-COVID-19 programme for Economic Growth (PC-PEG).

    The PC-PEG is the government’s blueprint to restore macroeconomic stability, promote debt sustainability, sustain economic recovery and support structural reforms.

    Updating the house on the negotiations so far, Mr Ofori-Atta said: “Mr. Speaker, since the government announced its engagement with the International Monetary Fund for a supported programme on July 1, 2022, we have made “substantial progress”.

    The Fund, he said, has assured the government of its “strong commitment and support in these difficult times”.

    On whether Ghana needs debt restructuring, the Fund said when an IMF member country requests financing, the Fund assesses whether the country’s policies are consistent with debt sustainability.

    This assessment is based on a Debt Sustainability Assessment (DSA) conducted jointly by the IMF and World Bank to determine whether the government is able to meet all its current and future payment obligations.

    The last DSA published in the 2021 Article IV Staff Report concluded that: “Public debt was sustainable conditional on a rigorous and credible implementation of the authorities’ medium-term consolidation plan to put debt on a declining trajectory and ensure continued market access.

    In their recent 2023 budget statement, the government assessed the public debt as unsustainable over the medium term. In this regard, the government has announced its  intention to conduct a debt operation to ensure debt sustainability.

    The Fund said “we welcome the authorities’ intentions to implement policies that will ensure the sustainability of public finances. However, the nature of engagements and debt operations between Ghana and its creditors are sovereign decisions”.

  • Social spending, Free SHS among IMF’s priorities in bailout support

    Social spending, Free SHS among IMF’s priorities in bailout support

    Adnan Adams Mohammed

    In the wake of increased call on government to scrap or review the Free Senior High School (Free SHS) program, as the country’s expenditure keeps outweighing revenues contributing to the current economic woes, the International Monetary Fund (IMF) think otherwise.

    Although, the Fund has noted that, it is too early to make any pronouncement as the negotiation is yet to climax but it can assure that, some social intervention programs will be protected.

    “We are still at an early stage in the discussions” with Ghana for a programme, “we believe that the free Senior High School (SHS) is an innovative policy that needs to be protected”, the Bretton Wood institution said in its Frequently Asked Questions (FAQs) page about its ongoing negotiations with the government of Ghana for a $3-billion Extended Credit Facility programme. “In general, IMF-supported programmes seek to boost social spending while encouraging both efficiency and sustainability.”

    “The IMF-supported programme would aim at protecting the vulnerable and creating conditions for an inclusive growth”, the Fund noted.

    Meanwhile, the Fund recently issued a statement in which it said a deal with Ghana would be announced as soon as feasible following their last visit to the West African country.

    An IMF team, led by Stéphane Roudet, met during October 11-19 in Washington, DC with Ghana’s Finance Minister Ofori-Atta, Bank of Ghana Governor Ernest Addison and their teams, to continue discussions on a possible IMF-supported programme.

    At the conclusion of the meetings, Mr. Roudet issued the following statement: “The Ghanaian delegation and IMF staff had very fruitful discussions on the authorities’ post-COVID programme for economic growth and associated policies and reforms that could be supported by a new IMF arrangement”.

    “We made good progress in identifying specific policies that would restore macroeconomic stability and lay the foundation for stronger and more inclusive growth.

    He said: “The IMF team and the Ghanaian authorities remain fully committed to reaching agreement on a framework and policies for an IMF-supported programme as soon as feasible”.

    “Discussions will continue in the weeks ahead, with a follow-up mission to take place expeditiously.”

    FAQs

    What are the next steps in the discussion for an IMF-supported economic reform program? What is the possible timing for an IMF programme?

    Following several visits in recent months to engage with the authorities on their homegrown reform program and broader stakeholders’ consultation, a Ghanaian delegation visited Washington, DC to continue discussions on policies and reforms that could be supported by an IMF lending arrangement.

    The Ghanaian delegation and IMF staff had fruitful discussions on the authorities’ post-COVID program for economic growth and reforms that could be supported by a new IMF arrangement. The teams made good progress in identifying specific policies that would restore macroeconomic stability and lay the foundation for stronger and more inclusive growth.

    The discussions will continue in the weeks ahead, with a follow-up mission to take place expeditiously.

    Can the IMF confirm reports that Ghana is seeking a three-year Extended Credit Facility programme of about $3 billion?

    The Extended Credit Facility (ECF) is the Fund’s main tool for medium-term support to countries facing protracted balance of payments problems, similar to Ghana’s. The duration of such arrangement is between 3 to 4 years and extendable to 5 years. Ghana requested a similar arrangement in 2014 and which lasted 4 years. However, the level of access and the final programme design is ultimately decided by the IMF Executive Board. Since negotiations for the programme are starting now, it is too early to comment on the final form the programme will take.

    Why is Ghana requesting an IMF programme?

    Ghana’s fiscal and debt vulnerabilities are worsening fast amid an increasingly difficult external environment. During the COVID-19 pandemic, Ghana’s public debt increased from 65 per cent to 80 per cent of GDP.

    At the same time, the government’s fiscal efforts to preserve debt sustainability were not seen as sufficient by investors, leading to credit rating downgrades, non-resident investors exit from domestic bond market and loss of access to international capital markets.

    These adverse developments, further exacerbated by the price and supply-chain shocks from the war in Ukraine, have led to a large exchange rate depreciation, a surge in inflation (29.8 per cent year-on-year inflation in June) and pressure on foreign exchange reserves in the past months. In this context, the government has requested assistance from the IMF, and we have kick-started the initial discussions on how to best address Ghana’s challenges. An IMF-supported programme aims to provide space for Ghana to implement policies which will restore macroeconomics stability and anchor debt sustainability while protecting the most vulnerable parts of the population. It should help create the conditions for inclusive and sustainable growth and job creation. This will help strengthen policy credibility, alleviate exchange rate pressures, and provide catalytic effect on financing.

    What type of programme is Ghana eligible for?

    The IMF’s various lending instruments are tailored to different types of balance of payments need as well as the specific circumstances of a member country. See the IMF Lending webpage for different types of BOP need and the available instruments.

    We are discussing with the ministry of finance and the central bank about the type of facility that would best fit Ghana’s needs. By way of background, the previous arrangement in Ghana was a three-year ECF in 2015-2018, which was extended by a year to April 2019.

    Is a programme the result of the spillover from the war in Ukraine?

    The war in Ukraine has triggered a global economic shock that is hitting Ghana at a time when the government’s room for manoeuvre is already greatly limited. The shock compounds other pressing policy challenges, including debt vulnerabilities, the COVID-19 pandemic’s social and economic legacy, and the ongoing tightening of global monetary policy conditions which increases the cost of international borrowing.

    What will be the objectives of an IMF programme with Ghana? The goal of the government’s home-grown programme, which would be supported by IMF financing, is to restore macroeconomic stability and anchor debt sustainability, support the credibility of government policies, restore confidence in the central bank’s ability to manage inflation and accumulate foreign exchange reserves to help the currency withstand headwinds.

    Specifically on the fiscal sector, an important policy objective would be to increase revenues, critical for debt sustainability while safeguarding spending on health, education, and social protection.

    Does Ghana need debt restructuring? When will a new Debt Sustainability Assessment (DSA) be published?

    When a member country requests financing from the IMF, the Fund assesses whether the country’s policies are consistent with debt sustainability. This assessment is based on a Debt Sustainability Assessment (DSA), conducted jointly by the IMF and World Bank, to determine whether the government is able to meet all its current and future payment obligations. The DSA is forward-looking and considers steps being taken by the member to ensure sustainability over the medium term.

    In cases where a country’s debt is assessed as unsustainable, the IMF is precluded from providing financing unless the member takes steps to restore debt sustainability, including by seeking a debt restructuring from its creditors.

    The IMF and World Bank still need to conduct a thorough update of the debt situation through a new DSA, which will then be presented to our Executive Board when it considers the authorities’ programme request.

    As background, the last DSA published in the 2021 Article IV Staff Report concluded that: “Public debt was sustainable conditional on a rigorous and credible implementation of the authorities’ medium-term consolidation plan to put debt on a declining trajectory and ensure continued market access.” Will the programme result in cut in the free senior high school programme, or other flagship social programs and infrastructure projects?

    We are still at an early stage in the discussions, but we believe that the free Senior High School (SHS) is an innovative policy that needs to be protected. In general, IMF-supported programmes seek to boost social spending while encouraging both efficiency and sustainability.

    As discussed above, the IMF-supported programme would aim at protecting the vulnerable and creating conditions for an inclusive growth.

  • Ghana’s US$3bn IMF bailout to be approved in Q4 – Fitch Solutions

    Ghana’s US$3bn IMF bailout to be approved in Q4 – Fitch Solutions

    Adnan Adams Mohammed

    Fitch Solutions has predicted that the International Monetary Fund (IMF) will approve the US$3 billion balance of payment (BoP) support package for Ghana in the 4th quarter of this year.

    The financial support which is expected to come in tranches, according to Fitch, at least US$1.0 billion dollars may be released to Ghana government by the end of the first quarter of 2023.

    Finance Minister, Ken Ofori-Atta, early last month revealed that, Ghana could get about US$3 billion from the IMF higher than the initial US$1.0 billion dollars the government wanted.

    “An IMF financial package of US$3.0 billion, which we expect to be approved in quarter 4, 2022, should alleviate pressure on Ghana’s external position in 2023”, Fitch Solutions foretold last week in its latest report on the country dubbed “Ghana’s Private Infrastructure Investment Set For Medium-Term Recovery”.

    “Ghana’s weak external position to strengthen on expected IMF deal, despite a widening balance of payments deficit caused by large financial account outflows, we believe that an expected IMF deal will help to support Ghana’s external position in 2023”.

    However, some analysts believe a Fund programme will not be approved until at least the end of quarter one, 2023.

    This is because the Fund is yet to conduct a Debt Sustainability Analysis (DSA) on Ghana’s debt.

    In the first quarter of 2022, capital and financial outflows increased by 188.7% year-on-year to $690 million, driven by net portfolio reversals and outflows of Foreign Direct Inflows.

    Combined with the country’s current account deficit, Fitch Solutions, said this has resulted in an overall balance of payments deficit of US$934 million in the first quarter of 2022, as against a deficit of $430 million in quarter one, 2021.

    “We expect net capital flows to remain in negative territory over second-half of 2022, given deteriorating investor sentiment towards Ghanaian assets, as reflected by the currency sell-off and rising bond yields. At the same time, Ghana is unable to tap international capital markets to finance the deficit, and this is putting downward pressure on its foreign exchange reserves, which have fallen to $7.7 billion in June, from $9.8 billion in January [2022].”

  • IMF’s Country rep defends mixed assessment of Ghana economy in July 2021

    IMF’s Country rep defends mixed assessment of Ghana economy in July 2021

    The International Monetary Fund’s Resident Representative to Ghana, Dr. Albert Touna-Mama, defended his outfit’s mixed assessment of Ghana’s economy during the July 2021 Article IV consultations, which said Ghana’s economic outlook was improving.

    Speaking on the Citi Breakfast Show,

    Dr. Touna-Mama, explained that the assessment that preceded the dire economic downturn in Ghana was based on projections.

    Ghana has now turned to the IMF for support.

    Such assessments are “made on a forward-looking basis, and we take into consideration the plans and policies that the authorities want to put in place to address whatever vulnerability,” he said.

    The IMF had noted, among others, that Ghana’s monetary policy stance was “broadly appropriate.”

    The IMF also welcomed the fiscal adjustments envisaged in the 2021 budget, while stressing that fiscal consolidation was needed to address debt sustainability and rollover risks.

    Dr. Touna-Mama conceded that there had been drastic changes on the global scene.

    “Last year there was still a debate globally on whether the amount of fiscal stimulus push by bigger economies, the US specifically, would generate inflation.”

    Since then, he said that “it has become clear, inflation is a factor and will remain with us for a long time.”

    He also noted red flags started to appear after the 2022 budget was revealed by the government.

    “That budget was really scrutinized given the direction and whether Ghana would be able to address those vulnerabilities.”

    After the 2022 budget statement, he recalled that Ghana’s Euro bond spread widened and “investors started requesting a higher premium in order to lend to Ghana.”

    “This was a signal that the direction they were seeing in the budget was unfortunately not convincing for them,” Dr. Touna-Mama added.

    This notwithstanding, he said the government was given a more blunt warning about the pitfalls ahead for Ghana’s economy last year.

    While the Article IV consultation features diplomatic wording, Dr. Touna-Mama said, “the report that we [the IMF] leave with the top policymakers is very candid and very direct.”

    Ghana’s economy has faced turbulent times in 2022, with inflation reaching a 19-year high of 29.8 percent.

    The cedi has also been regarded as the worst performing currency against the dollar after depreciating over 20 percent in 2022.

  • IMF Discussion: Govt’s fear is data reconciliation and disclosure – Economist

    IMF Discussion: Govt’s fear is data reconciliation and disclosure – Economist

    Adnan Adams Mohammed

    As Ghana has begun a crucial discussion with the International Monetary Fund (IMF) for debt management and policy credibility, an economist has intuited that, many government officials fear the aspect of data reconciliation and disclosures.

    The renowned economist with University of Cape Coast (UCC) urged government not to give in to the negative attitude of some fear government officials who fear the reconciliation and full disclosure of data, especially on procurement, and therefore advocating against the IMF program.

    Government of Ghana started IMF Program Discussion, last week, seeking ‘a balance of payment support’ as part of a broader effort to quicken Ghana’s build back in the face of challenges induced by the Covid-19 pandemic and, recently, the Russia Ukraine crises.

    But, speaking to an Accra based radio station, Top Fm, last week when the economist was asked about what could be some details about the IMF discussion with the government, he said, there will be economic and financial data reconciliation and full disclosures with the involvement of the Ghana Statistical Service, Ghana Revenue Authority and Bank of Ghana.

    “Given the pronouncement by some key government officials in the past, it suggests that not all of them may like the decision, especially when disclosures will be required on many issues”, Prof John Gatsi, Dean of the Department of Finance at UCC, posited when asked about how he sees the commitment and unity of purpose of government officials towards IMF program. “Data credibility and transparency will be the starting point  of the formal  discussion with the IMF.”

    He added that starting an engagement with the IMF  and discontinue can signal  more doubt about economic management leadership and package the economy as risky to associate with.

    He said  any divided commitment to the discussion will isolate Ghana as confidence and policy credibility  will diminish further.  

    As he indicated that a lot may unfold this week as there is no prior engagement with stakeholders before the announcement, it is difficult to conclude whether or not the purpose of going to the IMF is in line with the real problem.  

    Prof. Gatsi explained that the problem of the Ghanaian economy is more of debt distress with contagion effect hence debt restructuring maybe what is needed but the outcome of the engagement with the IMF team will conclude on that.

  • Going to IMF or not will depend on our domestic ability to repay our debt – Fmr. Fin Minister

    Going to IMF or not will depend on our domestic ability to repay our debt – Fmr. Fin Minister

    Adnan Adams Mohammed

    A Former Finance Minister has indicated his upbeat about unlikely situation where government could default in settling its maturing debts.

    The finance and economic expert warned that the worst thing that could happen to Ghana at this point as the economy strives to rebound will be to default on debt repayments and therefore admonishing the government to take drastic measures to help tame any unlikely situation of such.

    Bank of Ghana at the May MPC press briefing announced that, Ghana’s total public debt stock as of March 2022, was US$ 55.1 billion or GH¢391.9 billion. In Dollar terms, the debt dropped by over $3 billion in the first 3 months of the year, from $58.4 billion in January to $55.1 billion in March.

     But, responding to a question on whether Ghana needs to go to the International Monetary Fund (IMF), the minister noted that the priority of government should be on ensuring that it doesn’t default on its debt repayment.

    “I would sound a note of caution and it’s that the worst thing that could happen to us is to default. Given the fact that our turning to the domestic market to finance the budget is not working out as planned because of the auction shortfalls and the rest”, Seth Terkper, said during a dialogue session on the state of the Ghanaian economy hosted by the former Finance Minister, on the theme “Inflation, Exchange rate and budget challenge: which way out ?”.

    Mr. Terpker posited that, government now needs to take drastic measures if it doesn’t want to return to the Bretton Woods institution.

    “They need to come out with a homegrown policy. My only worry is that despite the mention of a homegrown policy by government agents I have not seen it. It may exist internally. If it exists in the budget then the markets don’t have any confidence in it. We, therefore, need to do something very drastic on our own, which will be laudable.”

    The total debt stock within the first 3 months of this year increased by about GH¢40 billion, from GH¢351.7 billion in January 2022, to GH¢391.9 billion in March 2022 mainly due to the depreciation of the Cedi against the US Dollar.

    The high debt levels, and high-interest payment realities of the country, coupled with other issues such as downgrades by rating agencies, have seen the country locked out of the Eurobond market. Some have charged government to go to the International Monetary Fund (IMF) to pave the way for Ghana to return to the markets.